Loyalty programms
Attracting new costumers is much more expensive than keeping current ones. That is why businesses have been investing more and more in customer retention. Examples of loyally programs abound:. Airlines, hotels, retailers, etc... Rewards can be own products or services, cash, gifts etc...
Loyalty programs are based on basic behavioral psychology. If you want to increase the frequency of a given behavior (in our case purchasing your products) you must reward this behavior. Numerous lab experiences have been conducted to identify the reward pattern that will optimize the frequency of repetition of the desired behavior versus the cost of reward. The idea is of course is to minimize the rewards offered and maximize the repetition of the behavior. Experimental psychology suggests a random / unpredictable pattern of access to reward will maximize the repetition of the desired behavior. In business this implies companies should reward their customers in a surprising / unpredictable fashion.
A sense of entitlement is very quickly established. Loyalties program often become sources of frustration rather than satisfaction. E.g. complaints about difficulty to redeem airway miles. This is an additional advantage of an unpredictable reward pattern. Customers do not perceive they have a right to receive the reward. It remains the prerogative of the company offering it.
Loyalty programs' main objective is often data mining. E.g. retailers can now track individual customers' behavior. It was impossible before the loyalty cards. In the case of retailers loyalty cards customers "sell" their privacy for discounts.
Loyalty programs are now so common that in most categories they are not a competitive advantage anymore but a requirement to stay in the market.
The liabilities of loyalty programs are very significant now. e.g. 700 billions USD worth of airlines miles outstanding... This is raises the issue of miles inflation.
Today companies tend to outsource these programs.