Loyalty program has not defined clearly by authors till now but loyalty programs can be defined based on its objectives. Shoemaker and Lewis, (1998) stated that loyalty programs are developed to attract customers and to build emotional attachment among them towards company and its products and services. Over a period of time, the importance of loyalty program has increased among various companies as today customer is the king of the market. Butscher, (2002) stated that the main objective of loyalty program is to build strong relationship with customers so that they will become loyal customers of company and will satisfy their needs and wants from company products and services. Today these loyalty programs are known differently in different industries like in hotel industry, loyalty program is known as guest frequent program, in airline industry, loyalty program is known as frequent flyer program whwreas in other industries it is known as customer club or bonus program and so on. Butscher (2002) stated that the main objective of all this program is the benefits offered from this program.
Based on membership, there are two types of customer loyalty programs like limited and open loyalty program. Limited loyalty program is not open for every customer. In order to become members of limited loyalty program, there is a formal procedure of paying joining fees for this program and most of the time; this type of loyalty program has certain criteria like minimum income of customer or minimum purchase volume of customer. Whereas on the other hand, open loyalty program is open for every customers of company. Open loyalty program does not have any formal procedure of joining nor it has any criteria for customers to become member of open loyalty program.
There are two types of benefits offered by customer loyalty program like hard or soft benefits. Hard benefits are basically tangible benefits that lead to savings for members of such loyalty program. Hard benefits are financial benefits provided by company in the form of discounts, coupons or rebates. Apart from this, soft benefits are benefits in the form of recognition or reward to customers which help customers to recognize their shopping needs and wants. Hard benefits can be easily imitated by competitors of company whereas it is very difficult for competitors to copy soft benefits of loyalty program provided by the company (Butscher, 2002).
Customers’ loyalty programs provide financial as well as non financial benefits to the company as well as to customers with the motive of making their customers more loyal towards its company as well as towards its products and services (Uncles Dowling and Hammond, 2003). The two main important objectives of developing loyalty among customers for the company are increased sales and creating strong relationship among its customers. O’Malley, (1998) stated that the main objective behind introducing loyalty programs are to reward and appreciate loyal customers of the company, to evaluate customers behavior and to get more and more information relating to changing needs and wants of their customers. Whereas Yi and Jeon, (2003) highlighted that the main objective of loyalty program is to create loyal customers with the help of reward program. Loyalty program aimed to retain customers by providing more and more satisfaction to them as well as by providing value added services to their customers.
Dowling and Uncles, (1997) has identified psychological benefits of becoming member of loyalty programs as well as accumulating points for their purchases of product and services from their company. Whereas Butscher, (2002) stated that the main objective of loyalty program is to develop emotional relationship among their customers that help companies to earn more benefits. Emotional benefits of loyalty program are developing relationship among customers, creating values to customers, knowing their needs and wants more effectively and so on. Apart from this, Butscher, (2002) stated that before customer decides to join any loyalty program they first compare their inputs with the output which they will receive after joining that loyalty programs. Inputs of customers include their joining and membership fees and output of loyalty program includes various benefits, image, and customer status and so on. Companies should ensure that there should be balance between inputs provided by loyalty programs and output of the members in order to make loyalty program more successful as well as to develop strong relationship among their customers.