Why Customer Loyalty Programs Can Backfire? - International Business Assessment

This article discusses the issue of customer loyalty programs backfiring and its impact on international business. It also explores various types of customer loyalty programs and their benefits.

International Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Article: Why Customer loyalty programs can backfire?........................................................3
CONCLUSION .............................................................................................................................11
REFERNCES:................................................................................................................................12
Books and Journals:..............................................................................................................12
Online:..................................................................................................................................13

INTRODUCTION
International management refers to a management of activities and operations in a
workplace serving markets and allocated business in more than one nation. It necessitates skills
and knowledge beyond normal way conducting business such as familiarity with domestic local
market, legal and financial environment, competitive conditions, the capability to do multi-
currency transactions and managing work cross boundaries. Managing business at international
level involves development of effective strategy, managing employees in a cross-cultural
environment and structuring an appropriate organizational design (Abou-Shouk and Soliman,
2021). Throughout such activities, organizations must tackle technical, bureaucratic, economic,
political, linguistic behavioural as well as cultural differences. Even if young ventures doesn't
pursue any global activities, a couple of global challenges may represents while competing
against as well as cooperating with a foreign organization in its own local market or easily
operations done in domestic community. The following assignment is based on the issue that is
shown up in an article of Harvard Business Review Magazine, 2021. The issue which is chosen
for this assignment is “Why Customer Loyalty Programs Can Backfire?” Customer loyalty
program refers to a marketing approach that identifies and rewards consumers who shop and
engage themselves with a brand on a recurring basis. This assignment will discuss on the
customer loyalty and customer loyalty programs that attract customers and build a strong
relationship with the brand (Albayrak and et.al., 2020).
MAIN BODY
Article: Why Customer loyalty programs can backfire?
This article is all about customer loyalty and its programs that is used by the
organizations to attract and increase its customer base. Customer loyalty programs delivers a
tremendous benefits to the business. It is understood by the article is that customers are moving
to such brands which offer perks, benefits or rewards rather simple just shop, pay and consume
the products and services (Alshamsi and et.al., 2020). It is found that customers are more likely
to engage themselves to such retailers, or visiting their official websites or store or mobile
application who offers a huge benefit to them. Also, they are likely to recommand the brand to
their families or friends.

Customer loyalty programs have exploded in popularity in now a days as organizations
look forward new methods and ways in order to keep their consumers repeatedly coming back.
Firms can turn a continuous purchase card or loyalty membership card into a powerful tool by
causing buyers to purchase with the brand and by promising a benefit or reward in turn for the
repeat shop. But, sometimes, it is seen that these loyalty programmes can backfire the company
if the customers do not touch the targets to qualify or select fir a reward are liable to keep it
against the brand and make fewer shops.
Customer loyalty is meant by the willingness of a customer to repeatedly return to a
brand to do business. This is typically because of the remarkable and delightful experiences that
have with a particular brand (Bi, 2019). One of key reasons to encourage customer loyalty is
because those consumers can support the business to grow and develop on a faster speed than its
marketing and sales can do. There are various reasons that customer loyalty is vital to success. It
is something all firms should aim by virtue of the presence. The point of beginning a for-profit
organization is to attract and hold the satisfied and happy consumers who shop the goods and
services to drive business revenue. From a workplace perspective, it is a strategy to promote
customers to repeatedly purchase from the business. There are range of various types of
customer loyalty programs such as refer-a-friend programs that provide consumer a discount if
their friend or relative signs-up or makes a shop, programs that offer free perks and benefits as
well as reward point programs.
A customer loyalty program supports a brand to develop and build powerful relationships
with the customers by rewarding them for purchasing goods or services. There are various
important advantages of having a customer loyalty program such as, customer loyalty
programmes build an emotional connection, loyalty programs encourage sakes and boost the
customer base for a life-time. On the most general level, that is completed through incentives.
The emotional connection can be built by loyalty programmes. Even so, a creative approach to
the offers made can do a lot. For instance, Nike Company, and its loyalty programmes.
Customers exploits branded app of Nike to access birthday rewards, exclusive goods and content
for customers, online workouts and offline event invitations. Customer loyalty programme by
Nike has been wildly booming (Bogdanović and et.al., 2021). It is seen that members likely
spend four times more than those customers who do not take any membership. It also helps to
reach new customers, loyal, happy and satisfied customers are one of the most strong marketing

tools. In the times of e-commerce and online review official company's websites, positive word
of mouth publicity by customers is imperative to attract a new customer base. It is researched
that 83% of the customers puts more trust in personal references and recommendations than any
other sort of marketing. In a study of McKinsey, it is found that customer referrals produce two
times sales than paid marketing. With a well-designed customer loyalty programme, a brand can
incentivise and gamify referrals, rewarding clients who invite new customers. Also, there is
impactful evidence to tell that referred customers are more loyal, have lower churn rates and
more profitable than non-referred clients (Gao and Huang, 2021). At long last, although
acquiring customers has been costly, if the brand have strong customer loyalty programmes and
advocacy system, increasing client base has never been inexpensive. Retain current customers,
it is also seen that loyal customer likely to spend more approximately 68% than new clients. This
thing cannot be ignored by the businesses. Also, acquiring new customers could cost higher than
retaining the existing ones. Even in tough situations, customers of loyalty programmes can
generate more value to the company. Also, they main benefit of customer loyalty programmes is
that the brand can do more to hold the customers coming back and investing more. Loyalty
programmes deliver customer insights, customer loyalty programmes should be designed to
provide increased benefits to the clients, but also to the firm as well. Digitizing reward
programme means a firm can look on the practical facts about customer engagement with the
loyalty programmes and the company as a whole. Access to the data, the firm is enabled to create
effective and innovative tactics for enhancing the loyalty programmes and the firm as a whole.
Reward programmes double a type of market research. Digital functions allow company to try on
several incentives, find the rewards that appeal to certain areas of clients and the spot the rewards
that do not gain customer engagement. It also helps to view buying patterns, behaviours and
habits of customers.
Customer loyalty programmes has many forms and types. All such programmes work
differently and provide various benefits and rewards for the customers. Customer loyalty points
programmes, these sort of programmes are one of the most usual kind of customer loyalty
programmes in which consumers earn points when they invest their money with the brand and
they can redeem the reward points to get a discount on the next shopping for other particular
offers. For example, the Atlas Coffee Club rewards programmes in which customers earn points
of reward for referring the brand to their family, relatives or friends, purchasing gift

subscriptions, the money they save by being a loyal customer, each country they visit and many
more. Moreover, these points can be used for the free delivery, a discount for a life-time and a
discount on their next order. Hence, these programmes develop customer loyalty be promoting
regular and repeat orders. Mission-driven customer loyalty programmes, it is not like offering
discounts and rewards to the customer. It means that customers feel like their shopping or
consumption of goods and services supports to “make a difference”. Subscription programmes,
this sort of loyalty programmes develop customer loyalty by turning consumers into repeat
customers. It also provides a discount as compared to one-off shop or gives exclusive services
and goods that are not available to the non-subscribers (Hsu, Zhang and Lawrence, 2020). For
instance, if the business is dealing in food or drinks, cleaning products, health an beauty or even
clothing, then subscription programme can be a great customer loyalty programme for the brand.
For example, Birchbox , which is known as beauty subscription box. Birchbox provides plenty of
advantges to all the subscribers and extra incentive for the customers to stick around with the
VIP loyalty program. This kind of programme is began once a consumer has a subscription for
six months which promotes the long-term customer retention. Refer-a-friend customer loyalty
programs, are exactly the same that rewarding customers for referring the family, friends or
colleagues and providing special offers and discounts. For example, Mahabis Company uses
refer-a-friend loyalty program. The company offer varieties of referral offers for various
geographic regions. For the US based clients, they give 10% discount for the customer and their
referrals while in UK it offers Euro10 discount. Paid programmes-VIP member club, in this
kind of loyalty programmes, customers pay annual, half-yearly, quarterly and monthly fee to join
the VIP member club in order to access several services, opportunities and discounts. In this, the
company should consist advantages that are not inclusive to members. Cash back loyalty
programmes, it is like point programmes in which a certain amount is invested by the
customers to get a certain amount back in terms of cash or coupons that can utilized exclusively
at a retailer. They are very simple to use and maintain. For example, there are several companies
that is using this kind of loyalty programmes such as H&M, Amway or ZARA all such using
cash back programmes in which they give coupons to its customers so that they can use it in
further shopping. Partnered programmes, Effective customer retention is also can be done
through strategic partnership with the customers. A business can merge loyalty program with a
loyalty program. In such way, consumers can gain more unique opportunities and will help

business to grow and develop with new partnerships. When an organisation give customers with
the signified value while going beyond what the firm can facilitate, it represents that the firm is
care and understand their requirements.
Customer loyalty is a activator for retailers to create revenue for the business. In today's
times, there so many companies that have the most rewarding loyalty programmes, one could
claim that they are result of data-driven insights and trustworthy. Retailers likes to prioritize the
loyalty programmes as they enable the company to encourage the best customers to shop more,
authorise new clients to purchase with the company and increases word of mouth publicity
through a best customer experience (Hwang and Choi, 2020). Hence, customer loyalty
programmes equal business growth. Presently, it is time to power the customer loyalty
programme with a base of relaible customers information. With moving purchasing behaviour of
customers and the 24*7 at customer leisure shopping cycle, shopkeepers are left struggling to
identify the right content and incentives, while holding with the company's name retailers.
Most marketing experts have long seen the significance of customer loyalty. But, the
challenge in initiating a customer loyalty programmes also seems in the bigger companies.
There are many challenges in the customer loyalty programmes that can backfire the whole
process of maintaining the healthy relationship with the customers. Inaccessibility, it is obvious
that customers will not take any kind of participation in such loyalty programme that has
complex accessibility. Even though the company is offering a great customer loyalty program
and resulting customers will turn away because of the inaccessibility. The brand requires to build
an effective customer loyalty program, that is simple to access across all the systems, devices.
All the members should not feel any sort of complexities while enrolling in the program or while
redeeming the rewards. They can fed away due to the complexities in the process. Additionally,
it is seen some formats are produced for desktops will not be legible on mobile devices. With a
purpose to gain better results, the customer loyalty programmes requires to be simple to access.
Confusion, customer loyalty programmes such as special discount, vouchers or reward points
have been in business practice for long years. It states that the target customers is well-known
with the rewards they will acquire. However, organisations in present times add extra terms and
conditions. And, give several compensations without any clear guidelines. Such rules and
regulations can be understood easily (James and et.al., 2021). And this is the general issue of
customer loyalty programmes these days. Accordingly, avoiding such type of confusion is

essential to hold the loyal customers towards brand. Poor contact data, it is one of most tough
challenges with customer loyalty programs. Acquire the buyer to sign up. Elements such as the
amount of time, it takes to enter in the data, and how the personal the data required is, all affects
the buyer's willingness to sign up. Not sufficient customers signing up clearly in more toughest
time reaching such customers. Hence, it is important to implement a data quality solution.
Obsolete, customer generally get bored of utilizing the same thing over and over again. In case
of loyalty programmes, giving the similar sort of rewards all the time decreases the interest of
customers. They tends to get bored with the typical rewards and may get off from the company.
Hence, it is essential to avoid such kind of boredom from the customer loyalty program.
Company tries to give a range of rewards to the customers from the loyalty program. For
example, instead of giving reward points, try free membership or event passes. Depending on the
interest of the people, they facilitate renowned rewards for better engagement.
Customer Loyalty Ladder, is a systematic concept of classifying the customers into five
different categories of an organization depending upon the business level customers engagement.
It supports customers to find potential customers who can remain involved with the brand for a
long time and also become loyal to the company. The concept of customer loyalty ladder comes
under brand management and relationship marketing which works with establishing healthy and
life-long relationships with customers (Customer Loyalty Ladder Meaning, Importance &
Example, 2021). It states that cost of acquiring new customers takes four to six times costs than
of doing business with current customers. Hence, it is worth for any firm to keep its current
customers satisfied and happy with an aim to do a more profitable business. It often supports
business plan engagement tactic so that the customers would be eager to move up the customer
ladder.
Customer loyalty ladder divides the customer associated to the product based on the
engagement. Customers are divided as suspects, prospects, customers, clients and advocates.
Suspects, they refer a potential customers for a brand (Machado, Karray and de Sousa, 2019).
They may be conscious of the marketing campaigns but are presently doing no transactions with
the company. For instance, a customer who is happy with the taxi and cab services right now and
also aware of the other car options available in the certain budget. Prospects, these people are
the ones who have been impressed with the promotions of the company and are in sober thinking
of shopping goods or services of the brand. The company essentially treat them warmly and

solve all the queries. For example, a person who is seeking a car and places five specific cars in
the set of consideration. This person becomes a prospect for all the organisations as he would
shop among five options. Customers, they have purchased goods for the very first time and
presently utilizing them. The brand must extend all possible after sales support with an aim to
pacify their concerns. Such customers can be involved with a loyalty discount or loyalty
program. For example, a purchaser of a smartphone or car can be stated as customer. Clients,
these are those persons who are doing transactions on regular basis with the company and are
ready to spend more in the forthcoming days. Clients are well engaged with the brand are liable
to increase the business with the brand loyalty. Also, such persons can become main accounts.
For instance, a client of software organisation doing several activities in several domains and
technologies (Min, 2019). Advocates, these are the ones who not only doing business on regular
basis but also recommending the brand to their knowns ones like friends, relatives or family.
They are key players and the company must value them royalty on a prior basis. Suppose, if a
person after shopping a smartphone or car is so calm that he tell or recommends other people
about it, supports in the promotion of brand.
Hence, it is the concept in marketing which helps brand to find the potential customers
who can remain involved with the organisation for a longer period of time and also become loyal
to the company (Purohit and Thakar, 2019). It also helps company to bring loyal customers
towards brand that a current customer will like to try a new product as the current customers are
simpler to use.
Customer lifetime value, refers to a business metrics that calculates how an organisation
can plan to earn from the average customer in terms of relationship. Differences in costs,
products, regular shops and purchase volumes can make a customer lifetime value metrics
critical. Nonetheless, the right tool can identify the customer lifetime value in just few times.
Customer lifetime value is meant by a calculation of the total income an organisation can expect
to bring in from a typical customer for as long as that account remains a client.
It delivers a huge benefit in terms of enhanced forecasting as it supports in forward
looking decisions around inventory, production capacity, staffing and other costs. With
forecasting, the company could overspend and underspend or waste money where it struggle to
keep up the demand. Also, a brand can make effective decisions on customer acquisitions costs,
when it will know about the typical customers. The company can increase or decrease the

spending limit to make sure that the brand increase the profitability and continue to attract the
suitable consumers. There are four steps to measure the customer lifetime value. Determine
average order value, initiate by identifying the value of the average sale. If the company do not
track this information for long, consider looking at least for 1-3 months as a proxy for the whole
years. Calculate the average number of transactions per period, it states that do consumers
come in many times a week which might be usual with a restaurant or coffee shop or they come
only once every year which could be seen in mostly car dealership. The key driver of CLV is
frequency of visits (Mulia, Usman and Parwanto, 2020). Measure customer retention, in this
the brand is require to figure out how long the average customer engaged with the company.
Some companies such as car brands or technologies brand inspire life-long loyalty. Other such as
retail chains, gas stations may have much less loyal customers. Calculate customer lifetime
value, this is the last step in which all the above three stages have been multiplied together to
measure customer lifetime value per the formula. The formula is CLV= average transaction size*
number of transactions*retention period. For instance, a coffee shop is a great example for CLV
as it is quite simple to understand even if one has no professional background. Suppose a local
coffee shop has three locations and has a average sale of Dollar 4. The typical customer is local
employee who likely to visits two times in seven days, 50 weeks per year and over an average of
the five years. Then, CLV= Dollar 4(average sales)*100( annual visits)*5(years)= Dollar 2, 000.
Hence, Customer lifetime value shows the total earnings from a customer over the time
of the interaction with the company. It supports brand to forecast possibilities, establish customer
acquisition budgets and determine aspirations for development and growth (Oh, 2020).
The aim of the writing a critique is to measure someone's work by their performance in
respect to maximise the reader's understanding in an effective and efficient manner. A critical
analysis is subjective writing because it shows the evaluation and analysis means to break dome
and maintain the parts. By knowing that issues are highly damaging and they audit the consumer
journey, retailers might avoid the temptation to concentrates on the certain facilities failure. It
offers several course of the advantages that can secure against rejection. Various loyalty program
perks that treated dissatisfaction in the face of facilities both before and during the pandemic
COVID- 19. It insiders access to data like limited time that provide or ask for to manage the
events, free shipping and returns that perform to done mention in the situation of cash back for
purchasers that alert when desired products went on sales that access to history in an effective

and efficient sort of the manner. As on the other hand, other issues is that the situations are
frequently require to make sure that the points or rewards that they have earned are suitable
accounted by which they will bounced backwards to the loyalty or the marketing divisions in the
manner of the business. As most of the loyalty programmes will fails to satisfy the needs and
wants. And on the other hand, it is considered as the program that are frequently comprehensive
and expensive to execute and prominent. Many of them get discontinued but they get without
some pain or dropping back such announced programmed that need to communicate with the
consumers and with their bosses that they exclusively failed to perform it in an effective and
efficient sort of the manner.
CONCLUSION
From the above mentioned report it has been concluded that, the issues that are presented in an
article of Harvard business review magazine, 2021. The issue that are presented for this report is
that “Why consumer loyalty programs can backfire?” It also follows the framework of the
consumer loyalty program the defined the marketing methods and system that determine the
consumer who shop and involves themselves with their brand on recurring basis. It also covers
the scenario of the consumer loyalty and consumer loyalty program that influence consumer and
create an effective and efficient dealing with their brand. It also acquire new customers that
could cost higher than retaining the existing ones. Even in tough conditions, consumers of
loyalty programmes can produce more value to the business of management.

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Online:
Customer Loyalty Ladder Meaning, Importance & Example, 2021. [Online] Available Through:
<https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/6791-
customer-loyalty-ladder.html>
(Ranggadara, Wang, and Kaburuan, 2019)(Wang, Luo and Lee, 2019)(Yang, and et.al., 2021)