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Companies are investing billions of euro into customer reward programs in an attempt to build customer loyalty and defend their top line results. This article describes how loyalty programs short-term can boost revenue and win over customers, but long-term they are likely to become cost centres, which consequently lead to a disturbance of market equilibrium in the shape of an overall higher price level.
According to a 2011 research report based on an analysis of about 96% of all loyalty programs in the US the number of programs per household is now 18, an increase of 50% since 2006. In 2010 the overall estimated total value of loyalty currency in the US represented 48 billion USD.
The all important question is, to what extend can a monetary based program substitute customer satisfaction and build loyalty? Numerous researches have demonstrated that customer loyalty is based on customer satisfaction, which is directly linked to the performance of the employees.