As a result brands look toward loyalty programs to reward loyal customers and encourage retention. However, there are a lot of strategic issues that need to be considered while deciding on whether to employ a loyalty program or not and the nature of the program best suited for different brands. Loyalty programs need to be examined in the context of what they offer to the customer and to the brand’s equity, as well as what they add to the brand both in terms of image and competitive edge.

The logic of giving benefits to loyal customers is indisputable. However positioning the program is critical so that these benefits do not appear to be a routine discount passed on under the garb of loyalty. Reducing the loyalty initiative to a purely commercial transaction wherein the customers constantly look for deals may affect the original customer-brand relationship and drive customer behavior to be increasingly more rational in decision making. This may not always be good for the brand as many brands thrive on the strength of an emotional component of the relationship with the customer. Instead a good loyalty program can add or emphasize differentiation by building involvement. For example, an art supplies brand can organize an event wherein a master artist gives tips on improving style or technique. These events would give something back to the employee while at the same time build a bond with the brand among aspiring artists.

A loyalty program should have a long enough timeframe to ensure its success. When a brand launches a loyalty program, it is making a statement to its customers that the relationship is valuable and that the brand appreciates it. Pulling back can be seen as the brand telling its customers, “Nah, you’re not as important as we thought.” Or even worse: “Hey we didn’t make enough money out of this so we’re ditching you.”

Before terminating a loyalty program, it may be a good idea to estimate what is required to keep the program going. Check with customers to see if they would be willing to bear an extra cost probably in the form of a membership fee that could sustain the program. If customers see themselves getting $200 worth of benefits and discounts or emotional gratification from the program then they may be willing to pay the $30 necessary to keep the program going.

Just in case it truly is over, with no way of salvaging, it’s important to exit graciously. Brands reveal their character and their commitment to customers in how they handle tricky situations. Ideally brands should give their customers a couple of chances to avail of the discounts and privileges before pulling the plug. If the loyalty program is based on a privilege card, it would only be fair to give customers sufficient reminders so that their first notification is not when they are turned away at the point of sale.

In points based loyalty programs, brands should give customers a chance to redeem points before pulling the plug. Some customers are passionate about collecting and redeeming points; being stingy and trying to save money by letting points lapse reflects a poor attitude toward customers especially when loyalty is the idea behind the program.

If, for whatever reason, the plug is pulled on a loyalty program, the brand can reduce negative impact on the brand equity by giving an honest and if possible good reason to customers expressed in a heartfelt manner. “Due to unavoidable circumstances we are terminating this program,” runs a poor second to: “You are extremely important to us and will always remain so. Unfortunately we will not be able to offer the same privileges as we did in the past because of the turbulent economy. We feel that it is more important to re-dedicate ourselves to you in terms of investing in superior quality and lower prices.” Long-winded and still not very comforting considering the outcome, but in pulling back privileges one can at least try to minimize the unpleasantness.

Loyalty programs can add to or diminish brand equity based on how they work. Not all loyalty programs are successes but approaching the program from a brand perspective can enhance brand equity or at the very least reduce the negative impact of an unsuccessful program.