Why Companies Are Just Wasting Their Money By Offering Free Stuff

subway value meal

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Loyalty programs have long been touted as a great way for retailers to differentiate themselves and keep customers coming back.But Rafi Mohammed at Harvard Business Review says that loyalty programs can actually be bad for business.

Mohammed cites the example of his elderly mother, a frequent card-user:

“Several years ago, as a checkout clerk was stamping her Subway Sub Card club (buy 8 six-inch subs, get the ninth one free), I asked her: “Does this loyalty club make you patronize Subway more often?” After a moment of reflection, my mother responded with a knowing smile: “No, but it is nice of them to offer it.” 

Retailers should question why they offer these programs to consumers, he says. Having a loyalty program usually doesn’t close a deal: 

“Giving something away for free as a gesture of thanks has become almost reflexive in business. But when you examine the strategic value and underlying costs of these programs, I’ve found that loyalty discounts are rarely necessary to close a deal, nor are they always highly valued by customers.”

Taking Mohammed’s view into account, you might not want to spend on an expensive loyalty program after all.

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