Customer loyalty has become a central goal of modern business. With each additional year of a relationship, customers become less costly to serve. Over time, as the loyalty life cycle plays out, loyal customers even become business builders: buying more, paying premium prices, and bringing in new customers through referrals (O’Brien & Jones, 1996). A rewards program can accelerate the loyalty cycle, encouraging first or second year customers to behave more like a company’s most profitable tenth-year customers – but only if it is planned and implemented as part of a larger loyalty management strategy (O’Brien & Jones, 1996).

4/5 consumers agree that companies should reward loyal customers instead of offering the best deals to new customers. This is particularly relevant to FMG who strives to compete on quality, not price.

FMG has the need to adapt its current loyalty program to be more in-line with modern discussion around the topic. West (2004) found that when monetary rewards are given they tend to be spent on day-to-day living and the reward is not as morale boosting as hoped. Our current 1% discount per year model thus fails to provide our clients with the intended feeling of goodwill towards FMG. Moreover, as customers become accustomed to receiving a reward under a loyalty program they begin to view the rewards as an entitlement (Haisley & Loewenstein, 2011). This implies that while our reward magnitude is increasing over time, their perceived value will not increase a proportionate amount.

In adapting the current loyalty program, it is important the value of the new reward program is not perceived as of lesser value than the clients current 1% per year. Haisley & Loewenstein (2011) find strong evidence for ‘deteriorating aversion’. This explains the strong distaste for worsening trends, so strong that receiving a gift of perceived lesser value