Do loyalty programmes really work?

22. April 2022

6 Minutes

Necessary or not?

Loyalty programs are so ubiquitous that it is reasonable to question whether they are really necessary or not.

When every business has one – from luxurious hotel chains to the independent coffee shop down the road – the promise of a ‘VIP’ or ‘exclusive’ experience starts to sound a little hollow.

And yet, if businesses don’t throw their hat in the ring, are they missing out?

A wealth of data about these programs show consistently the great majority of consumers – between 80% and 90% – say they take part in at least one loyalty program.

And loyalty programs do really seem to make customers more loyal to their regular retailers: around half say they have joined loyalty programs to earn rewards on purchases they make every day.

After all, who doesn’t like being rewarded: it’s a win-win, right? Maybe not.

The key points of the blog

A saturated market

A loyalty program offers deals, discounts and insider tips. Who could object?

But they also often require personal information, and sometimes the customer has to do a fair amount of work, just to sign up. Filling in forms, for example, or requiring a subscription fee. They can become outright burdens: if an unscrupulous brand sends aggressive notifications to users for every new opportunity.

Statistics show that overall satisfaction with these programs is down among consumers. According to Canadian marketing agency, Bond Brand Loyalty, less than half of loyalty program members say they are very satisfied with the programs they participate in.

The agency also says this figure is currently decreasing year by year. A much smaller number, just 22%, say they are satisfied with the personalisation on offer with their programs.

Consumers are also becoming disenfranchised (literally), and this may be driving them to be less discriminating. The average consumer today belongs to 14.8 loyalty programs but is only active in 6.7 of them, according to figures taken from the same Bond report. Consumers who are less engaged and enthusiastic about these programs are obviously less likely to spend their money with them, and more likely to move on to competitors.

Going the extra mile

Despite satisfaction being momentarily down (and it is a gentle decline, not a crash), consumers still report that loyalty programs are important to them when making purchases. Most consumers still say rewards play an important role in purchasing decisions.

More important, perhaps, is that 18% of consumers, according to Wirecard, say a good valuable loyalty program has played an important role in choosing one brand over another, even when they have a longer history with the old brand.

In order to rise above the competitors, businesses must target these consumers by offering them something distinct and valuable.

Take digitally-pioneering cosmetics business Sephora, for example.

The French e-commerce giant has a successful loyalty program by any metric. ‘Beauty Insider’ has around 25 million members who contribute about 80% of the company’s total sales, according to figures from the company.

It works much as many loyalty programs do. Members collect points, which are exchanged for discounts or exclusives. Perhaps it’s worth mentioning that these are redeemable on any item, not merely a cordoned-off section of the most profitable products.

But this program has been put together with the needs of Sephora in mind, and to help it expand its consumer base to people who might not otherwise interact with them. The company has built their loyalty program around market research, which consistently finds that high prices are often a deciding factor for customers shopping for high-quality cosmetics.

For example, 24% of consumers say they prioritise low prices when shopping for cosmetics, according to data from PowerReviews. Beauty Inside entices customers who might otherwise be intimidated about spending a lot of money on make-up: customers can join without having bought a single thing. Once they have purchased something at a discounted price, there’s a chance they can be convinced it’s worth the money.

A little knowledge ...

A little knowledge …

When creating an attractive loyalty program, it’s important to think beyond discounts. Customers may be willing to become a member (and pay for the privilege), if what’s on offer is the business’s expertise. Houseplant retailer The Sill provides a good example: it offers unique customer support tailored to some of its most valuable customers.

The New York-based company offers a subscription model as a loyalty program. Points are accumulated with purchases, that then unlock tiered-benefits. The highest tier is appropriately-branded. VIP, or very important plant person.

There are financial incentives here as well: deals and – notably personal – a present delivered to you every birthday. But the main selling point is access to community and expertise. Having achieved the relevant tier, Sill customers are invited to the Facebook group, given access to a dedicated specialist for plant emergencies and invitations to exclusive workshops.

Why does this work? Houseplant retailers are not an especially niche market. To offer something extra, The Sill has identified a special-interest group in their consumer-base who lack a green-thumb, and they offer them something other businesses don’t: easy-to-access know-how, mediated by the company’s many online platforms. In this way, purchases become more valuable when made with this company (the plants actually survive).

Reach out to your customer and start to build a relationship. Just, make sure you have something to offer.

The sheer number of loyalty programs could be intimidating for customers, or even too much effort, leaving them unsatisfied. That is not a reason for businesses to neglect them – but to revisit what they can offer in a way that helps differentiate them from their competitors, and offers fresh value for consumers who might be on the fence.

Businesses are right to take the opportunity to reach out to customers and start to build a relationship. Just, make sure you have something to offer.

Questions? Feel free to contact us!

E-Mail: [email protected]

KPS