The ABCs of Loyalty in Retention Strategy

Erez Romas
The loyalty program game is tricky. Play it right, and you increase your key KPIs. Play it wrong, and you’re left with implementation costs and a bruised brand. First article in a three-part series

As with so many other retention practices, loyalty programs have been around for a long time without losing their relevance. On the one hand, their popularity is increasing; customers are more accustomed to such programs (and even expect them), and the rise in smartphone usage has opened up a whole new way of using them on the go.

On the other hand, this all creates a whole new range of challenges for those wishing to incorporate loyalty programs in their retention strategy. To name just a few: The vast usage demands originality and uniqueness of offerings, a multi-platform approach increases design and development costs, and the efforts to keep clients using these programs over time becomes even greater.

Loyalty programs are a vast and multi-faceted topic, so to gain clarity, we will delve into it in a series of articles, ordered as follows:

  1. Overview and data on the most current trends in the field of loyalty programs
  2. General do’s and don’ts and strategy guidelines
  3. A case study: analyzing a few selected loyalty programs through the prism of the first 2 parts

Just to level the playing field: when talking about loyalty programs, we’re referring to a branded list/club to which clients register in order to accumulate “rewards” as they purchase the brand’s products.

A Key to the Relationship Palace

Before anything else (yes, even before “money in the bank”), loyalty programs are a means through which clients and brands develop, maintain, and work on their relationship over a long period of time. Ever since the introduction of loyalty programs (by Betty Crocker in 1929), companies have understood that such programs have the power to not only send clients to their stores/services again and again to purchase a product, but that they are an extremely effective method to re-market additional products/ services to those clients, thus exponentially increasing their revenue over time.

The independent association for customer loyalty, loyalty360.org, has gathered some noteworthy statistics regarding the market as of the end of 2016.

Stats for Thought

First of all, it costs up to 5 times more to bring in a new paying customer than a returning one. As a result, returning customers can contribute and increase up to 75% of a company’s revenues, since they spend in average 67% more than new clients.

Secondly, loyalty programs, as a (re-)marketing practice enjoy a consensus within clients: 83% of them agreed that such programs make them “more likely” to spend money with that brand. But, this consensus leads to a saturated market with a fierce competition and a greater need to rise above competitors in order to survive. In fact, out of the 3.3 billion loyalty programs to-date in the United States (an average of 29 per household!), 58% are not even used once. 58% of all loyalty programs just float in space without really fulfilling their goal.

Another startling fact has to do with the ever-growing usage of smartphones as a means of marketing and retention: 66% of companies that operate loyalty programs and saw a decrease in their revenues during 2016 do not have an app. Even though there is seemingly no direct connection, you really can’t ignore such a blatant trend. Additionally, 80% of clients state that they will switch brands if another brand offers them a more lucrative promotion. This is a master recipe for a client decrease.

The Types and Profiles

Loyalty programs are spread out over the entire retail arena: from food and drinks, through clothing and supermarket, ending in e-commerce portals, and gaming conglomerates.

It would be wise to mention that loyalty programs are not only a means to increase a client’s affinity towards one brand, but that in many cases, it allows two companies to join hands and mutually enjoy the benefits of such a program. A clear example would be the cooperation between credit card companies and large retailers, such as supermarket and airlines.

Moreover, loyalty programs offer another priceless advantage, a means for analysis. Just think of the massive data treasure loyalty programs offer retention managers: Many loyalty programs provide built/plugged in BI systems which gather information about client usage. As a store/reseller chain or gaming company, after a few weeks of usage, it’s a relatively easy process learning about your selling outlets and customer habits: Which stores maintain the most loyalty sign-ups, how effective are the programs, what correlation exists between store sign-ups and later store purchases, etc.

Loyalty programs have a lot to do with human nature and human psychology. In order to come up with a truly effective loyalty program, it’s important to consider what drives people into and away from such programs and what makes them active users over time. Therefore, the field of loyalty programs shares a lot with behavioral psychology.

In the next article, we will lay out the basic principles for creating a successful loyalty program, along with the common mistakes and hazards of that field.


Originally published at postfunnel.com