The Impact of Loyalty Programs is Even Bigger than You Think

by | Aug 12, 2016 | Customer Loyalty, eCommerce | 0 comments

As per the 2015 Colloquy Loyalty Census, U.S. consumers hold 3.3 billion memberships in customer loyalty marketing programs. This is a 26% increase over the number of memberships reported in their last study in 2013. It’s glaring proof of the fact that customers do like to be a part of a well-designed and finely executed loyalty programs. It also explains why businesses of all sizes are bending over backward to get it right. What is the actual impact of loyalty programs, though?

Knowingly or unknowingly, peoples’ behaviors are touched by loyalty programs. You might end up eating a burger for free because you frequented a certain restaurant for a considerable amount of time. You might pop into your favorite clothing store, and before leaving the place, purchase one extra shirt because of the loyalty points that had accumulated in your account.You can participate and win awards in online games and polls run through gamification software and redeem them. Thus, loyalty becomes a part and parcel of your daily life and soon it becomes a behavioral pattern. In short, the impact of loyalty programs is widespread.

The Impact of Loyalty on Revenue

Let’s be clear and honest here. All businesses come into existence to earn a profit. There is no doubt whatsoever in the fact that strong loyalty programs encourage your existing customers to spend more and to ultimately purchase more frequently. Just have a glance at the chart below.

Loyal customers make up 70 percent of sales

Chart from the Center for Retail Management at Northwestern University.

 

This recently concluded study says that only 12-15% of customers are loyal to a single retailer, but they represent between 55 -70% of total sales (Center for Retail Management, Northwestern University). In a survey recently conducted by Clickfox, 54% of respondents said they would consider increasing the amount of business they do with a company for a loyalty reward, and 46% said they already have.

It’s like a math theorem that’s proving two principles. Apart from ensuring repeat purchase from loyal customers, loyalty programs are also achieving upsells.

Starbucks began their loyalty program in 2013 with the same aforementioned goals. It produced a 26% rise in profit and an 11% jump in total revenue. Not just that… another large retailer, Best Buy, also turned to customer loyalty after experiencing stagnant revenue growth year after year in its brick-and-mortar stores. They adjusted their loyalty program to compete with large online retailers like Amazon and eBay, a strategy that helped their stock more than double since early last year.

Another important point in the premise of revenue is that running loyalty programs to gain sales is much cheaper than the expense which is associated with the TV or billboard commercials for the same purpose of sales. The reason behind this is you have a deep knowledge of your loyal customers. You know their habits and whereabouts. It becomes much simpler and cost effective to create a mode of communication with them. Besides, it simply makes your efforts much more targeted and relevant.

The Impact of Loyalty Programs on Acquisition

This stat has been mentioned a thousand times, but no marketer can afford to overlook it: It costs the average business 5 times more to acquire a new customer than it does to retain a current one. Just think about how much money marketers spend on customer acquisition through channels like PPC, PR campaigns, content marketing, social media, and others.

Take a look at the following acquisition expense sheet of one company.

How does your customer acquisition cost (CAC) compare?

How does your customer acquisition cost (CAC) compare?

 

As the conversion rate is 10%, we can assume that each customer costs $100 in just lead generation expense. I have seen this cost vary from around $400 to $5,000 per customer acquired, depending on the level of touch needed. It’s a serious amount of money!

I am not saying that PPC and social media don’t work, but when joined with a loyalty program, you will be spending less on the above. When you link loyalty programs with referral campaigns, the acquisition machine will begin to feed itself, which is evident across other channels. The factor that people trust referrals from their own people more than any other form of advertisement coupled with an allurement of loyalty rewards is like a sure funnel of acquisition. That’s why an Aimia study suggests that loyalty programs improve customer acquisition by up to 10%.

This isn’t the end of the acquisition-related impact of loyalty programs. It exploits the caveat that the ClickFox study revealed: 62% of consumers don’t believe that the brands they’re most loyal to are doing enough to reward them, which increased the chances of altering their behavior to maximize loyalty benefits by 57%.

Today’s customers, especially millennials expect more from their brands: a better and different way of communication, an experiential reward as a loyalty bonus and a feeling of being valued by their brands are few of expected things. If brands fail to do so, they are ready to say goodbye. You can devise a loyalty strategy which will come close to their aspirations. Thus, loyalty programs act as a great door through which new customers can enter!

The Impact of Loyalty on Finding the Right Customers

It may not sound too practical, but it can be more profitable to lose bad customers than to gain new ones. Because those who buy only discounted items are a heavy burden on your company’s financial health. The amount which you generate through them is way less than the amount which is incurred in serving them. If you are rewarding better customers with lucrative rewards and experiences, the motivation of paltry buyers to stay with you will slowly and steadily diminish. Loyalty programs are a great tool to do such targeted selling.

Gary Hawkins, CEO for US-based Green Hills Supermarket, has found that only around three in ten customers actually generate enough profit to cover the cost of servicing them. So, does it make sense to go on with other seven? It does if and only if you can move them up through the segments and hopefully, they will become more profitable customers. Otherwise, they are eating up your operational cost. If you fail to do it, the worst case scenario is you may lose them. But doesn’t bank close down unprofitable customers’ accounts? With a loyalty program, you can do the same without rewarding such unprofitable customers. It will have a huge impact on the efficacy and feasibility of your business goals!

The Impact of Loyalty on Marketing

You don’t have to be a marketing expert to understand that no great marketing can happen without a methodical understanding of customers. Pieces of customer data are breadcrumbs on the path of customer understanding. Loyalty programs give marketers a way to gather large amounts of granular data around customers’ paths, purchase patterns, demographics, and more in order to create complete individual profiles. Once you have an in-depth knowledge of customers encompassing all the above-mentioned factors, you are in a better position to personalize your marketing campaign.

Besides, it also gives you an opportunity to peep into their digital worlds. You can know which digital devices they are using, on which social platforms they are dwelling, and how much time they are spending on mobile. This information can prove a vital insight when you will plan for omni-channel marketing promotions, which are a must for customers to interact with your brand in more than one way.

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