The internet is abundant with articles on loyalty program these days. Which brands are the latest to launch a program? What are the latest features? Which programs are the most successful? Little attention, however, is being directed towards one of the most basic questions marketing managers should ask when considering to engage, in what is a time and resource intensive exercise, why should your brand have a loyalty program?
The answers to this question may seem obvious at first. When asked, many marketers respond with one of the following- growing revenue, driving repeat purchase or reducing the rate of defection to competitive brands.
While launching a loyalty program can help with all of the above, it pays dividends to dive a little deeper into what loyalty programs do in order to achieve increased revenue as well as higher repeat purchase- and retention rates. The causal relationship of incentives and outcomes is not as direct as many professionals who work in this space would have you believe.Here are ways, a loyalty program can be a gamechanger for businesses.
1. Loyalty program aid revenue growth by accelerating frequency, increasing basket size, and encouraging repeat purchase
There is ample evidence that loyalty program are key contributors towards revenue growth of the brands that run them. Merely having a rewards system in place, however, does not translate into stronger returns for the business. Those who build and manage loyalty program need to have a thorough understanding of the mechanics that can be employed and the kinds of behaviours they incentivise. To better understand these levers that they can pull, ‘revenue’ needs to be dissected.
Other than unit price, there is the total number of customers transacting, purchase frequency, and basket size i.e. the number of goods or services purchased within any given transaction. To be clear, not all of these revenue driving elements can be changed by the program decision makers. Price per unit, for example, is usually determined by other teams. The most common variables that loyalty program can impact on are frequency of purchase and basket size.
Also Read:Money Matters: How women content creators are shaking up the BFSI categoryAcquiring a new customer costs four times as much as it does to retain an existing one. This line should sound familiar to anyone who attended business school. While the importance of customer retention is widely appreciated, and rightly so, many professionals appear to consider it an activity rather than a goal. Brands do not simply retain customers – end of story – they win their business over and over again.
While much- if not all of this may sound easily attainable, behavioural change, which lies at the core of any successful loyalty strategy, requires rigorous planning as well as test- and learn cycles – an effort that is often underestimated.
2. Loyalty programs can amplify product/service appeal by providing marketers with detailed insights on customers’ needs and preferences
Loyalty program incentives can aid the process of turning customers’ active decisions into habits, but not shield them from the advances of competitive brands. Even market leaders need to continuously deliver superior products, services, and customer experiences to stay ahead of the game.
But how can loyalty programs help brands outperform the competition? Sometimes seen as a by-product, the data collected with each engagement, each touchpoint customers have with the program, enables brands not only to track performance, but to draw valuable insights into what customers value in the products and services they buy. If harnessed in a meaningful way, these insights can inform targeting efforts, cross-sell activities, and even new product developments.
Points, badges, and perks do not drive repeat purchase alone – at the end of the day it is still the core product or service that wins repeated business.
3. Loyalty program reduce attrition by building rational and emotional loyalty
While all of the above incentives focus on hard benefits, true loyalty is an emotion, and strong loyalty programs strike a good balance between both the rational and emotional aspects. A customer driven by the rational side might check you out when you are running a smashing promotion, but a customer that’s emotionally attached will continue buying from you even as your competitors are giving out phenomenal discounts. These emotional connections are much stronger than the objective value the products or services provide. Just consider the kind of nostalgia evoked by references to the [now defunct] Blockbuster video rental chain or the excitement many people still feel about Polaroids, long after the company has ceased to exist. Such an emotional bond between consumer and brand is so valuable, because it is not only long lasting, but more importantly extremely difficult to replicate by others.
So, how can loyalty programs help in creating this relationship? Brands can highlight the transactional side of loyalty by offering instant reward, merchandise with a strong point system, and bring emotion into the equation through soft benefits such as special privileges and exclusive content. Over time, these ‘moments’ become part of the shared experience between customers and the brand.
Other common tactics employed to build-and grow emotional ties include gamification, rewarding social interactions, and experiential rewards. Like most other aspects of loyalty programs, Marketing Managers need to plan, observe, and adjust in order to ‘get it right’.
Although, the list of reasons why brands consider setting up loyalty program covers many more areas, driving repeat purchase, increasing basket size, understanding customers and building emotional experiences are key to fostering deeper connection and growing revenue. Now that the key goals have been established, brands can consider the elements that would best drive results in these areas through a concoction of the rational and the emotional rewards.
Nicholas Ruedel is a senior director, strategy and insights APAC, Epsilon and Eugenia Oei is a consultant, strategy and insights APAC, Epsilon. Views expressed are personal.
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