Coming Back for More: Loyalty Programs
By Fergus Koochew on October 31st, 2014
The rise of the loyalty card is hard to ignore. Every time we go shopping we are likely to be asked whether we are a member of that business’ program, or if we’d like to sign up. Loyalty programs have become a favourite strategy among Australian businesses for driving growth in product purchases. Whether it’s collecting coffee stamps or accruing frequent flyer credit card points, Australians appear to love a good loyalty program. Technology is also emerging in the loyalty space in the form of mobile applications, to help track loyalty points on the consumer side and to easily set up programs on the business side.
The 2013 Consumer Study into Loyalty Programs (conducted by Directivity and Citrus) found that 80% of consumers return to businesses that have a loyalty program. 55% of respondents admitted that if they had a choice of purchasing from a business that has a loyalty program versus a business that doesn’t, they would choose the one that has the program. This immediately shows the worth of having and publicising a loyalty program.
But while having a program does indeed inspire customers to purchase more often from your business, it does not necessarily mean that they are loyal to your business. Loyalty is actually a deeper issue than repeat purchases.
Proving this point, the aforementioned study found that only 46% of customers feel more loyal to a business because of their so-called loyalty program. This is because what a business might think is a loyalty program, is actually more of a financial incentive or coupon for a consumer. The difference here is that it’s merely an incentive to purchase, and this is what is driving regular purchases. If the discount were not issued, these sales would likely drop off.
Loyalty is a different issue altogether. Just because you have a loyalty program, it doesn’t mean that your customers are necessarily loyal to your business or your brand. Loyalty is earned by providing an unforgettable experience, gaining trust from your customers over time, and being able to relate to them.
The study also found that 11% of Australians are members of 10 or more different loyalty programs. This means it’s becoming more difficult to stand out from the pack with so many businesses offering similar programs. However, 59% of consumers feel that loyalty programs have not improved in recent years, which is a potential opportunity for businesses to try harder and design programs that delight their customers and demonstrate real value and innovation.
It’s tempting to simply offer a financial reward based loyalty programs as these often show an immediate lift in sales, but the most success will likely come from a deeper long term approach. Designing a program that provides a transactional benefit (for example, coupons or incentives to buy) but also some form of more personal connection or emotional benefit (by way of exceeding expectations for example) should result in a more substantial offering in the eyes of your customers and potential customers. In fact, 40% of consumers agree that their loyalty programs don’t offer any real value beyond a membership card.
The type of business that you operate will usually determine what type of loyalty program you should consider offering. The main types are those that offer a reward based on the collection of points (which requires spending money), those that offer a reward for simply being a registered member (periodic discounts and offers), and those that deliver an unexpected reward (a surprise in the mail perhaps).
Another important consideration when designing a loyalty program is the demographic of your customer base. Customers under 35 value different things to customers in the 35-54 age range. The over 55 demographic generally seem to be more engaged with loyalty programs but are also harder to please, with most believing they don’t get enough value.
If you can offer your customers benefits and rewards that they will value (keeping in mind that different generations will value different things), there is a good chance that they will purchase more from you, more regularly. To this effect, loyalty programs can indeed help your bottom line, but the true winners in this competitive space will be those businesses that can offer real value and excite their customers at the same time, creating a longer term bond.
Fergus Koochew
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