Loyalty Programs: Are They Honestly A Waste Of Time And Money?

Posted on August 3, 2016 by Terri Scott in Loyalty, Promotions with 1 Comment

Loyalty programs are used in almost every industry imaginable, and they’re certainly used in the retail industry.

Loyalty programs encourage increased spending from consumers, promote increased brand awareness and PR, and reward loyal consumers with discounts and gifts.

While customers might have you on their top ten list of retailers to at least consider purchasing products from, creating a loyalty program that prompts your customers to spend money while gaining access to special benefits and discounts might very well bump your retail brand to the consumers top five, or even top two stores they’ll shop.

And with that said, a well-conceptualized loyalty program will definitely increase your brand’s awareness in the the minds of program consumers. Every time they think of products they need to purchase, your company’s store will be at the top of their minds, especially if they stand to benefit by using their loyalty program membership when they need to shop for a particular item.

It’s always great for a retailer to offer incentives and others rewards, because incentives don’t go unnoticed by educated consumers. A loyalty program can go a long way in increasing positive public relations for your brand, and enthusiastic shoppers will organically become your voluntary team of brand ambassadors.

So it would seem that creating a loyalty program for your shoppers is a great idea, but is this really the case?

There are those who believe that statistically, loyalty programs are actually a huge waste of time and money. To make the best decision for your brand, it’s good to understand both sides of the argument.

The Case Against Loyalty Programs

Fast Company writer and author Don Peppers created a book that gives a hard nod towards the concept and the success level of loyalty programs. In his Fast Company article, he mentions:

Loyalty programs have become ubiquitous in a variety of industries, from airlines and groceries to credit cards, packaged goods, mobile phone carriers, coffee and restaurant chains, and retailers of all kinds.

But they are probably over-used; last year in the U.S. alone, researchers tallied more than 2 billion loyalty program memberships, which means the average U.S. household belongs to about 18 different loyalty programs.

Loyalty programs do cost money, not just in terms of the rewards themselves but also the administrative burden, so it’s not uncommon for executives to question their decision to implement one.

Evaluating a program, however, should be based on two issues: First, under what circumstances will a loyalty program generate incremental repeat business? And second, how valuable are its other benefits, including the chance to gain insight into individual customer needs and preferences?

Their Expense Might Benefit Your Long-Term Customer Retention Strategy

But with all of this stated, loyalty programs haven’t gone anywhere, and Cleverism.com actually makes a case for why the increased costs to your business might be worth the expense in the long run:

A loyalty program should benefit both the customer and the business but in many cases the loyalty program begins to cost the business more money than it is worth.

Businesses should use loyalty programs to increase customer loyalty and retain regular customers because by retaining just 5% of their customers, businesses can increase their profits by nearly 100%. According to a report by Manta, repeat customers spend as much as 67 percent more on purchases than new customers do.

Large and small businesses can use loyalty programs to increase their customer retention rates and grow their profits by targeting their customer group, creating programs their customers are interested in and utilizing the valuable feedback that a good rewards program can provide them.

So you and/or your marketing team will need to decide if your company is capitalized enough to take an upfront financial hit in funding your loyalty program, as long as you benefit with those prime long-term benchmarks such as customer longevity, and increased spending per receipt generated on a daily basis.

The fact is, loyalty programs invite and encourage consumers to spend money that they ordinarily might have held on to if they weren’t incentivized to spend money in order to save money!

Suggestions For Implementing Your Program

If you’ve already launched a loyalty program for your company, then you’re on the right track for ensuring long-term benefits. Although there are naysayers in the industry, it’s probably in your best interest to keep your rewards program alive and thriving.

But if you’re a new retailer who is considering launching a rewards/loyalty program, then here are a couple of resources to help you to get started:

Selfstarter has created an infograph and a comprehensive guide that was created for small and new retailers.

For example, they suggest getting your program started with the help of points. They explain:

Loyalty point programs let customers accumulate points that they can redeem for rewards or free products/services. They’re so easy to set up that 73% of loyalty programs are points based, making this the most popular type of loyalty program by far.

A lot of ecommerce businesses struggle to get customers in the virtual door. If that’s a problem that’s keeping you up late at night, referral marketing can help. And you can take that to the max with points-based loyalty programs.

And CustomerThink also provides a resource list of tactics, such as creating an elite version of a loyalty program (if it makes sense for your industry niche). This would include a subscription buy-in for customers that enables them to gain access to benefits that aren’t available to others.

Are loyalty programs truly worth implementing? In short, they often are, but their expense might outweigh the benefits, at first. However, the rewards that they reap in the future often create a solid foundation for brand longevity.

Terri Scott

Terri is a content marketing storyteller and strategist. She teaches marketing and entrepreneurship through stories for marketers of all stripes. Her specialty is creating narrative and she writes essays and memoir in her spare time.