Should You Invest in Loyalty Software?
Updated: Feb 4
Loyalty programs are marketing strategies designed to encourage customers to continue to shop with a particular brand or company.
These programs typically offer rewards or incentives to customers for making purchases or engaging in certain behaviours.
Rewards can include discounts, free products or services, exclusive access to sales or promotions, or points or cashback rewards that can be redeemed for future purchases.
There are several types of loyalty programs, including:
Points-based programs: Customers earn points for each purchase they make, which can be redeemed for rewards or discounts.
Tiered programs: Customers earn rewards or perks based on their level of spending, with higher-spending customers receiving more perks or rewards.
Cashback programs: Customers receive a percentage of their purchase amount back in the form of cash or a credit on their account.
Membership programs: Customers pay a fee to join a program and receive exclusive discounts or perks.
Partnership programs: Customers earn rewards or perks through partnerships with other companies or brands.
Loyalty programs are used across multiple industries and sectors such as retail, hospitality, travel, and service industry. It's a way for companies to build long-term relationships with their customers, increase customer retention and customer lifetime value.
The appeal of loyalty programs
Loyalty programs are appealing, as they have the opportunity to grow your business typically at a lot lower cost than acquiring new customers.
According to a study by Bond Brand Loyalty, 81% of consumers are more likely to shop with a brand that offers a loyalty program, and Accenture found that customers who belong to loyalty programs spend an average of 12-18% more per transaction than non-members.
A study by MaritzCX found that customers who participate in loyalty programs have a 30-50% higher lifetime value than non-members.
The challenge is though, not all loyalty programs are effective though:
A study by Forbes Insights found that only 22% of consumers believe that loyalty programs actually provide a meaningful reward.
A study by Epsilon found that nearly one-third of consumers (29%) say they have stopped participating in a loyalty program in the past year.
A study by Colloquy found that over half of all loyalty program members (51%) are not engaged with the program.
A study by the Temkin Group found that only 24% of consumers believe that loyalty programs offer good value for the effort required to participate.
A study by Accenture found that 80% of consumers say that they are not likely to switch brands even if they found a loyalty program that they liked better.
What makes a loyalty program fail?
The effectiveness of loyalty programs can be impacted when customers do not purchase regularly because it can make it more difficult for the customers to reach the threshold for earning rewards or for the company to track the customer's purchases and behaviour.
This can make it less likely for the customer to see the value in the loyalty program and less
likely for them to continue participating in the program.
Additionally, if the loyalty program is based on a points system, customers who do not purchase regularly will accumulate points more slowly, making it more challenging for them to redeem rewards.
This can lead to customer disengagement and loss of loyalty.
Should you invest in a loyalty program?
ineffective loyalty programs can negatively influence customer loyalty, so if you're going to invest in one, it is important you set your business up for success.
If a loyalty program is not perceived as valuable or relevant to customers, they may not see the point in participating and may not feel incentivized to continue doing business with that company.
Additionally, if a loyalty program is too complicated or difficult to understand, customers may become frustrated and disengaged. This can lead to a lack of trust and loyalty towards the brand.
Furthermore, a poorly executed loyalty program can also create a negative customer experience, if the rewards or perks are not delivered as promised, or if it is hard to redeem rewards. This can lead to disappointment and dissatisfaction among customers and ultimately, decrease their loyalty towards the brand.
It's important for a company to have a clear understanding of their customers' needs, preferences, and behavior and design the loyalty program accordingly. Regularly checking the program's performance, and making necessary changes and improvements can help to keep the program relevant and appealing to customers, and increase customer loyalty.
10 questions to ask to see if a loyalty program right for your business
Here are a few things to consider when deciding if a loyalty program is right for your business:
Purchase frequency: Will your customers purchase frequently enough directly from you to see value in your program? Frequently is subjective, but a good rule of thumb is that they should be purchasing at least once every 2 months.
Understand your customer demographics: Research your customer base to understand their needs, preferences, and behaviors. This will help you to determine if a loyalty program would be well-received by your customers.
Analyze your competitive landscape: Look at what your competitors are doing and how their loyalty programs are performing. This will give you an idea of what works and what doesn't in your industry.
Assess your business model: Consider how a loyalty program would fit into your business model and how it would benefit your company.
Evaluate your resources: Implementing and maintaining a loyalty program can be time-consuming and costly. Make sure you have the resources to execute it effectively.
Identify clear objectives: Clearly define the objectives and goals of your loyalty program, such as increasing customer retention or boosting sales.
Create a personalized experience: Design the loyalty program to cater to your customers' needs and preferences, and create a personalized experience for them.
Measure performance: Have a way to track and measure the effectiveness of your program in order to evaluate the program's performance and make necessary changes.
Test different strategies: Conduct research, test different strategies and make necessary adjustments to see what works best for your business.
Communicate effectively: Make sure to communicate the loyalty program effectively and clearly to your customers, so they understand the benefits and how to participate.
If you decide to invest in a loyalty program, it's important to put a good amount of thought and planning into it to ensure that it aligns with your business objectives, target market, and budget. Conduct research and test different strategies to see what works best for your business.
If you know your customers are likely to purchase regularly from you - more frequently than once every 2 months - then it's worth looking into.
On the other hand, we would generally recommend against investing in loyalty software where your customers don't purchase regularly - there are better value initiatives you can put your time and energy into, without the risk of disengaging your customers because they see no value in your program.
Remember, there are many other ways of encouraging your customers to purchase from you again. Simply sending a Thank You Video after their purchase is one of the most effective ways.