How loyalty programs can influence customer behaviour
The future of loyalty programs
Brands need to rethink their rewards programs as customer expectations evolve in order to give customers more individualised, highly engaging experiences. Companies have been investing in loyalty programs for a long time to draw in and keep consumers. The goal of loyalty programs, which range from basic “earn-and-burn” point schemes like frequent flier and shopper rewards to ones that grant clients exclusive access to services, is to help customers develop closer bonds with brands and keep utilising their goods and services.
Businesses have frequently had to entirely reimagine their rewards programs over the last few years as the epidemic dramatically impacted how people purchase, dine, vacation, and connect with companies. Because more people browse and place meal orders online, several businesses, like cafes and retailers, have profited from the change to digital. When faced with constraints, other industries—such as airlines, resorts, and events – have had difficulty retaining clients and have had to address earn-and-redeem imbalances that might jeopardise the financial viability of their programs. Some firms have introduced new creative rewards programs or updated old ones in this new loyalty landscape to stand out in a field that is becoming more crowded.
Companies can engage and retain customers as consumers resume their travel, entertainment, in-store purchasing, and other activities by taking into account five techniques used by sector leading loyalty programs.
Encourage particular customer behaviours
Starting with clearly defined customer behaviours that equate to quantifiable business value is the foundation of a successful loyalty campaign. When creating campaigns, brands should be deliberate and avoid using a one-size-fits-all approach. Delivering both consumer and business value may be accomplished by clearly stating the brand’s goals, customers’ preferences, and financial objectives—and then comprehending how loyalty fits into each.
Provide a Range of Remarkable Benefits
According to the “2021 Deloitte Consumer Loyalty Survey,” which was performed in August, non-financial perks are growing more and more crucial, even if 85 percent of customers name monetary rewards like points or cash back as essential loyalty program qualities. More than half of customers questioned believe non-monetary prizes, such as exclusive access or services, are essential to program satisfaction and that individualised awards are vital. For instance, Nike gives its loyal customers unique discounts, access to sales events, fitness-related information, and invitations to community gatherings. Customers may only get many of these features through Nike applications.
For today’s customer, a feeling of connection and meaning is also crucial. The option to engage in or support causes, such as contributing rewards to a charity of one’s choosing, is something that almost 35% of customers polled by Deloitte seek. A quarter of customers want store reward programs to foster a feeling of community, maybe by introducing them to certain other customers through events or interest groups. As customers grow more ethically and ecologically conscious, integrating society and mission into rewards programs will probably continue to play an important role.
Engage Clients During Their Lifecycle
Advertising campaigns have traditionally been focused on the point-of-purchase, where a customer purchases a good or service and receives points or another incentive in exchange. Now that businesses can collect more information on the places, times, and methods by which consumers interact with brands, loyalty programs may actively include clients along their trip.
In the Pwc poll, customers named an approachable and pleasurable digital experience as being crucial, and even more than 80% named programme convenience and ease of use as one of the most crucial loyalty program attributes. Efficient reward programs must strategically blend into the whole customer experience, delivering customers customised perks or rewards based on where they are in the product life cycle. They cannot simply be an add-on to the customer journey. When a consumer applies for a credit or debit card, an airline, for instance, may tailor the quantity of points issued depending on the customer’s past travel experiences, how near they are to claiming a free ticket, or whether they are aware of an impending major life event that might include flying. Companies can adapt messaging, incentives, and incentives to give a seamless experience that may gradually build commitment and loyalty by thoroughly knowing consumers and critical touch points in their purchasing path.
Include Partners and People in the organization
Effective rewards schemes may create loyalty and even increase sales. By incorporating all parties that engage with customers in their rewards programs, from partnerships in the network to workers, businesses can foster trust. Participating in a loyalty program may assist a company’s staff and suppliers explain its advantages to customers and let customers commend employees and partners for exceptional service.
Build a Model-Led Approach
Successful loyalty schemes may be thought of as digital goods that businesses launch on the market and continuously improve. They go beyond simply delivering rewards or prizes. These solutions have to be driven by evidence and information, founded on user feedback, and routinely assessed in light of market demands, corporate objectives, and capacity of the company.
In order to create a strategy that is in line with financial goals, is aimed at the correct consumers, and is implemented across a variety of channels, coordination is required across marketing, finance, technology, operations, and other areas. Additionally, businesses should accept client input and make the necessary adjustments over time. This occurred for several businesses as a result of the pandemic’s alteration in consumer behavior.
Several companies waited longer to change their program designs and as a result lost the attention and money of customers. Some were able to quickly pivot from travel incentives to credits for streaming services or food delivery services. Organizations can achieve a tight relationship with their consumers and offer seamless experiences—regardless of the touch point – by understanding loyalty as a dynamic, software architecture led product.
It is important to remember that loyalty is a concrete value generating lever for businesses and is growing more and more crucial across sectors. The pandemic’s impact on the economy would probably lead to more competitiveness for few available chances. Successful loyalty programs might support businesses in this climate by fostering closer connections with customers and fostering expansion.
Loyalty programs in Japan
Japanese consumers are accruing awards for making eco-friendly purchases. Bonus rewards earned by purchasing energy-efficient equipment and other measures to cut consumption may be redeemed for merchandise or assets. Tokyo offers rewards to those who want to live a more environmentally friendly lifestyle by using ride-sharing services, investing in energy-efficient household appliances, or avoiding single-use plastics.
The loyalty scheme is a component of a broad government effort to assist a number of businesses, including e-commerce behemoth Rakuten Incorporated and, which are extending loyalty point programs to encourage clients to make better purchasing decisions. These gained credits may be applied to things like internet purchases, free flights, and in some circumstances even securities.
In Tokyo, reward programs customers may earn points for future orders very well-liked. In a poll conducted by the Ministry Of environment, more than 60% of interviewees indicated they would be more likely to undertake an ecologically beneficial behaviour they do not often perform if there were rewards. Additionally, 85% of interviewees said they most desired a rewards program in supermarkets.
Evolution of loyalty programs
The first contemporary loyalty programs were frequent-flyer programs, which debuted in the 1970s. They turned out to be a brilliant marketing strategy. A free airplane seat feels like a significant incentive since travellers value them highly. But since the plane would fly whether or not they are occupied, airlines may give away unfilled seats at minimal additional expense. Additionally, air miles are sold to third parties, such credit card companies, who use them to reward their existing clients. According to Boston Consulting Group (BCG), airlines’ profit margins on frequent-flyer programs might be 30–40%, as opposed to 10% on trips generally.
These kind of programs are an illustration of “win and spend” benefits, where clients receive a flat rate reward for their purchases, such as a free trip for every 10,000 miles flown or a free cafe mocha for every nine drinks. Another company, Mckinsey, claims that this technique is utilized by almost all companies with a loyalty program.
They are frequently employed defensively since they are so simple to utilize. According to Steve Grout of the Collinson Group, a loyalty consultant, many businesses launch a promotion just to compete with their rivals. However, since they are so widespread, they produce little fidelity. In a 2016 article, Lena-Marie Rehnen of Ludwig-Maximilians University asserted that frequently “the market returns to stasis.” According to Mckinsey, 77 percent of earn-and-burn programs fail in some way during the first two years.
The finest shows, in contrast, get quite intimate. For instance, Starbucks encourages customers to pre-load their smartphone app with cash before using it to pay for their daily caffeine fix. (In Starbucks’s loyalty account, an estimated $1.2 billion is placed.) This enables the business to gather reams of information on its customers, such as what they drink, where they shop, what time of day it is, and even even if it is sunny or rainy when they select a certain beverage. Then, using this information, specific offers are made to each scheme participant.
The patrons of Starbucks don’t seem to mind if that seems a little invasive. The company reported 13.3 million active users in its most recent numbers from July. Through its rewards program, it generates over a third of its American sales. According to Javier Anta, another BCG consultant, consumers tend to be happy disclosing personal information when they receive tailored offers in exchange. According to reports, loyalty card holders at the American grocery chain Kroger make 97 percent of all sales. These customers receive customized discounts based on their purchasing preferences. One of a company’s most valuable assets may be such data. Auditors evaluated Caesars Entertainment’s loyalty database at $1 billion when the casino operator declared bankruptcy in 2015, surpassing even the worth of its real estate on the Las Vegas Strip.
You could expect that the web titans would be operating the finest promotions if data were the grinding material for the loyalty mill. However, this is not always the truth. Amazon would be far better off creating and focusing customized specials for specific customers as part of a rewards program than giving blanket discounts.
As Starbucks has demonstrated, smartphone technology is a key driver of loyalty business advancements. First of all, it enables businesses to send precisely targeted, in-the-moment offers using location data. Additionally, the ability to store several cards in an e-wallet rather than having to cram them into a handbag motivates customers to use them. According to Colloquy, a quarter of those who dropped out of schemes did so because they did not provide a smartphone app. Additionally, the variety of methods that customers may earn incentives is growing thanks to smartphones. For instance, some cafes reward customers with points for “checking in” on Fb and twitter or posting photos of their meals on Tumblr.
According to a 2015 analysis by the loyalty marketing research firm Colloquy, families have membership in 29 customer loyalty programs on average across the retail, financial services, travel, and other industries. This represents a total of 3.3 billion households nationally. However, the average family only uses 12 of those cards. An online study of nearly 19,000 middle – class Consumers in the United States and Canada found that 80% of respondents indicated they were more inclined to stick with companies that offered loyalty programs.
But for the programs to be effective, they must now provide more than simply a discount or a free dessert. I t’s necessary to use the crucial data you obtain from those clients in an efficient manner in addition to just acquiring more customers. It’s about influencing people to alter their behaviour and habits and to share that with friends and family, not just to purchase more.
While discounts are crucial, research also reveals that consumers “overwhelmingly indicate they desire unique treatment and benefits not available to others in a loyalty program,” according to Ms. Collins. They arrive for the benefits but remain for the experience. Even businesses with a solid consumer base are finding that they need to adjust their programs on a regular basis.
After the Covid-19 pandemic’s worldwide upheavals, the economic sector became intensely focused on innovation in 2021. “63 percent of leaders claimed that Covid-19 made their firms embrace digital transformation sooner than they had planned and were making bigger investments in technology as a result,” claims a Celerity survey. With this renewed emphasis on digital transformation, a number of technologies have experienced a surge in popularity, including loyalty programs.
According to MarketsandMarkets research, the worldwide loyalty management market will reach $18.2 billion in 2026, up from $8.6 billion in 2021. Given the growing importance of the loyalty management sector, it is crucial for businesses to comprehend the underlying trends in order to develop an effective program design. The epidemic has had an impact on loyalty programs in the same way that it has on the corporate sector as a whole.
Recently, Antavo research, conducted a poll of more than 320 corporate respondents from throughout the globe and examined the information from more than 25 million member activities monitored by their platform. They released the Global Client Loyalty Report 2022, which enables us to observe loyalty program operators’ perspectives and pinpoint significant developments that affect both loyalty programs specifically and post-Covid-19 customer retention in general.
Create distinctive loyalty programs that provide ongoing value to customers
A brand’s biggest asset, in our opinion, is a devoted customer base. According to our perspective, loyalty must be gained through a superior product or service, emotional connections, and individualised experiences. Building customer loyalty results in enduring relationships, intense consumer advocacy, repeat business and increased revenues, decreased churn, cheaper acquisition costs, and stronger brand development. Loyalty is acquired through a string of satisfying brand interactions. Our all-inclusive loyalty solutions are based on our in-house technology, grounded in business strategy, and demonstrated to have a significant positive impact on the bottom line while enticing customers all over the world. Create enduring connections with adaptable technologies, levels of participation, and important insights.
Engagement, tiers, and technology are redefined
When we looked at why businesses run (or plan to run) loyalty programs, we discovered that “increasing customer engagement” came out on top. This shows that businesses want to use loyalty programs for more than just an incentive to increase sales and are actively looking for ways to have more touch-points with customers. Customer feedback supports the notion that emphasising involvement is worthwhile: Fully engaged customers outperform the typical customer by 23% in terms of share of wallet, profitability, revenue, and relationship growth, claims Gallup.
Loyalty programs provide a variety of alternatives for enhancing engagement, including gamification, badges, levels, anniversary surprises, early access, and much more. Particularly, tiers have proved to be well-liked. However, think about including more groups than the standard three ( bronze, silver, gold tiers). Think of including a VIP level that needs annual buy-in via loyalty points.
The Value Of Performance Monitoring
During COVID-19, loyalty programs kept customers interested, but can they genuinely produce a profitable return on investment for businesses? Loyalty programs may be profitable, as seen by well-known examples like Starbucks Rewards and Amazon Prime. It’s hard to make generalisations about the majority of loyalty programs, though. Only 32.8% of respondents in Forbes survey that offered a loyalty program said their company tracked the ROI of loyalty programs. It’s interesting to see that 93,1 % of those that assess ROI said their ROI was good. If anything, this information should serve as a powerful incentive for owners of loyalty programs to begin monitoring the effectiveness of their programs.
Of course, this poses a problem of its own: What indicators must be monitored for a loyalty program to be deemed successful? Although client lifetime value and recurring income seem like obvious solutions, ROI isn’t the only measure of performance. The ability to boost participation and improve segmentation utilising member-collected loyalty data is a measure of success, much like the quantity of active referrals or the frequency of social media engagement. It all boils down to the KPIs that each brand wants to target in the end.
Moving Toward A Loyalty Model That Is More Emotional
With digital transformation in full swing throughout the world, businesses now have more ways than ever to connect with their consumers. A question crucial to loyalty development is the question of how to do so. Simply said, discounts are no longer as successful as rewards that have an emotional component in an era where consumers have access to a vast variety of web stores and merchants. Instead, brands must capture consumers’ hearts rather than their wallets.
86 percent of customers with strong emotional involvement claim to always consider their favourite brands when they need anything, and 82 percent claim to always purchase from the brand when they consider purchasing something. But what do corporate executives believe about emotional ties? Only 20.7 percent of survey respondents who already had a loyalty program characterised it as being more emotional than rational, compared to 53.6 percent of respondents who were in the process of launching or relaunching their program. This finding suggests that more loyalty programs in the future will place a greater emphasis on fostering emotional loyalty.
Emphasising the fact that emotional devotion is not a zero-sum game is important. In your loyalty program, you may still include transactional components like discounts and collecting; just be sure to include a few features and prizes that place an emphasis on emotional attachment. For instance, provide access to member-only celebrations of your brand’s anniversary, benefits that make purchasing easier, like a private concierge and devoted customer assistance, or chances to contribute to the creation of new products and services.
In conclusion, global businesses that place a high value on customer loyalty are undergoing a behind-the-scenes transformation in the world of loyalty programs. Therefore, companies that want to draw in customers should modify their tactics to put an emphasis on engagement, tiered program structures, and emotional loyalty.
Retail loyalty programs
A good suggestion for a simple method of rewarding clients who spend money with you is points. In the retail sector, this can require some work. Right now, the majority of people’s wallets are overstuffed with different plastic cards. There won’t be many who wish to add more. So how do you give out points? Getting customers to register their credit cards with you is what we recommend. When they utilise these cards with you, you can then give them points.
A workable strategy for distributing advantages. Essentially, advantages fall into two categories:
- Instant gratification, sometimes with special treatment
- Long-term benefits (such as air miles), when the client is putting money down towards an attainable long-term objective
A lifetime value study is the most efficient tool to enable you to predict if the loyalty plan will increase your profits or drive you into bankruptcy. Some businesses, like supermarkets, have extremely slim profit margins. They are unable to afford to give away much of anything. However, as we will see, they have successfully made loyalty schemes work for them. A complex piece of software that keeps track of points and redemptions, manages monthly customer reports, and reports to you. The majority of businesses have contracted out their loyalty programs. You should actually deal with a company that has gone through this process previously and is aware of potential pitfalls.
Select a specific end date that is stated when your program starts, allowing you to gently exit if something doesn’t work out. You may still extend the deadline, but if you try to discontinue a program when many consumers are holding onto their earned points, you could find yourself in great trouble.
A promotion strategy with an extremely high usage rate as a goal. Start by talking to your staff members. Enroll them in the plan right away, and provide them exclusive perks. You want each member of your staff to address the consumer directly and say, “You really should be participating in this program. I love it. Being involved personally. Promote the strategy in any way you can. The plan’s goal is to alter consumer behaviour. Only after clients are enrolled are you able to accomplish it.
Supermarket loyalty programs
Today, the majority of supermarkets provide plastic frequent buyer cards to its clients. These are read at the supermarket checkout and enable the supermarket to create a reliable database, giving it details on how much you spend within every category and where and when you buy. How do supermarkets honour customer loyalty? There are several methods: they seldom offer miles or points. Supermarkets can’t afford to give anything out since their profit margins are too slim.
They frequently employ straddle pricing. Many of the store’s products are priced somewhat more than those paid at rival retailers, but if a loyalty card is used, members can purchase the things for little less than the going rate. These products, of which there may be hundreds in a store, are typically labelled with both their member price and their occasional consumer price. Some of these member-priced goods are being promoted by food producers, while others are just being given a boost by shop management. Straddle pricing has the effect of rewarding devoted consumers while charging infrequent, non-member customers for the benefits. It is an excellent system.
The fact that members pay 0.95 eur for milk while nonmembers must pay 1.05 our won’t bother a nonmember much. If he does care, he may always apply for a card and receive the discount right away.The bottom of the cash register receipts that are sent out for members clearly states their membership benefits: “Today you saved xx eur by using your loyalty card.” The convenience of this approach is that the retailer was not required to supply discount. It was donated by infrequent consumers.
Stores alter consumer behaviour in different ways by using their loyalty programs. On their birthdays, members are given ice cream for free. In the six weeks leading up to Christmas, if customers spend 50 our weekly, they receive a free gift. Tuesday is a slow night, so members who come in on Tuesday may save even more. Members who only purchase items from the deli and not from the produce section will receive a unique voucher that will give them 10 eur to spend in the produce section. This will encourage lunchtime consumers to purchase items to bring home. Customers that solely purchase deli items will receive another 10 eur. A special deal will be given to lapsed members who spent a lot but haven’t made any purchases in six weeks in an effort to urge them to visit the store again.