Do Loyalty Programs Pay Off?

in Aug 15, 2018
Dollar question mark

In a world filled with loyalty programs, it’s always interesting when I talk to a dealership that harbors doubts. The cost involved in having a loyalty program is minimal compared to the revenue generated. However, at times it seems as if dealers are intimidated by the effort it would take to administer one.

Loyalty program benefits and results are wide-ranging and go far beyond simply giving away free or discounted products or services. A recent study by Forrester, names a few:

  1. Just 51% of consumers that did not belong to a loyalty program reported that when they liked a brand they tended to stick to it. However, this increases to a healthy 64% if the consumer belongs to a loyalty program.
  2. 48% of consumers who belong to loyalty programs reported that price is LESS important to them. This falls to 43% for those that do not belong to a loyalty program.
  3. Consumers who belong to loyalty programs are willing to pay more for convenience (50%) than consumers who do not belong to a loyalty program (36%).
  4. 52% of consumers who belong to loyalty programs “often tell [their] friends and family about new brands, products, or services,” versus 33 percent of people who don’t belong to a loyalty program.

It would seem logical that the primary motivation for joining a loyalty program in the first place is for discounts or to earn freebies and that may, in fact, be true. However, at some point after joining, consumer perception shifts away from price towards brand and convenience.

Consumers tend to shop at a particular grocery store because they get used to it. They know where everything is located within the store so it makes their time spent grocery shopping more efficient. The more they shop there, the more convenient it becomes for them. For example, Whole Foods is a very popular store, yet there are not a lot of them to shop at – only 360 storesacross the entire U.S. and the United Kingdom combined. Compare that to Kroger, with 2,641 stores in just 34 states.  Kroger can dominate a market simply by being convenient; whereas Whole Foods is seeing sales decreases. What is Whole Foods doing to build sales and increase loyalty? They’re introducing a loyalty program.

The bottom line is that loyalty programs help increase business and also increase the revenue generated by that business. They help retain customers, build branding and gain free marketing via word of mouth. Whether you do it yourself or have a third-party assist you in administering it, loyalty programs pay off in more ways that you realize.