why customers participate in loyalty programs · why customers participate in loyalty programs...

LOYALTY PROGRAMSWHY CUSTOMERS PARTICIPATE IN

WHY CUSTOMERS PARTICIPATE IN LOYALTY PROGRAMS

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Executive SummaryLoyal customers are valuable assets for any business. They spend, on average, two-

thirds more than a new customer, and can bring in additional business by serving as a

brand ambassador. Recent estimates say that 34 percent of consumers are loyal to at

least one brand. Businesses are constantly trying to improve customer retention and

loyalty in an effort to become that one brand. Many use customer loyalty programs

have difficultly discerning what kind of program will be well-received by customers.

This whitepaper provides an inside look at customer loyalty preferences based on

some of the latest industry findings, and provide tips for building a successful program.

Table Of Contents2 Executive Summary

3 Introduction

4 Customer Preference Findings

5 Tips for Implementation

6 Conclusion

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There are a wide variety of forms a loyalty program can take, from traditional (punch

cards, keyfobs) to modern (mobile apps, social rewards, ecommerce, gamification).

Some of these programs have demonstrated powerful results in recent years. The

Starbucks My Rewards program is a great example: Starbucks uses a tiered system of

membership cards that reward customers with free drinks, refills, and other perks. In

2013, the program contributed to a 26 percent increase in profits and an 11 percent

rise in total revenue.

On the other hand, many loyalty programs fall to the wayside every year, due to

low customer adoption, logistical problems, and poor results. According to a 2011

Colloquy Customer Loyalty study, of the $48 billion in points and miles awarded

annually, approximately one-third are never redeemed.

In order to succeed, your loyalty program design shouldn’t be driven by whimsy,

expediency, or even upfront cost; it should be based on the voice and preferences of

your customers. What kinds of incentives would earn their repeat business? What

kinds of programs would they engage with the most?

Based on the latest employee preference research, we’ve compiled a list of current

truths about what customers want and don’t want in a loyalty program.

INTRODUCTION


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2 Customers want perks and VIP status56.8 percent of consumers said they would be more likely or much more likely

to participate in a loyalty program that offered exclusive rewards and special

status. Level-based programs that offer higher benefits to those who have

been in the program longer or have made more purchases often deliver well in

this area.

Customers want to save moneyAbove all else, customers are interested in adding real value to their

experience and to their life. Over 57 percent of those surveyed said that

“saving money” is the primary reason for participating in a rewards program,

and “receiving awards” came in second (37.5 percent).

In a recent TechnologyAdvice study, “Why Customers Participate in Loyalty

Programs,” over three thousand loyalty program participants across the U.S. were

polled in order to gauge current preferences. Here are a few of the findings:

CUSTOMER PREFERENCE FINDINGS

3 Customers want mobile apps59 percent of respondents said they would be more likely or much more likely

to participate in a loyalty program that offered a smartphone app. That being

said, customers aren’t quite ready for exclusively digital programs; many still

value the convenient, card-based systems used in retail and food service.

Roughly 37 percent still prefer these card-based programs.


4 They are more likely to shop in stores with loyalty programsLoyalty programs have strongly-positive effects on store traffic and repeat

business. Over eighty percent of consumers who currently use loyalty

programs say they are more likely to shop in other stores with similar

programs.


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5 Customers aren’t motivated by social rewardsThis finding might surprise you, given the near-universal presence of

social media, and the growing popularity of social marketing. Only 16.7

percent of customers said they would be more or much more likely

to participate in a loyalty program with social rewards (such as digital

badges or recognition), while 83 percent said they would be less likely

or much less likely. This aversion is aligned with the first point on the

list: customers seek value, and social media rewards may not offer much

perceived value. Consumers may also be worried about privacy, since

not everyone wants to publicly share their shopping habits.

Now that you have a better idea of what customers want and don’t want, here are

some practical tips for building a successful loyalty program:

• Consider implementing a hybrid program that incorporates both digital

rewards and card-based engagement. Customers aren’t ready to abandon

loyalty cards, but they do prefer programs that are interoperable across

channels—in-store, online, and through mobile devices.

• If you use a points system, keep it simple. Customers should always be able

to get an easy read on their progress and understand what is required to earn

the next reward or discount.

• Use a tiered rewards structure that offers exclusive status and perks to

customers who have been with you the longest or purchase products more

frequently. Some companies even decide to charge an upfront fee for VIP

benefits (like Amazon Prime, for example). This can help sustain long-term

engagement as it requires customers to make a personal investment.

• Gamify your loyalty program. Many businesses incorporate game mechanics

(badges, level-progression, rewards) into their loyalty programs to keep

customers motivated and entertained at the same time. Gamification platforms

such as Bunchball, Perkville, or Belly can help you build a custom solution that

aligns with your loyalty strategy.

TIPS FOR IMPLEMENTATION“Customers should always be able to get an easy read on their progress and understand what is required to earn the next reward or discount.“


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These practices will help you construct a loyalty program that customers want

to be part of and that strengthens your bottom line, but they don’t necessarily

reflect the needs and nuances of every market. That’s why it’s important to gauge

your customers’ interest and preferences before you launch a new campaign.

CONCLUSION

Sources1. Study: “Why Customers Participate in Loyalty Programs.” TechnologyAdvice.

Accessed February 9, 2015. http://research.technologyadvice.com/

customer-loyalty-report/?tid=whitepaper-page

2. Peiguss, Kendall. “7 Customer Loyalty Programs that Actually Add Value.”

HubSpot. Last modified April 3, 2012. http://blog.hubspot.com/blog/

tabid/6307/bid/31990/7-Customer-Loyalty-Programs-That-Actually-

Add-Value.aspx

3. “Building Brand Loyalty in a Cross-Channel World.” Experian. Accessed

February 9, 2015. http://www.experian.com/assets/marketing-services/

white-papers/cross-channel-loyalty-wp.pdf

4. “Why Small Businesses Should Be Utilizing Customer Loyalty Programs.”

Entrepeneur. Last modified April 25, 2014. http://www.entrepreneur.com/

article/233362

5. Berry, Jeff. “The 2013 Colloquy Loyalty Census (US Edition).” LoyaltyOne.

Accessed February 9, 2015. https://www.loyalty.com/research-insights/

whitepapers/the-2013-colloquy-loyalty-census-us-edition

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