How effective are loyalty programs?
April 06, 2015

Gift card programs can boost revenue for small businesses. In a study from Bond Brand Loyalty, 7 in 10 customers said that belonging to a loyalty program determined where they shopped because they wanted to maximize their points. The number of consumers who are influenced by the loyalty programs they belong to increased 13 percent compared to two years ago. The most important factors in a gift card or loyalty program are the appeal of the rewards, how easy they are to redeem and how many points are accumulated per dollar spent.

Customers who belong to loyalty programs are more valuable to retailers, but it's important to structure offerings in a way that is beneficial for the business and encourages customers to shop more frequently.

Loyalty programs have some room for improvement
While there's little doubt that loyalty programs are both popular and effective, businesses may need to consider what rewards they offer and the points structure to ensure they are maximizing the potential. According to research from Capgemini Consulting, loyalty program participation is often low. The consulting firm studied programs in telecommunications, retail, banking, airlines, hotel chains, consumer electronics and products and found only 11 percent of companies offer rewards based on a customer's purchasing history or location. If rewards are relevant to consumers in only a particular region, a company's program may not be driving the widest sample of people to buy.

While 79 percent of loyalty programs allow customers to use the mobile channel, only 24 percent enable them to redeem benefits from their smartphones. As mobile devices increasingly because part of the retail experience, the lack of mobile functionality could be problematic for businesses. Capgemini also found that only 16 percent of loyalty programs rewarded customers for actions that have the potential to increase engagement, such as referring a friend, taking a customer satisfaction survey or writing an online review. While basing rewards on previous purchases can be effective, these additional chances for rewards encourage customers to interact with the brand.

Multichannel loyalty programs were found to be more engaging than others. Bond Brand Loyalty revealed people belong to more loyalty programs - an average of 13 per person in 2015 compared to 10 in 2014. There is a prime opportunity for retailers of all sizes to utilize loyalty programs, but companies may need to assess whether their current rewards are driving purchasing behaviors.

Nexus: G-WEBCD6