Loyalty programs are supposed to unlock great value for companies by driving higher sales and boosting brand affinity. So why aren’t they doing this? Although more and more companies now have loyalty programs (they’re growing at 9% a year), the number of customers who actively participate in them continues to hover at only about 50%, suggesting that there is still something missing in most programs.
In late 2017, we surveyed more than 9,000 consumers about their experiences with loyalty programs across nine different business sectors, including grocery/drug/mass merchandise, retail, airlines, hotels, car rental organizations, and restaurants. We asked consumers what they value in a program and how they engage with them.
We found that that having a successful loyalty program does, in fact, drive significant value and is critical for growth. Having a program scoring high on what we call the Loyalty Performance Score is strongly correlated with greater shareholder return, especially in the airline, retail, and grocery/drug/mass-merchandise sectors. This measures both how customers feel about loyalty programs and how well programs drive value for the company — for instance, how often customers choose the brand over other options or pay more to earn a higher status.
We also found that consumers who participate in top-quartile loyalty programs are 80% more likely to choose the brand over competitors and twice as likely to recommend the brand to others. (See “The Value of High-Performing Loyalty Programs.”)
What Makes a Good Loyalty Program?
So how do you move your loyalty program up into this lucrative top tier? We’ve identified four key principles.
1. Tailor your program’s benefits to the “head” and the “heart.” It’s no surprise that what the feature loyalty members say they care about most in a program is monetary rewards. But it’s important to note that offering a basic “earn-and-burn” points mechanism isn’t enough in today’s market. Customers care almost as much about a company making them feel special and recognized as they do monetary benefits (see “What Customers Really Care About”). “Surprise and delight” features like unexpected gifts and special recognition deliver exceptionally high value to customers and can be achieved at low cost.