stack of loyalty cards

Do loyalty programs really drive customer loyalty?

CX Best Practices

Open up your purse or wallet and we'd bet you'll find at least one loyalty card staring back. In fact, a recent poll by Synchrony Financial and Reuters found that 80% of Americans belong to some type of loyalty program, while a study from Colloquy Loyalty Census suggests the average U.S. household is enrolled in over 18 programs.

From travel, to groceries, to oil changes, there's a loyalty program for just about everything these days. But, do these programs actually accomplish what their namesake suggests: drive repeat business and secure customer loyalty?

The short answer is yes. "Engaged consumers buy 90% more frequently, spend 60% more per transaction and are five times more likely to indicate it is the only brand they would purchase in the future," says The Customer Insight Report.

When done right, loyalty programs are a win-win for consumers and businesses alike. Customers get valuable discounts and perks, and companies earn the opportunity to develop deeper relationships and learn valuable insights about purchasing behaviors that can help improve the bottom line.

Loyalty programs boost word-of-mouth marketing

While increased basket-size and overall consumer spend is a huge advantage of loyalty programs, they aren't the only benefits. Lewis Goldstein, president of Blue Wind Marketing, a Los Angeles-based company serving luxury brands such as Rolls-Royce and Lamborghini, says that satisfied customers often end up doing helpful advertising for businesses.

“People who love your loyalty program will talk to their friends and associates about how great it is," Goldstein says. “Word-of-mouth advertising provides a competitive advantage, and the best part is that it's free."

Some companies build word-of-mouth perks into their loyalty program. For instance, investment and savings fintech company, Wealthsimple, will manage $10,000 in investments for free for each friend that an existing customer refers to the company. Airbnb, meanwhile, offers customers credits for inviting friends to the platform.

Overall, referrals can incentivize customers to deepen their connection to the brand, as well as help the company attract more customers. But, the benefits must be worthwhile in order for current customers to sing a program's praises.

What highly-effective loyalty programs offer customers

From convenience and better service to free gifts and cash back, a loyalty program's unique perks and rewards go a long way to keeping customers happy. A good loyalty program, however, isn't fully centered on just the purchase. Instead, companies that are successful often take great pains to use their program as a relationship-building tool to enhance the overall customer experience. Here are few examples of the most successful program types and what they offer consumers.

Convenience

Starbucks has 16.3 million customers and counting subscribed to its loyalty program, and they are responsible for 40% of transactions. Starbucks' continued success is because of the conveniences baked into the loyalty app. Loyalty members get a treat on their birthday, receive personalized offers and collect stars to earn rewards such as free food and drinks. They can also order food and drinks before arriving, and pay by phone.

“No one wants to wait in line, and if you can get your pumpkin spice latte just the way you like it and fast, then you have a match made in heaven," Goldstein says. "Find out what your pain points are for customers and solve them with loyalty programs. It will keep your customers coming back."

The added value is that an app with a long memory of customers' preferred purchases can help the company better target discounts and inspire future customer behavior. No coffee coupons for tea drinkers, please!

Rewards

American Airlines' AAdvantage program debuted in 1981 as the first airline loyalty program in the world. Customers collect points by buying plane tickets, as well as by banking and shopping with AAdvantage affiliates such as restaurants, car rental agencies and hotels. The program is tiered, meaning frequent flyers can get access to benefits that annual vacation-goers don't, including better opportunities for upgrades, free checked bags and better seats.

The benefits are two-fold. Not only do frequent flyers feel recognized which further fuels their admiration for the brand, but the program is a major profit generator. According to the airline's news release, the company made a profit of $185 million in Q1 of this year (after taxes), with revenue up 1.9% to $708 million – $14 million more than Q1 of 2018. The report attributes these results primarily to higher loyalty revenue.

Personalization

Sephora's Beauty Insider program has long been touted as an industry leading example. Part of the secret to its success is its ability to store customer information such as eye color and skin tone, as well as purchase history, in order to make more personalized product and offer recommendations.

“By using insights on consumer behavior to make data-driven, personalized decisions about what services or products people like the most and the least, you have a massive competitive advantage," Goldstein says. “Your customers will feel more important, and that's what everyone wants."

The larger lesson Sephora teaches us is that customers crave more precise and personal service and suggestions. In fact, a survey from TELUS International conducted by The Harris Poll shows that when a brand provides a more personalized customer experience, 76% of consumers are more likely to complete a purchase.

Tying it all together with customer service

While loyalty programs are certainly a great way to elevate the customer journey, they're not enough on their own. Rather, businesses must surround these programs with positive customer service experiences across all brand touchpoints.

Customer service agents with the proper training to deliver consistent, efficient and empathetic care to valuable loyalty program members are a critical component. With the right team in place, every interaction becomes an opportunity for sales growth and brand loyalty.

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