When you take a look at America’s top retailers, it appears that customer loyalty programs are highly effective for garnering customer retention and loyalty. In fact, retailers without loyalty programs brought in, on average, 9.9 billion while those with loyalty programs raked in 26.7 billion, nearly triple the amount. Looking at this information alone would certainly lead you to believe that loyalty programs are a quick fix to sales slumps.
While the top retailers who use loyalty programs are seeing triple the revenue of non-loyalty retailers, we should be asking if it’s the loyalty programs that are causing the increase, as some contradictory data may disprove the theory. In a study conducted by Forrester, researchers found that, on average, only 16% of a retailer’s customers are actually using loyalty programs. In a 2011 COLLOQUY Cross-Cultural Loyalty Study, only 17% of U.S. respondents said that loyalty programs influence their buying habits.
A study conducted by MasterCard on onmishoppers revealed that promotions were the least important factor, where in a response consistent to Forrester and COLLOQUY, only 18% of respondents agreed that it was the most important. In an overwhelming majority, 69% of respondents said that the most important factor for purchasing is price/quality. Equally as revealing is the 26% of respondents who cited product specs as the most important factor.
It’s clear that loyalty programs and the promotions they offer, are not going to cut it on their own. As far as large retailers go, and their evident success with loyalty programs, it could be said that they’ve already done the legwork for building a loyal customer base through quality service and products. The loyalty program, then, is just an add-on to a company that already has a strong reputation.
Smaller companies who are still building reputations need to think about aspects of their business model besides the “quick fix” of a loyalty program in order to retain loyalty.
In another COLLOQUY report that studied loyalty program acquisition and retention, researchers found that while 56% of respondents join the program because they could earn points/mile on purchases, the same percentage left because the company failed to provide rewards or offers that interested them. The ones who chose to remain with the loyalty program said it was because it was easy to understand (81%) and the rewards and offers were relevant to them (75%).
Thus, in order to have an effective loyalty program, you need the data behind the scenes. Building customer profiles that include relevant information such as demographic and buying habits can help cultivate loyalty, even without a loyalty program. But if you do intend to introduce a loyalty program, having this information available will lend a hand in its success.
More important than building a loyalty program is actually building loyalty. Besides creating useful customer profiles, providing outstanding customer service, quality products, and remaining relevant in social media stratospheres will build the customer loyalty that will help propel sales.