A while back, we posed a question that many companies today may be asking themselves: Should I launch a customer loyalty program? If a company’s goal is to deepen their customers’ level of engagement and increase their lifetime value, then launching a loyalty program is a no-brainer – the answer is YES!
But the decision to launch a loyalty program is a large one, affecting stakeholders from across the entire organization. After all, for a loyalty program to be truly effective, it must be embraced as a company-wide strategic objective. There are many factors involved in making this kind of decision, but, let’s face it, one of the main questions that will present itself when considering the investment required to put a new program in place is “can I really make money on a loyalty program?”
Yes You Can! But Not All Loyalty Programs are Created Equal
Traditional loyalty programs, for instance, typically deliver “rewards” or some sort of thank-you to their customers for performing behaviors that they have done in the past and are likely to do again (purchasing 9 t-shirts and getting the 10th free is a classic example of this). Offering the 10th t-shirt for free creates a satisfied customer no doubt (which is a top priority for any company), but is a satisfied customer a profitable customer? Not necessarily. Rewarding a free t-shirt may encourage your customer to keep buying t-shirts, but it comes at a price – the dollar value of giving away that t-shirt, something that the customer may have bought regardless of the loyalty program.
An Innovative Approach that Guarantees ROI
A more innovative way of thinking about a loyalty program is providing an incentive to a customer for doing something valuable that they are not showing a high propensity to do: purchasing cross-category (like incenting them to purchase fashion accessories in addition to an apparel purchase) or increasing purchase frequency (say, twice a month up from once a month), for example.
These valuable behaviors that a customer is not currently performing are called “behavior gaps.” By identifying your customers’ behavior gaps, and incenting them to “close the gaps” (i.e. perform the valuable behavior) using an incentive that costs less than the value of the behavior, you can ensure that your investment in customer loyalty delivers a profitable ROI. And imagine doing this not just for targeted segments of your customer base, but for each customer on an individualized level. Providing this kind of personalization to each of your customers, and guaranteeing a positive ROI in the process, is definitely a win-win.
The bottom line is, all customers, even the most loyal, have behavior gaps that, if closed, could drive value for your company. By using individualized incentives to encourage them to perform these new, valuable behaviors, you can deepen their level of customer engagement and make money from your customer loyalty program in the process.
The question “Can I Really Make Money on a Loyalty Program?” is the second of 10 key loyalty questions featured in our whitepaper “Innovations in Loyalty: 10 Key Questions You’re Probably Asking”.