How Much Does Loyalty Program Cost and Should It Deter You?

How Much Does Loyalty Program Cost and Should It Deter You

Many flourishing businesses simply do not see the need for a loyalty program. After all, their products are selling well and if a few customers have complaints or leave, it does not make much difference. This false presumption has led to the downfall of many businesses. Smart enterprises give serious thought to implementing a variety of loyalty programs. A loyal customer generates more business and it costs less to sell compared to new customer acquisition cost. Still, loyalty programs do entail costs. How much does a loyalty program cost and should costs deter you?

  • Jio, a prime example

One of the best examples of loyalty programs that led to great success in a short time is that of Jio, a telecom operator in India. In order to lure customers and earn loyalty the company launched public 4G services in September 2016. At first it offered free 4G till 31st December and extended the offer till 31st March 2017. 16 million signed up and the number touched 50 million in just 83 days, going on to 100 million by February 2017.

Today, it is the largest mobile network operator with a subscriber base of 387 loyal customers. Its program left other mobile service providers far behind. Jio is raising prices but still, customers stay loyal because they remember the freebies they got when they signed up. How much did it cost them to offer free internet? The cost must be in millions. It paid off. Today, Jio is the top dog.

  • Costs vary

Not every business is a Jio with the backing of Ambani billions. Small retailers operate on slim margins. At best you can plan on allocating a percentage of your profits to loyalty programs in the hope of reduced margins but increased customer base and increased sales.

In the US alone retailers are spending about $2 billion and more every year on loyalty programs. Loyalty programs vary and it is up to you to choose the best fit and one that gives you maximum ROIs.

  • Hiring a loyalty company

Retailers may not have time or know-how to design loyalty programs. In this case, they can hire a loyalty program company. These SaaS companies may charge by monthly retainer fees or they may charge based on loyalty points. The plus side is that you are free to focus on your retailing business while the loyalty team takes care of the entire loyalty program.

  • The enterprise-level loyalty program

Retailers connect directly with buyers. However, enterprises must have a different strategy in which loyalty encompasses vendors, employees, agents and distributors, and customers. In such cases, you will find a third-party loyalty service provider put in place an app that can be used by specific segments, and that app connects with a backend loyalty management program. Enterprises can handle it with their own team or let the service provider take care of the chain. Not having a loyalty program would be equally bad since customer churn could result in losses of millions.

For instance,

  1. Starbucks finds that loyal customers will spend 3 times more than non-loyal customers.
  2. Qantas finds that its Frequent Flyer program generates $ 400 million in profits after deducting the cost of program operation. The loyalty program has a value proposition of $ 4 billion for Qantas according to expert analysis.
  • Outgo and income

Business operators are concerned with the bottom line. For each dollar, they spend they want a return. Loyalty programs are like planting trees. Today, you put in time and effort. The tree bears fruits in the future vastly over time and money expended.

From a short term profit perspective, you can sell an item and make a 10% to 25% profit. However, your efforts to find customers must continue and such efforts also cost time and money, a factor to consider. Forego part of the profit to build loyalty and you will be spending less on customer acquisition as well as sales, which eventually translates to escalating revenues. This is how you should look at loyalty programs: an investment for the future. Do not let costs of loyalty deter you; the benefits far outweigh spending.

  • Choosing the right balance

Large enterprises may need to employ specific consultant to design, launch, and manage loyalty programs at great expense with greater rewards. However, smaller businesses can find a happy medium in the form of a loyalty management platform, a perfect balance of cost and performance.

  • The loyalty management platform

Forget about printed loyalty cards. Forget about the custom development of software. Forget about engaging teams. They are all expensive options justifiable only when you have large volumes. The finest solution is a hosted loyalty management platform. This is how it works:

  1. Subscribe to the program. You simply pay for usage per month.
  2. The platform lets you create your account online to use the software. You can define loyalty program types, designate loyalty rewards categories (retailers, channel partners, distributors, agents, end customers, employees, etc.) and define loyalty amounts based on parameters. Define and refine programs as you go along. Do this through the main platform.
  3. The platform gives you a loyalty app that targets can download and install on their phones and use to accrue loyalty points, see how they stand, and redeem points. The app connects to the platform.
  4. Credit loyalty to customers’ bank accounts.
  5. Derive analytical reports to find out your net gains, increase in customer base, and other statistics.

At one stroke you do away with high-cost components such as paying experts for services and paying for software development as well as for printed materials. Everything is digital. You are the master of your loyalty program and can run it the way you want. You can delegate routine handling to one employee and keep track of developments. In just six months you will find that your existing customers stay loyal and you also get more new customers into your fold. The profits alone far outstrip whatever subscription cost you pay for use of the platform. It can be the best investment you make.

  • But I am no loyalty Expert…

There is nothing to worry about when you subscribe to LoyaltyXpert’s loyalty management platform. Our team guides you on the topic and helps you to set up your loyalty program software. Once you start using it you will be able to find new and better ways to implement a variety of programs to keep customers satisfied and loyal to you.

Students spend a lot on higher education to get higher-paying jobs. Businesses invest in modernization and marketing to increase sales and improve products. Loyalty is an intangible but profitable factor that can be considered as an investment. Do not let costs deter you. Your image improves; brand reputation increases and customers stay happily loyal, buying more, and giving you more profits in the process.

For more information about LoyaltyXpert, Reqeust a free demo to learn more about how to design a loyalty program and it’s cost!