“Are loyalty programs liabilities or investments?” This is a million-dollar question for many businesses, including yours! Before answering the question, let’s understand the terms ‘liabilities’ and ‘investments’.
In his best-selling book “Rich Dad Poor Dad,” noted investor, author, and entrepreneur Robert Kiyosaki explained asset, liability, and investment in extremely simple language. An asset puts money in your pocket. A liability takes money out of your pocket. And an investment makes money work for you.
Now, coming back to the question, “Are loyalty programs liabilities or investments?” Well, some businesses count their loyalty programs are liabilities. As per an article published by Stanford University, the main currency of most loyalty programs is points, using which customers transact with brands. As each point signifies a commitment to future service, the businesses’ balance sheets consider the monetary value of the points as a liability.
But if we look at relevant stats, then it would be clear that loyalty programs are among the best investments for all types and sizes of businesses. A recent study found that three-fourths of American businesses with loyalty program report positive returns on their loyalty investments.
Leaving all stats and studies aside, the answer to the question lies in plain sight. Take any successful company, be it Amazon or Zappos, they all run highly successful loyalty programs. Now would such legendary companies use loyalty programs if they don’t see them as investments but as liabilities? Certainly not!
Are Loyalty Programs Liabilities or Investments?
Here are the reason loyalty program liability is an asset:
Whether a loyalty program is a liability or an investment depends on a number of factors, including the design of the program, the way it is managed, and the overall performance of the business.
If you think about liability as an investment you’re making in your members, then the loyalty program liability starts to look a whole lot more like an asset. Think about it this way: every dollar you put into the liability is an investment in your members.
At LoyaltyXpert, we understand the power of well-designed loyalty programs and have enabled many businesses of different types in various industries to generate high returns on their loyalty investments. In this blog post, we discuss why loyalty programs are the best investments and what best practices you can comply with to enhance your loyalty programs.
Why are Loyalty Programs the Best Investments?
When prudently designed and properly executed, loyalty programs can generate a significant return on every dollar invested. That’s why many successful businesses publicize their loyalty programs around the globe and count them as their best investments.
Improved Customer Retention
The very purpose of loyalty programs is to enhance customer retention. As per the latest stats, three-fourths of customers prefer to make repeat purchases from businesses that offer loyalty rewards and points. Not just that, other data reveals that loyalty programs can increase spending by 54% of a business’s customer base.
This is the biggest benefit of loyalty programs as customer retention is more profitable and cost-effective than acquiring new customers. As per several data, retaining existing customers is five to seven times less expensive than acquiring new customers, and raising customer retention by only 5% can increase profits by 25 to 95%.
Enhanced CLV and CFV
CLV stands for (customer lifetime value) and CFV stands for (customer future value). A new study found that when a business realizes just a 7% rise in brand loyalty, it can cause the CLV of each customer to increase by up to 85%!
When a brand manages to retain customers and make them purchase more and more, it can unlock the potential for higher CLV and CFV, which results in higher revenue and profitability. By retaining valued customers, brands can also increase cross-selling and upselling opportunities.
Access to Valuable Customer Data and Insights
Would you be surprised to know that a majority of companies collect zero- and first-party data on their loyalty app? A recently published stat found that nearly half of businesses collect zero- and first-party data using their loyalty app and about 60% of the companies collect the data at the launch of new promotions or marketing campaigns.
Loyalty programs provide companies with a huge amount of primary data, which can be leveraged to make data-driven decisions. Businesses can also use the data to personalize customer experiences and loyalty programs. As per a study conducted by Accenture, 8 out of 10 customers are ready to share data with businesses in exchange for personalized experiences.
Cost-Effective and Easy to Monitor
Let’s face it; digital loyalty programs are much more cost-effective compared to traditional marketing strategies. In traditional marketing strategies, you allocate money to different marketing channels such as TV, radio, billboards, newspapers, and magazines and wait for the results. You don’t have any means to know which campaign is working and which isn’t.
As John Wanamaker, the pioneer of department stores, said “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” But loyalty programs don’t need the amount of money that traditional marketing campaigns need and it’s easy to track loyalty programs’ performance using analytics and reporting tools.
Level up your sales efforts!
Learn how to run data-driven Sales and Marketing campaigns
5 Ways to Make Loyalty Programs Profitable
To get the desired return on your loyalty investments, you need to make sure that you adhere to these best practices for loyalty programs:
1. Know Your Customers
The first step is to know everything about the customer for whom you are creating the loyalty program. Try to find out everything about them starting from their age, gender, education and profession, purchase habits, likes and preferences, and interests. This will help you to create the persona of your perfect customer.
2. Handpick the Right Loyalty Partner
After knowing everything about your customer, it’s time to look for some reliable and reputable loyalty solution providers in the market and select the right partner as per your needs and specifications. You can take the help of the internet to start with the preliminary search and dig deep into the results to find the right solution provider for your business. When looking for a suitable solution provider, find out if they provide a free demo as that can help you make an informed decision.
3. Simplify Registration and Onboarding
After joining hands with the right loyalty partner, it’s time to design a loyalty program. During this process, make sure that your registration process is extremely simple so that more of your target customers can register themselves without any hassle. While designing the app or platform, see to it that the onboarding process is extremely fast and efficient.
4. Tailor Loyalty Rewards
Knowing your customers gives you a huge benefit as it enables you to design the right loyalty rewards for them. By creating various customer personas, you can know which customer segments value financial rewards more and which ones value experiential and non-transactional more.
5. Monitor your Loyalty Program
Last but not least, monitor your loyalty program and try to find out how your loyalty program is performing. If the actual results don’t match the expected results, recalibrate your program until you start getting desired outcomes.
Taking everything into account
If you design and execute your loyalty program extremely methodically, then they can generate huge returns on your investments. Iconic brands such as Amazon, Apple, Starbucks, and many others are famous for their loyalty programs and leverage them as a massive promotional vehicle.
At LoyaltyXpert, we have created and managed many businesses and helped them achieve high returns on their investments. If you are looking to make the most of your loyalty programs, contact us today or request a free demo with our loyalty expert.