\"Impact of Loyalty Program

The Impact Of Loyalty Programs: Pros And Cons

Loyalty programs are intended to reward your best (loyal) customers. Businesses choose to execute a rewards program with the aim of retaining their current customers and turning new buyers into loyal customers. Conventionally, many companies are practising rewards programs like rebate programs, cashback, earning points, and many more to incentivize purchases for customers.

However, there are certain pros and cons associated with loyalty management platforms. Go through this article to get an overview of the pros and cons of a loyalty program which will help you to make the right decision to launch a loyalty program.

Let’s Look at the Pros of a Loyalty Program

1. Increase customer retention


Loyalty programs make customers feel valued, which entices them to continue doing business with your product or service. Generally, loyalty programs are designed to retain more customers by rewarding them to make repeat purchases with a particular brand. In fact, according to a study, it costs up to 7x more to acquire a new customer rather than nurturing the existing customer. Hence, most of marketers design a loyalty program to increase customer retention and incentivize additional purchases.

2. Attract new customers

A well-designed loyalty program helps businesses to attract new customers. With the points or discounts, new customers will easily join your mailing list to take advantage of the offers. Also, when a customer finds a loyalty program where rewards are within reach, they are more inclined to try your brand as the rewards are effortlessly accessible. Nonetheless, customers who are content with your brand may share their experience with friends and family members even without a referral program. Consequently, you will be able to attract new customers with loyalty programs.

3. Valuable data

When a customer signs up for your loyalty program, you can register their information in your company’s database. This data enables you to determine customers’ behaviour, buying practices, and preferences. Companies use this worthwhile information in various forms, from tailoring their offerings to particular groups of consumers and mapping the results of special promotions to aiding in inventory management and pricing. A well-developed loyalty program allows companies to segment customers and differentiate profitable customers from unprofitable ones.

4. Better communication with consumers

A loyalty program allows businesses a direct line of communication with their customers. This makes it easier to build brand awareness and increase loyalty by presenting valuable insights on a consistent basis. But, make sure that you share announcements about new products or services, promotional offers, and rewards program updates. The more your customers know about your business offering, the more they will keep returning. Also, they will share information about rewards with friends and family, so you can enjoy word-of-mouth publicity.

Now Let’s Understand the Cons of a Loyalty Program

1. Market Saturation

Many businesses are using loyalty programs, and sometimes they may be identical. They may have similar membership stipulations, purchase requirements, and rewards. Thus, ultra-competition companies are unable to pull back from their loyalty program promises due to the fear of lost sales. With the average household participating in multiple reward programs, businesses should create programs that are unique and distinct.

But it’s very troublesome to create a loyalty program that is based on a sustainable competitive advantage. Advocate loyalty programs are a good way to stand out, though, as you can reward customers for unique actions that work for your audience. If you consult an expert firm like LoyaltyXpert you can create a customer loyalty program that is unique and stands out among others.

2. Difficult to identify loyal customers

Many times, it is difficult to differentiate brand-loyal customers from repeat buyers. When consumers make frequent purchases with your business, it simply does not mean they are loyal to a product or service. They might be buying it because of the perks that you are offering. Hence, the loyalty program may not estimate the accurate identification of loyal customers.

However, if you merge your loyalty program with advocate marketing tactics, you will be able to fetch fruitful results. For instance, reward shoppers for referring friends, writing reviews, and so on. This will allow you to distinguish who’s just a frequent buyer and who is amongst your loyal customers.

3. Constraints of collected data

The data-driven loyalty programs often provide a limited overview of customers’ overall purchase behaviour. For example, the statistics can’t track purchases from other brands and stores. Sometimes, customers are uncomfortable with sharing sensitive information to embrace the incentives of the program. Perhaps, the data may not be an authentic representation of customer loyalty.

A frequent buyer is not certainly a loyal customer. As mentioned earlier, the consumer may be buying your product or service because it is convenient or the right price. There will be certain customers who are making repeat purchases to just get the benefits of your program’s rewards.

Start your Loyalty Program Today

Try it for free, No credit card is required

Additionally, past loyal customers do not always guarantee future profitability. Businesses offering loyalty programs should not rely on the behaviour of past customers to estimate future revenue because their needs, incomes, or lifestyles may change. And, these changes will definitely affect their purchase habits. Hence, when you are launching a loyalty program consider this fact and act accordingly to find out other ways to generate ROI for your business.

There is no doubt that the benefits of loyalty programs outweigh the disadvantages. If you carefully and strategically launch a loyalty program in the market, you will generate profitability. All you need is expert advice and marketing agendas to market your program, and you will be able to retain more loyal customers with a customer loyalty program.

To get more information about how the LoyaltyXpert team can offer the benefits and get control of the cons of a loyalty program, feel free to contact us or request a free demo with our experts.