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 an aim to retain their current customers and turn 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 advantages and disadvantages associated with loyalty programs. 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 cost up to 7x more to acquire a new customer rather than nurturing the existing customer. Hence, most of the 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, the new customers will easily join your mailing list to take advantage of the offers. Also, when a customer finds out 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.
4. 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.
5. 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 the information about rewards with friends and family, so you can enjoy word of mouth publicity.
Cons of a loyalty program
1. Market Saturation
Many businesses are using loyalty programs, and sometimes it may be identical. They may similar membership stipulations, purchase requirements, and rewards. Thus, because 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 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 accurate identification of lolly customers may not be estimated by the loyalty program.
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 amongst your loyal customers.
3. Constraints of collected data
The data driven by 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.
Additionally, past loyal customers do not always guarantee future profitability. The businesses are offering loyalty program should not rely on the behaviour of the past customers to estimate future revenue because their needs, incomes, or lifestyle 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, surely 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. Get in touch with us to create a loyalty program that drives in more brand loyal customers that boost your business revenue.