Chapter 5: Retailers See Increasing Value in Loyalty Program Data

A 5 Part Series

In today’s retail landscape, retailers are discovering the increasing importance of customer loyalty program data. Customer loyalty programs have long been a staple in the retail industry. A successful loyalty program would motivate customers to enjoy the rewards of their increased spending, allowing retailers to secure their support.

However, shoppers’ expectations and behaviors regarding these programs are evolving rapidly. Only value-based loyalty programs encourage repeat purchases. In this article, we will explore the changing dynamics of loyalty programs and their significance for retailers.

The Selective Nature of Loyalty Program Membership

In 2023, the average shopper belongs to approximately 3.4 loyalty programs, making it clear that loyalty program membership is now a common aspect of the shopping experience. However, the challenge for retailers lies in creating loyalty programs that genuinely encourage customers. Notably, 58% of shoppers indicate that a loyalty program makes them more likely to make purchases from a specific brand or retailer.

It’s essential to recognize that the number of loyalty programs shoppers belong to has decreased by 21% since 2021, according to the Paytronix Annual Loyalty Report 2022. These insights are based on data collected from a diverse sample of 2,400 shoppers worldwide, reflecting the shifting landscape of loyalty program participation.

Understanding What Shoppers Value in Loyalty Programs

To create effective loyalty strategies, it’s crucial to understand what shoppers value most in these programs. Here are some of the most coveted features among shoppers:

·         Earning points to redeem: 58% of shoppers appreciate the ability to accumulate points which reward customers with other perks. This not only incentivizes repeat purchases but also provides a tangible benefit that encourages loyalty.

·         Special discounts and promotions: For 53% of shoppers, discounts and promotions are a significant draw. These shoppers are on the lookout for exclusive deals and savings, making them more likely to engage with a brand offering such perks.

·         Free shipping: About 44% of shoppers highly value free shipping as it eliminates an additional cost and adds convenience to their shopping experience. It’s a feature that can significantly influence their decision to join or stay in a loyalty program.

·         Birthday perks: While 22% may seem relatively low, offering birthday perks is a thoughtful gesture that can strengthen customer loyalty. Recognizing customers on their special day can leave a lasting impression.

·         Free or discounted services (tailoring, styling, installation): 20% of shoppers appreciate services that go beyond traditional discounts. These services can enhance the overall shopping experience, making them more likely to remain loyal.

·         Early access to products and sales: For 14% of shoppers, being among the first to access new products and sales events holds substantial appeal. This exclusivity adds value to their membership.

·         Personalized offers or product recommendations: Personalization matters to 11% of shoppers. Tailoring offers and recommendations based on their preferences and past behavior can lead to higher engagement and satisfaction.

·         Redemption possibilities at other companies: 10% of shoppers are interested in programs that offer the flexibility to redeem rewards not just within the brand but also at partner companies. This expands the utility of loyalty points.

·         Exclusive access to limited edition products: A smaller group, 7%, values exclusive access to limited edition products. These shoppers enjoy being part of a select group with access to unique offerings.

·         Rewards for sustainable practices (e.g., recycling products): 6% of shoppers are environmentally conscious and appreciate loyalty programs that reward sustainable practices. This aligns with the growing trend of eco-friendly consumerism.

·         Ability to convert points into charity donations: Similarly, 6% appreciate the opportunity to convert their points into charity donations. This resonates with socially conscious shoppers who want to make a positive impact.

·         Access to experiences, such as special in-store events: 4% enjoy memorable experiences, such as exclusive in-store events. These events create a sense of community and excitement around the brand.

·         Gamification elements (e.g., contests): The smallest group, 3%, finds engagement through gamification elements like contests. These interactive features add an element of fun and competition.

Catering to Shoppers’ Desire for Savings

With rising inflation affecting budgets, shoppers are primarily interested in loyalty programs that offer financial savings. In 2023, the most common programs include benefits like earning points for shopping, receiving special discounts, and enjoying free shipping.

Retailers aiming to retain loyalty program members may explore differentiated models, such as tiered, hybrid, or coalition programs, which can attract a sizable, albeit smaller, cohort of shoppers.

The Prevalence of Points and Cash Back

The types of loyalty programs that shoppers belong to vary, but two categories stand out as the most prevalent:

·         Points: With a substantial 70% of shoppers participating in points-based loyalty programs, it’s evident that the concept of earning points for purchases is widely popular. Points are versatile and can be redeemed for a range of rewards, making them a go-to choice for both shoppers and retailers.

·         Cash back: Nearly half of shoppers, at 44%, opt for cash back loyalty programs. These programs offer immediate financial benefits, providing a percentage of the purchase amount back to the shopper. The simplicity and tangible nature of cash back rewards make them an attractive option.

While points and cash back dominate, other types of loyalty programs, such as tiered (25%), co-branded credit cards (18%), hybrid (17%), coalition (15%), and fee-based programs (13%), also cater to specific segments of shoppers. The prevalence of these programs highlights the need for retailers to diversify their loyalty offerings to appeal to a broader range of customers.

Retailers’ Goals and Challenges in Loyalty Programs

Unsurprisingly, retail decision-makers’ primary goal for loyalty programs is customer retention. However, other benefits such as increased customer engagement, repeat purchasing, and customer acquisition are nearly as important.

Interestingly, 75% of retailers already offer a loyalty program, with an additional 22% planning to introduce one in the next 24 months. Despite their popularity with shoppers, retailers don’t always see the expected returns from their programs.

The biggest issues they face include a lack of customer insights for segmentation and targeting, followed by an inability to respond quickly to market opportunities.

Strategies for Success: Extending Loyalty Beyond Retention

Successful retailers understand that the potential benefits extend far beyond merely keeping existing customers engaged. To truly harness the power of loyalty programs, it is essential to consider a broader strategy that encompasses a range of objectives.

Beyond Retention: Retailers’ Varied Goals for Loyalty Programs

Some strategies that can actively engage shoppers and drive business growth based on Salesforce research include:

Customer Retention (57%)

Retaining loyal customers remains a top priority for retailers. The ability to keep customers engaged with the brand over time not only ensures ongoing revenue but also enhances the overall brand image.

Increasing Customer Engagement With the Brand (51%)

Engagement goes beyond mere transactions. It involves creating meaningful interactions and connections with customers. Loyalty programs can facilitate this by encouraging customers to actively participate in various brand-related activities.

Increasing Repeat Purchases (47%)

Encouraging customers to return and make repeat purchases is a fundamental goal. Loyalty programs achieve this by offering incentives and rewards that incentivize customers to choose your brand over competitors.

Customer Acquisition (43%)

Loyalty programs aren’t just about retaining existing customers; they can also serve as effective tools for acquiring new ones. Attracting new customers who are enticed by the rewards and benefits of your program can drive growth.

Increasing Share of Wallet (38%)

Retailers often aim to capture a larger portion of each customer’s total spending. Loyalty programs can achieve this by offering incentives for customers to consolidate their purchases within the brand’s ecosystem.

Encouraging Customer Advocacy for the Brand (31%)

Satisfied and engaged customers can become brand advocates, spreading positive word-of-mouth and contributing to the acquisition of new customers. Loyalty programs can encourage and reward advocacy.

Collecting Zero or First-party Data (17%)

Data is the lifeblood of modern retail. Loyalty programs provide an avenue to collect valuable customer data, helping retailers gain insights into preferences, behaviors, and trends.

Overcoming Barriers to Loyalty Program ROI

While the potential benefits of loyalty programs are substantial, several challenges can hinder the realization of a strong return on investment (ROI). Understanding and addressing these barriers is essential for retailers aiming to make the most of their loyalty initiatives.

Lack of Customer Insights for Targeting

Effective targeting is critical in maximizing the impact of loyalty programs. Without a deep understanding of customer preferences and behaviors, retailers may struggle to tailor their offers and promotions effectively.

Inability to Rapidly React to Market Opportunities and Competition

The retail landscape is dynamic, with new trends and competitors constantly emerging. Retailers must be agile and responsive to market shifts to remain competitive and capture opportunities as they arise.

Inability to Predict Promotional Revenue

Accurately forecasting the revenue generated by loyalty program promotions is essential for financial planning and program optimization. An inability to make reliable predictions can lead to inefficient resource allocation.

Disparate Systems To Manage Promotion Lifecycle

Effective promotion management, from conceptualization to measurement, requires streamlined processes and integrated systems. Disparate or disjointed systems can lead to inefficiencies and missed opportunities.

Lack of Clarity Into Which Promotion Types Resonate With Loyalty Members

Not all promotions are equally effective with every customer segment. Understanding which types of promotions resonate best with specific loyalty program members is crucial for personalization and engagement.

Leveraging Loyalty Data for New Revenue Streams

Loyalty programs not only serve as a means to retain and engage customers but also offer a treasure trove of valuable data that retailers can leverage to unlock new revenue streams. As technology continues to advance and customer data becomes increasingly pivotal, the possibilities for monetizing loyalty data are expanding. Here’s a closer look at how retailers are harnessing the power of loyalty data to diversify their revenue streams:

Retail Media Networks

Retail media networks have emerged as a high-margin business opportunity. A significant 54% of retailers are already invested in these networks, with an additional 40% planning to offer them in the next two years. This concept involves retailers leveraging their customer data and insights to create advertising opportunities within their own ecosystem. Advertisers are keen to access the valuable customer base of these retailers, making retail media networks an attractive proposition for both parties.

By allowing brands to advertise directly to their customer base, retailers can generate revenue through advertising fees while providing shoppers with highly personalized deals and offers. This symbiotic relationship benefits all stakeholders involved, as advertisers reach their target audience, retailers increase their revenue, and shoppers receive relevant promotions.

Diversifying Revenue Streams Beyond Traditional Sales

To thrive in the competitive retail landscape, many retailers are exploring new revenue streams. These additional streams not only boost profitability but also enhance the overall shopping experience for customers.

1. Technology services: Retailers can offer technology services, such as point-of-sale systems, e-commerce platforms, and data analytics tools, to other businesses, generating revenue from technology licensing and support services.

2. Data services: Retailers can provide data analytics services to other companies, leveraging their expertise in customer data analysis to assist businesses in making data-driven decisions.

3. Referrals on third-party marketplaces: Retailers can partner with third-party marketplaces and earn referral fees by directing customers to these platforms. This approach expands the retailer’s reach and generates income through commissions.

4. Paid loyalty programs: Some retailers offer premium, paid loyalty programs that provide enhanced benefits and exclusive access to premium services. These programs generate recurring revenue from membership fees.

5. Financial services: Retailers can enter the financial services sector by offering credit cards, banking services, or insurance products. These services not only generate revenue but also deepen customer engagement.

6. Logistics services: Leveraging their distribution infrastructure, retailers can provide logistics and fulfillment services to other businesses, optimizing their supply chain operations.

7. Healthcare services: Some retailers have ventured into healthcare services, offering clinics and health-related services within their stores. These services diversify revenue streams and enhance the shopping experience.

By diversifying revenue streams, retailers can reduce their reliance on traditional sales and create a more stable and resilient business model.

The Bottom Line

The changing retail landscape highlights the growing significance of customer loyalty program data for retailers. While loyalty programs have long been a part of the industry, shifting shopper expectations and behaviors emphasize the need for genuinely engaging value-based programs that foster repeat customers.

In essence, loyalty program data is a valuable asset that can drive success in the ever-evolving retail landscape by increasing customer lifetime value. Retailers who invest in understanding their customers, leveraging technology, and diversifying revenue streams are well-positioned for continued growth and resilience in this dynamic industry.

For more information and the full report, please visit the Salesforce website

You can also reach out to the PERC Digital Marketing team for more valuable insights and help marketing your business. We are ready to help you navigate the industry’s ever-changing trends. Contact us today.

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Xavier Berkness

Xavier Berkness is the President of PERC, a renowned Digital Marketing Company. With an impressive career spanning over two decades since 1996, Xavier has earned a reputation as a leader in the field of digital marketing. He has leveraged his deep understanding and expertise in building websites to author a highly-regarded book, 'Mastering On-Page Optimization - The Secret Sauce of an SEO System.' Xavier's impactful contributions to the industry have been recognized in a Star Tribune feature, where he was hailed as a 'Mover and Shaker.' Outside the professional realm, Xavier is a nature lover who cherishes time spent near the ocean. He continues to fuel his passion for digital marketing, relentlessly seeking new knowledge and strategies every day. His combination of professional prowess and personal charm make Xavier a trusted authority in the digital marketing industry.