Do Loyalty Programs Cause Consumers to Spend More?
I belong to a number of reward and loyalty programs. My favorite program? The Capital One Venture Card. Two points for every dollar spent and an additional 40,000 points if you spend $3,000 within the first three months.
Once I had my shiny, new card in hand, I switched all my bills over to the card to ensure I put $3,000 on it by the end of the first three months. As I gleefully rejoiced in what equated to $400 in travel points, I wondered whether I end up spending more than I would have if there wasn’t a reward at the end.
And the larger questions: Do loyalty program members spend more because of the potential rewards? And, do loyalty programs increase sales for businesses that run them? Let’s jump in!
Rewards Everywhere
Life is about rewards; grades, raises, team trophies, promotions, and loyalty programs. Rewards drive the majority of the population. We work a hard spent 40 hours a week at our jobs, and strive to perform at our best so our boss sings our praise during the dreaded annual review. There’s also the monetary reward helping to drive our efforts throughout the year; if we perform well, we receive a raise.
Loyalty programs operate in a similar manner. You painfully part with your money and in return, are rewarded for it. Knowing a reward awaits at the end is what drives you.
This psychology behind reward and loyalty programs attempts to reinforce a spending behavior.
Do Loyalty Programs Increase Consumer Spending?
Do loyalty programs work? Well typically, consumers spend more when they belong to a loyalty program. So yes, check out these stats:
According to the 2016 Bond Loyalty Report, 66% of consumers modify the amount they spend to maximize points. On the one hand, loyalty members buy more often and spend more than non-loyalty members, resulting in a 5-10% revenue increase.
On the other hand, according to the same report, the average household is enrolled in roughly 13 loyalty programs, but only active in seven.
Bottom line: You can’t simply start a run-of-the-mill loyalty program and expect a revenue increase.
Loyalty programs cause people to spend more, but not all are created equal.
Personalization, Attainable Rewards, and Experience
One size doesn’t fit all. Consumers want more personalization, a better digital experience, and a variety of earning methods.
Creating attainable and realistic awards for your loyalty program is a must. Give your consumer an easy goal to strive for.
What’s the value of sending a coupon for coffee to a non-coffee drinker? Zero. Know your customers and personalize. Send the right offer to the right customer.
How can your customers redeem their rewards? Do you make it a simple or complicated experience?
If point redemption entails visiting a website or app, make the redemption process intuitive.
Remove the branding, and most loyalty programs are indistinguishable from one another. The norm is to follow a points-per-transaction reward system. Consumers demand more.
Think outside the box and offer rewards for checking-in to your establishment’s location via social media, writing a product or location review, opening a marketing email and taking action, or sharing a recently purchased product on social media.
It literally pays to create a well-thought-out and customer-centric program.
Remember, always place the customer first.
Got more questions? Here are a few we here often at DataCandy:
How do rewards programs work?
Generally, loyalty programs reward customers for purchases, and their points can be redeemed for cash discounts.
More forward-thinking programs have evolved to include other actions that earn points, for example, checking in to your establishment’s location via social media, writing a product or location review, opening a marketing email and taking action, or sharing a recently purchased product on social media.
How does brand loyalty increase sales?
The key to maintaining a successful business is to ensure that your loyal customers keep returning for more. Since they already enjoy your products or services, they are more likely to make repeat purchases and even spend more money on each visit.
Your satisfied customers will spread the word about you to their friends, so you won't have to spend as much on marketing efforts.
It's like creating a warm and welcoming community where everyone knows and appreciates your business.
Is a loyalty program a sales promotion?
A loyalty program is a type of sales promotion that encourages customers to continue buying from you by providing them with rewards, discounts, or other benefits based on their loyalty or the amount they spend.
These promotions can be time-bound or part of a more comprehensive strategy to boost sales, but they play a crucial role in promoting sales by promoting repeat business and building strong customer relationships.
Do loyalty programs attract customers?
Loyalty programs attract customers by offering rewards, discounts, or exclusive benefits to members. This makes it more likely for people to choose your brand over others.
If customers see that being loyal to your brand is beneficial, they are more likely to remain loyal and spread the word. This creates a win-win where customers gain more value, and businesses establish a loyal customer base.
How do loyalty programs increase customer retention and repeat sales?
Loyalty programs boost customer retention and sales by offering rewards and discounts. They incentivize customers to return to your store, ensuring they keep coming back instead of going elsewhere.
Guest Contributor: Andrew Cauthorn, Marketing Specialist at DataLogic