5 Reasons to Invest in Loyalty Programs During the Crisis
Loyalty is at a premium and its role will grow. First it was forced by the pandemic, and now by the crisis and inflation. Developing loyalty is becoming crucial, and companies are doing their best to build it in such a way as to earn the customer’s attention. LoyaltyOne’s “Loyalty Big Picture” report indicates that nearly 70% of managers have increased loyalty investments in the past two years. Companies are recognizing the value of using customer data: from product development to price optimization to sales network development. In fact, why are loyalty programs so effective in times of crisis?
1. Effective Communication
These days, it’s not just consumers who are looking to save money. Businesses are doing it too, watching every budgeted coin twice before deciding to invest it in something. Brands are abandoning some activities altogether, and cutting spending on others. Unfortunately, the unstable economic situation and shaky supply chains mean that the need to be able to contact customers quickly is growing, so brands in this field are primarily looking for efficiency and a quick return on their investment.
Of the marketer’s available palette of tools, the budget spent on communications in a loyalty program gives, in many cases, the greatest return on
on investment in a short period of time. Experience shows that the investment in loyalty program communication generates up to 4-5 times higher ROI relative to other activities carried out in offline and online channels. The advantage of communication in the loyalty program is its measurability. It is relatively easy, even with the help of Excel only, to verify whether the actions taken have brought the results we assumed.
2. Responding to the Customer Need to Save Money
Most loyalty programs are based on access to special offers, promotions or cashback. This directly translates into savings in the wallet of the club member. The perception that one can save money thanks to a loyalty program is already well entrenched in the consciousness of consumers. As a result, marketers are becoming bolder and more intensively emphasize the role of loyalty programs in everyday savings, if only by providing a special summary of the money saved on a receipt or in a mobile app. Sending periodic push notifications to customers, informing them how much they have saved so far, causes an additional increase in club members’ activity – boosts perception and strengthens interest in further offers in the loyalty program on the part of participants.
3. More Effective Management of Promotions
Marketers with price offers attract customers. There are companies on the market that offer products at a price lower than the market price for a while as part of promotional activities. However, an attractive promotion that will be widely available and unlimited raises many challenges for the organizer.
If a store offers an assortment at an extremely competitive price without systemically imposing limits on the unique customer and securing the availability of the product, it will not be able to manage the cost of such a promotion and will not secure purchase opportunities for the majority of interested parties.
Analyzing data on club members allows you to control price promotions effectively. A loyalty program allows you to reduce the price in a quantifiable way, so that the maximum cost of implementing the promotion is known before it takes off. As a result, we are able to distribute special offers accordingly. You can achieve this, for example, by limiting the purchase of a product per consumer, whom we identify by card in the loyalty program. Effective management of promotions, especially in inflationary times, is responsible for brand success.
4. Benchmark Performance and Develop Point-of-sale Capabilities
Some companies inadequately assess the potential of stores and treat them against top-down characteristics. As a result, they fail to use their full potential in terms of their ability to influence consumers’ purchasing decisions. Examples of such outlets are, for example, stores that were established a dozen years ago in places where there was no highly developed infrastructure, and modern housing estates were just being built. Due to “urban sprawl,” these can now be places with high expansion potential, and brands do not always identify this.
Loyalty program data can be used to evaluate the performance of a selected area, or a specific region. When combined with sales data and external data (age, CSO, disposable income, etc.) give a complete picture. This mix of data makes it possible to determine how much the assumed differences between stores are true. If it turns out that the discrepancies are not justified, and customers have similar characteristics and similar disposable income, it may turn out that by putting lower-priced or lower-margin products at the forefront, we are depriving ourselves of higher revenues. Without customer data from the loyalty program and external data, we will not get the full context of the information. Benchmarking, using different types of data from different databases, makes it possible to make key decisions, such as pricing policies and promoting specific assortment groups more effectively and in a way that matches the potential of the target group.
5. Higher Efficiency of the Entire Business
The knowledge that loyalty program data guarantees access to improves the efficiency of the entire business – from supply management, team planning, demand forecasting and personalizing communications, to supporting and optimizing media operations.
According to the Mckinsey report – Next in Personalization, the use of consumer data to personalize offers leads to revenue growth of about 10% to 15%. Recommendation engines are hugely popular and no one needs to be convinced of their effectiveness. Amazon attributes 35% of all consumer transactions just to the use of a recommendation system. However, data from a loyalty program can also be used effectively outside of one’s own website and beyond communicating only with one’s own club member base.
Loyalty program data is changing the process of planning and executing advertising campaigns because of its ability to effectively reach new audiences. Using hundreds of variables related to with club members, their behavior on the website, mailings, transactions or demographics, we build scoring models and combine them with DMP systems. In DMP, we look for new audiences – “look a like”, that is, potential customers most similar to our club members with certain characteristics, which allows us to scale the reach of the campaign.
In this way, we reach new audiences with high potential for conversion to purchase with a targeted offer. Thanks to the fact that we identify clubbers’ needs and our knowledge of them is very detailed, we can tailor many of the elements used in the campaign such as product and benefit language, which translates into a 150% impact compared to previous activities without the use of data from CRM. In addition, thanks to our ability to match the intensity of activities to the segment and control the deactivation of the campaign if the customer makes a purchase, we achieve a 60% reduction in costs compared to traditional campaigns.
Bonus: a Painless Transition to a Cookie-free World
An additional reason for implementing a loyalty program, regardless of a pandemic, war, inflation or any other crisis, is the impending end of third-party cookies, on which most advertising efforts have so far been based. In the coming reality, only proprietary (first-party) data will provide the ability to accurately reach customers with advertising messages.
Retailers should adjust to the likelihood of having less visibility on their target audiences, as most advertising platforms will have a reduced ability to target based on audience intent and behavior. Implementing in-house data acquisition systems will prove necessary, instead of relying solely on external information. An informed customer in return for sharing data, expects clear benefits. Engaging, benefit-packed loyalty programs will address both the consumer need for rewards and the corporate need to build their own databases with high marketing consent coverage.
Summary
In light of the increasing unpredictability and, at the same time, the growing advantage of companies that accurately identify customer needs through loyalty programs, every day of postponing the decision to implement a program can prove critical. Of course, you have to reckon with the fact that the effects will not be visible the day after the loss of the project, but the loyalty program is an investment that in the long term will translate into increased efficiency of the organization and better business decisions in every area of its operations.
See also
When You Cannot Implement a Loyalty Program… Facts and Myths about Why Brands Are Afraid to Invest in Loyalty
