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Loyalty Programs today – A tool to reach customers personally and a differentiator for brands

Loyalty programs have become ubiquitous today with even the neighborhood pharmacy offering discounts basis the amount and number of purchases you make in a day. However, in spite of deploying sophisticated technologies and making program rules easy for customers to understand, one still hears murmurs of loyalty programs not yielding the desired results, especially when product price becomes a key factor. This makes marketers wonder whether a loyalty program is relevant in this age of promiscuous customers.

Counterintuitively, loyalty programs could not be more relevant than it is today. The reason being that increasingly products from even some of the best known brands, from apparel to automobiles, sport the same features and there are very few distinguishing factors making it difficult for brands to sustain the price premium that they were able to get earlier.

With back end supply chains of the brands getting consolidated for efficiency, many a times you see the same fabric design being offered by different apparel brands. And when it comes to a formal shirt, the shirt can only be stitched in a limited number of ways. Hence for the layman there is very little to choose amongst a brand’s shirt versus others. It is perhaps the power of the loyalty program that would make the customer walk into one store vis-à-vis the other.

Similarly in the services category like airlines or hospitality, the power of the loyalty program can increase the price elasticity of the product to some extent, though this elasticity will be different for different categories of travelers. The opportunity to earn a free night by completing one more booking on his favourite travel site could make your customer oblivious to the fact that the pricing of the room on this particular day is higher than what he can get on a competitor’s site.

Loyalty programs also help you track your best customers and through aggregation of third party data even allows you to compute his wallet size. Hence it becomes easier to trigger personalized communication to push the customer to transact with you more. In an era of permission marketing, loyalty programs also give you the best excuse for you to reach out to your customer more frequently than you would otherwise be able to manage.

The effectiveness of spends on loyalty program hence needs to be evaluated basis not only on parameters of the lift (ATV increase) and repeat customers from the program, but also on the intangibles like the customer database that you build with whom you have the permission to communicate and the customer delight. That would be priceless as we move towards a GDPR regime.

M.S. Ashok

Wholetime Director & COO, Accentiv’ Edenred