The Pros (and Cons) of a Paid Loyalty Program

In the current economic climate, businesses are constantly seeking out an advantage over their rivals, especially as a great deal of uncertainty continues to surround inflation and energy prices for commercial entities.

For example, well-formulated loyalty programs can give advantages for your brand at any time, by driving higher levels of customer retention, reducing operational costs, and maintaining a loyal base of consumers.

Some 90% of businesses operate a type of loyalty program in the US and throughout the developed world. But what are the pros and cons of this initiative?

The Pros of a Customer Loyalty Program

We’ll start with the pros of creating a customer loyalty program, which includes the following advantages:

1. Boost Customer Retention:

As we’ve already touched on, loyalty programs represent an excellent way of organically boosting customer retention over time. This can help to save businesses huge sums of money too, with studies showing that it costs up to 7-times more to acquire a new customer than to retain an existing buyer. It should also be noted that 84% of customers are more likely to stick with a brand that offers a loyalty program and associated rewards.

2. Customers Believe Brands Should Have a Loyalty Program:

Operating a successful B2C business relies on your ability to track and adapt to the behavior of your customers. So, it’s important to note that some 58.7% of Internet users believe that brands should operate a loyalty program, while 66% of consumers say that the ability to earn rewards changes their spending behaviors.

3. Collate Valuable Data from Customers:

While the collation and management of data is a sensitive topic for businesses in the digital age, there’s no doubt that loyalty programs enable you to collect valuable information and insight into your customers. It’s a trusted and non-intrusive vehicle too, which is important given that some 56% of Americans don’t consider brands to be confident with handling personal data.

 What are the Cons of a Loyalty Program?

For you to make an informed decision, you’ll also need to consider the potential cons of operating a loyalty program. These include:

1. The Risk of Market Saturation:

With around 90% of firms now operating some type of loyalty program, there’s a risk that the market will become flooded with stale and copycat schemes that fail to incentivize customers. So, it’s important to create unique, creative, and relevant programs that help your brand to stand out from the crowd, with prominent examples including North Faces’ VIPeak and the excellent TKMaxx Treasures initiative that encourages customers to search for rewards in-store.

2. Loyal Customers vs. Frequent Shoppers:

It can also be hard to target your most loyal customers through loyalty programs, especially when trying to distinguish between the biggest spenders (and brand advocates) and frequent shoppers who spend small amounts but often. Make no mistake; creating the most effective programs relies on huge swathes of data and insight, and no little marketing expertise.

3. The Amount of Work Required:

This leads us neatly to the final point, as creating an effective customer loyalty program requires a great deal of knowledge, understanding, and data collection. This is incredibly time-consuming and will therefore require a significant labor commitment, which may be beyond the existing means of most small businesses.