Are Loyalty Programs Worth Your While?

Ally Feiam By Ally Feiam | 03 Jul 2019

Loyalty programs are an important factor for any brand, or are they? New research about loyalty programs shows that creating customer loyalty using memberships may not be all it’s cracked up to be.

There are many different types of loyalty programs that retailers can offer. Loyalty programs such as Woolworths Rewards, Mecca Beauty Loop and flybuys all offer points in exchange for money spent. These points are then accumulated and ‘reward’ customers with discounts, exclusive offers and, in Mecca’s case, provide quarterly gift boxes of sample-sized products. According to new research by Power Retail, 60 per cent of shoppers prefer to use a loyalty program that has points that never expire, and over 54 per cent of shoppers enjoy receiving points in return of dollars spent.

It’s no surprise that loyalty programs are an incentive for customers to shop more, and in general, 38 per cent of Aussie shoppers are aware of this. Customers often turn to the Net Promoter Score (NPS), which is an internationally recognised measurement of customer satisfaction. According to the research report, the average NPS score for retailer loyalty programs in Australia is 19, and thus there is a correlation between loyalty program NPS and the amount spent online per month.

What Do Customers Really Want Out of a Loyalty Program?

Loyalty programs are everywhere you turn. On average, consumers will hold 4.3 loyalty memberships and are often pretty good at judging which programs best suit their needs, and which ones will simply collect dust in their wallets. So, what do customers actually want out of a loyalty program? According to the research conducted by Power Retail, 16 per cent of shoppers favour free shipping as an incentive for loyalty, and 15 per cent prefer to redeem points for products. Others prefer to exchange points for a discount or cash.

Unsurprisingly, loyalty programs can influence the shopper to make certain purchases. Whether it be ‘Spend $50 and get a gift worth $60!’ or ‘Spend $150 and get $50 back’, certain categories can influence further spend more than others. According to the research, furniture is the biggest influencer for loyalty programs, alongside food and liquor, and sports and outdoor products. For retailers, this is an important starting point for understanding both the performance of their existing program or the assessment of the potential for launching a program.

While it’s important to know what kind of loyalty program a customer wants, it’s also essential to find out the kind of customer that memberships are best suited for. According to the report, online shoppers who are loyal to their memberships are more likely to be point chasers, stay informed about upcoming events and are trusting shoppers.

Would Customers Pay to be Part of a Loyalty Program?

Short answer, no. According to the report, 39 per cent of customers refuse to pay anything to be a part of a loyalty program, with only 17 per cent of them offering to pay up to $10. However, this doesn’t mean that customers will forever refuse to pay anything. According to the report, they’re also open to changing their minds about paying for a loyalty program, especially if the offering is worth more than the cost of the membership itself.

Those who least value the loyalty programs and its incentives often include cynical and cautious shoppers, who claim they’re not influenced by loyalty programs and won’t join a program on their first purchase. Others that don’t sway towards the memberships include affluent Baby Boomers, who are aged over 54 and have a household income of more than $200k. This group of people also typically spend less than five per cent of their retail budget online.

On the flip side, the typical shopper who’s interested in the loyalty programs are often point chasers, and agree that loyalty programs influence their overall shopping decisions. These shoppers are also cautious about their privacy, but like staying informed about the latest offers and events that a retailer has to share. They’re also typically trusting shoppers who rarely abandon shopping carts and don’t check the competition for a price match.

What are the Key Reasons for Operating a Loyalty Program?

As with all things in life, there are pros and cons to operating a loyalty program. According to the research report, most retailers believe that these programs offer the potential to deliver positive outcomes across the various aspects of the customer journey. These include acquiring new customers, developing trust from the shoppers and setting themselves apart from the competition, among others.

The report shows that 73 per cent of online retailers would consider hosting their own loyalty program for an increase in the frequency of purchase, and 69 per cent would use them for competitive advantage. However, surprisingly, 35 per cent of online retailers have not considered hosting their own loyalty programs to be an important part of business success.

There are tens of thousands of online retailers in Australia, and 40 per cent of them offer a loyalty program in some capacity. 35 per cent of these offers free memberships, whereas the other five per cent presents a subscription service. As the online retail space continues to maximise in growth, so do the number of membership programs. It comes as no surprise that the biggest retailers, such as Amazon and Woolworths, are more likely to offer a subscription or membership service, and aren’t afraid to charge up to $50 to be a part of it.

So, should your business create a loyalty program for your customers? Does your membership provide adequate rewards to keep shoppers loyal and happy? In Power Retail’s latest instalment of the Spotlight Series ReportsLoyalty Programs: Do Online Shoppers Really Care? are further insights into the ever-growing service. The report covers in-depth knowledge of the importance of loyalty programs, their value to online retailers and what customers really want.

For additional insights into the metamorphic marketplace landscape, as well as other investigations into the Australian e-commerce industry, take a dive into the Spotlight Series Reports on Marketplaces: Eating the World and Returns: The Profit Killer?

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