Where’s the value in loyalty programs?

It’s a question often asked by companies contemplating the viability of a loyalty program for their business.

Whilst each company will need to go through their own rigorous process to determine the answer, we have developed a diagnostic “Do you really need a loyalty program?” that helps to determine the answer.

The key question it asks is “Why do you need a program?” then provides 11 reasons, 7 of which are listed here:

1. To retain our best customers
2. To motivate our customers to purchase more
3. To motivate our customers to purchase more often
4. To recognise our valuable customers
5. Our competitors have a program
6. To develop a deeper understanding of our customers, who they are, why, what and when they buy (the data)
7. To be more relevant and personal with our marketing

The diagnostic then helps to rank and rate the relative importance of these. It then also determines the MOST important reason.

It is a powerful process to go through and a critical outcome is a greater chance that all of the key leadership team deciding on the viability of a program are aligned on the purpose of a program.

From there, it’s much easier to determine whether a formal or informal loyalty program is needed.

Where’s the value in Loyalty Programs? A research report by Directivity and Deutsche Bank

Besides the internal diagnostic process as mentioned above, a research study and survey was undertaken by Directivity and Deutsche Bank to examine whether there is a correlation to the type of loyalty program operated by a company and its share price performance.

It analysed 205 companies with 428 different programs. It classified the loyalty programs into three categories:

Type A – Pure loyalty program: Defined as those with a collecting mechanism, eg. points collected to redeem rewards or benefits, or dollars accumulated to receive vouchers or savings. Generally a branded program, may have a card and other member benefits. Engages with members and their buying behaviour and transactions.

Type B – Rewards, recognition or benefits program: Defined as those that have no collecting mechanism such as points, but do have many and varied member benefits including short and long term discounts, and members only offers. Also could be branded.

Type C – Simple email list/benefits program: Defined as those simple in structure with mainly just email data capture and no marketed benefit set. Not a named and branded program.

64 of the top 205 ASX-listed companies assessed were identified to have a loyalty program of some sort, out of the 428 programs identified. Of these 428 programs, 49 were type A programs (12%), 68 type B programs (16%) and 311 type C programs (72%).

Please email adam@directivity.com.au if you would like further information on the loyalty program assessment and results relating to the research study and survey findings.

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