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Loyalty Programs

Are Loyalty Programs Profitable?

Written by 
Brad Davis
August 10, 2021

Are loyalty programs profitable? The short answer is yes, but only if you do it right!

There are a few strong techniques that will ensure your loyalty program continuously acquires new customers, successfully retains existing ones, and consistently boosts revenue for your business. However, some of these techniques can seem a little “scary”, or perhaps counterproductive in making your loyalty program more profitable.

Below, you’ll find a few strategies you can incorporate into the structure of your loyalty program, with an explanation of how they work and why. But first, here are some impressive stats about the profitability of loyalty programs:

Customers who participate in high-performing rewards programs are twice as likely to increase the frequency of their purchases (MIT Sloan Management Review).

Over a third of customers consider themselves to be loyal to a brand after five or more purchases (Yotpo).

The likelihood of selling to an existing customer is 60-70%, compared to 5-20% for a new customer (Invesp).

So yes, loyalty programs are profitable, but you can drastically increase its chances of success by…

1 …Using it to boost your slow days

Event Cinemas Cheap Tuesday poster promotion

Image Source: Event Cinemas

Your loyalty program is a great tool for getting more people through the door on days that are typically quiet, by offering special deals and promotions on those days. Big-name brands like McDonald’s and Starbucks are renowned for this, but you see it everywhere – from your local cinema offering cheap movie tickets on Tuesdays, to Happy Hour promotions in bars and nightclubs.

The same way that Happy Hour encourages customers to come in that little bit earlier and inevitably stick around for longer, a “double points” day or other special perk for shopping on particular days can help your business to turn a profit during periods when it typically wouldn’t.

2 …Pushing slower-moving products and services

50% sale sign in a clothing store

Another way to capitalize on your loyalty program is to run special promotions and spontaneous prize draws on older stock or less popular products –exclusively for loyalty program members. This technique can help you cut down on wastage in regards to products that have perished, expired, or been made redundant by upgraded models etc.

It also encourages customers to try items that they might never have tried otherwise, thereby expanding their knowledge of your product range and cementing their loyalty further – whether it’s a quirky type of sandwich with unconventional ingredients, or a less common brand of earphones.

3 …Offering upfront incentives to join

DD perks loyalty program explainer page

Image Source: DD Perks

At Stamp Me Loyalty Solutions, we’ve noticed that businesses which offer customers an upfront signup incentive build their loyalty program registrations 3x faster than businesses which don’t.

And while it may be daunting for a small independent business to give away a free gift to customers with no guarantee they’ll see a ROI, all evidence suggests that this tried-and-tested formula reaps rewards.

Why? Because an upfront signup reward:

  • Builds trust between the customer and the brand
  • Demonstrates that this business is more concerned with ongoing customer relationships than singular transactions
  • Helps the customer gain familiarity with the product, thereby increasing their chances of purchasing it next time
  • Leverages the Endowment Effect, which states that customers place more value on something they already possess (accrued loyalty points or a redeemed reward etc.) than something which they don’t (expired loyalty points or the promise of a future reward once they commit to X more purchases)
  • Removes the risk of trying a new product (after all, it’s free!)

4 …Rewarding existing customers for referring their friends

continental auto referral rewards program

Image Source: Continental Auto

Referrals are much more trusted among consumers than traditional advertising these days. By incentivising referrals with rewards and freebies, you can motivate your current customers to help you acquire new ones.

Not only are there zero advertising costs attached to this strategy, but the marketing is coming from a trusted source of information – this builds credibility and trust.

5 …Offering localised rewards that appeal to your target demographic

sign saying local

This point only applies to brands with multiple locations, where it becomes possible to offer different rewards at each outlet based on the specific needs of the locals in that area. For example, your current rewards might be relevant to customers in Manhattan, but not very enticing to customers in a small leafy suburb somewhere in Idaho.

By localising your rewards, you can ensure they always appeal to local customers, as well as supporting local businesses and contributing to the community.

It also allows you to offer particularly attractive discounts to locals when you open a new location, in order to build hype and get people through the door. The idea here is that your other locations will cover the potential cost of generous rewards for the first few weeks of being open.

6 …Rewarding customers for social media shares and UGC

instagram picture of two starbucks cups

Plenty of businesses invest heavily in traditional advertising methods like TV/radio ads, billboards, online banners and so on. Similarly, plenty of businesses invest heavily in their social media presence; posting engaging content several times a day, being creative with Instagram reels and always being sure to reply to every review and comment.

But how many businesses actually incentivize their customers to create and post engaging content for them? With a loyalty program, this is very easy to do.

Consider rewarding your loyalty program members for posting blogs, photos, videos and other forms of content that promote your products and services in interesting ways. The reward doesn’t have to be extravagant, and you can rest assured it pays for itself in the long run.

Why? Because suddenly you’ve created a scenario where a wealth of quality content that reflects your brand in a positive light (without coming across as advertising) is constantly being posted on various social media platforms, where it is seen by all of your existing customers’ followers – potentially a whole new market, with no advertising costs.

User-generated content (UGC) also creates an online community around your brand, which helps to further strengthen customers’ emotional connection with your business.

“UGC is a highly effective way to use your existing customers to attain new ones,” said Stamp Me’s Michaela Ward. “It also provides businesses with a wealth of data, which you can use to personalize each customer’s experience and accommodate their unique preferences.”

7 …Partnering up with businesses that share your customer base

two hands piecing two jigsaw pieces together

Don’t be afraid to think big when it comes to your loyalty program. Who says you can’t approach other businesses that share your customer base without necessarily being competitors, with the intention of creating an umbrella loyalty program where everyone wins?

As an example, a pet food business might consider partnering up with a local veterinarian or pet grooming shop to provide its customers with a more wholesome loyalty program experience that works seamlessly across both brands.

Customer-focused loyalty programs are profitable

At the end of the day, the loyalty programs which are most profitable focus on creating a community around the brand – one which customers feel connected to and engaged with.

Accruing points, redeeming rewards and engaging with your brand should be a fast, simple and enjoyable exercise. One that note, here’s one more statistic for you to consider:

75% of consumers are more likely to purchase from brands whose apps allow them to transact quickly (Google).

Digital loyalty apps make it possible to process transactions quicker, earn rewards in more versatile ways, and personalise the customer’s ongoing experience with your brand. By providing your loyalty program members with an efficient and reliable mobile rewards app, you can easily implement the above points for creating a more profitable loyalty program.

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