The easiest way to define loyalty programs is that it’s a process that turns customers into loyal customers. It’s a repeatable experience that encourages them to buy from you again and again.
What is loyalty membership?
Loyalty membership is a marketing strategy that rewards customers for engaging with your brand on a regular or ongoing basis. The more they spend with you, the more you reward them with rewards. If you prioritize customer preferences and execute your program effectively, your customers will feel good about buying from you, which gives your business an advantage over your competitors.
But how do you decide which one is right for your business and your target audience? Let’s find out through its disadvantages.
It is difficult to measure loyalty behavior
The transactional nature of the loyalty framework makes it very difficult for brands to move away from it. More often than not, the frequent buyer is the loyal one. However, they may not be, as they are buying because it is convenient for them, or they are buying because the loyalty program offers them rewards. Loyalty, which is essentially an emotion, does not necessarily have to be measured by a loyalty program. This point on the pros and cons list can be solved by combining the loyalty program with advocacy marketing tactics. For example, reward customers who refer friends, write reviews, and so on. This will make it easier to determine who is just a regular customer and which of your loyal customers are actually interested in vouching for you. With this whitepaper, brands will be able to understand the different types of loyalty and how to engage and maintain valuable loyalties.
Hard to manage the bottom line
Of all the advantages and disadvantages of a loyalty program, the financial aspect is by far the most challenging. Any discount, no matter what form it takes, will hurt your bottom line. For example, let’s say a typical sale is $50. Costs are $40. Profits are $10. If you offer a $5 loyalty discount on that $50 sale, you’re looking at a 50% loss in profits. Your costs would still be $40, but you’d no longer be making $10 off the sale. Instead, you’d be losing $5 in profit. What looks like a small discount (let’s say 5%) can have a huge impact on your bottom line.
To overcome this financial loss, the key is to ensure that your program is priced fairly and that it’s effective. If you’re seeing an increase in repeat purchases and an increase in average order value as a result of your program, then you won’t have to worry about recouping these losses. For more information on how your program works, see our post on “Loyalty points liability management”.
Limitations of loyalty data
Loyalty data doesn’t include purchases from other brands or stores, so it’s only a partial view of consumer spending patterns. Also, customer panel data may be more accurate than the data on loyalty card members. In addition, customers may feel uncomfortable sharing sensitive information to get the benefits of the program.
If you’d like to learn more about the advantages or disadvantages of loyalty programs, contact specialists of digital loyalty programs at loyalitytech.me or book a demo of cloud loyalty programs today.