Is a Loyalty Program Right for your Business? Consider these Factors Before you Decide

Vinay Mony, Principal Decision Scientist, Ugam,

When it comes to loyalty programs, there are typically two camps: retailers who are all for them and others who deem them unnecessary – typically due to cost and upkeep. When it comes to your business, should you introduce a program or not?
Today, thanks to big data, there may be more in it for retailers than ever before. Prior to making a decision, be sure to consider the factors associated with establishing a program.

Increased Customer Retention:
Loyalty programs have always centered around loyalty itself – getting customers to become repeat customers thanks to an incentive of some sort tied to additional purchases. Repeat purchases equal a stronger bottom line and who doesn’t want that?

Improved Competitive Opportunities:
A recent trend with loyalty programs focuses on discovering more competitive opportunities. These opportunities become available by combining in-house transactional data with external, syndicated demographic data.
Thanks to big data, retailers are able to develop robust customer profiles that take into account an individual’s income, likes/dislikes, shopping preferences, and more. By integrating both internal and external datasets, retailers have a greater arsenal of analytics allowing them the opportunity to become more competitive in the areas of marketing, retention, and cross-selling.

Improvements in customer retention and increased competitive advantage come at a price. Therefore, cost is certainly another factor to keep in mind when it comes to deciding if a loyalty program makes sense for your business. Depending on the size of your company, it may not make financial sense to put all those dollars behind the promotions and incentives as the benefits may never be realized.

Online Competition:
Lastly, in today’s retail climate, one must always consider online competition. With low to no-cost shipping and various price cuts being offered by big names such as Amazon and Wal-Mart, it’s become increasingly difficult for retailers to retain loyal customers. They simply can’t offer the level of engagement and personalization to drive greater retention.

A compromise?
While they may not be able to launch full-fledged loyalty programs, many retailers are experimenting with the idea of offering soft benefits. Depending on the industry, examples of soft benefits could include priority customer service, faster shipping, waived luggage fees, or in-store pickup. Think of it as a compromise. Soft benefit programs still allow retailers to keep margins in tact while generating data on their customers while shoppers receive additional value. At the very least, this approach will lead to valuable insights to drive future decisions.


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