Three questions to determine whether you need a loyalty programme?

In the last three years, we have seen a huge emergence of new loyalty programmes in the FMCG and Retail industries. To name a few, Yeo Valley, a British yoghurt brand, incorporate QR codes on their packaging which customers can scan and collect loyalty points. Uber, the rides and delivery service app, launched Uber One which encourages customers to choose their services over competitors. Tesco Club Card ditched their points-collection programme and offers their club members lower prices on nearly every item in their shop!??

However, launching and maintaining a loyalty programme has a price tag - businesses not only need to invest upfront in technology and human resources to design and build the programme, but also need to take into consideration ongoing redemption costs and the cost to maintain them.??

So should every brand invest in a loyalty programme? Not necessarily! In this article, I want to share three strategic questions I use to help them determine whether they should invest in loyalty programmes.

1. Can a loyalty programme serve the business objective for the next one to three years?

It sounds basic but this is THE question business leaders should ask first and foremost. The objective of a loyalty programme is to drive repeat purchases from returning customers and grow customer value over a longer time. Naturally, the larger the existing customer base is, the more incremental benefits loyalty programmes can deliver.?

However, it is not every business’ priority to grow repeat purchases at a certain stage. For example, a nascent brand may want to prioritise brand awareness. Also for businesses that still have a small customer base, launching a loyalty programme wouldn't make sense either, because the incremental value might not be significant. In this case, focusing on acquiring new customers and growing the customer base is more important.

However, if businesses already have healthy awareness among customers or have a large enough customer base, loyalty programmes can be a very powerful tactic to propel growth.???

2. What is the customer behaviour in your industry?

Like other marketing practices, a loyalty programme is about changing customer behaviour, so it's crucial to understand the baseline customer behaviour in your industry. The ‘baseline customer behaviour’ means the natural purchase patterns from customers in your industry, and it will determine whether a loyalty programme is worth the effort (and what the right loyalty mechanic should be).

For example, I worked for a coffee chain brand in the UK. And if you know anything about coffee-loving customers, you know they need the energy pick-up religiously! This means their loyalty programme had a large group of customers and the purchases are very habitual. Their loyalty programme worked very efficiently for them -? it targeted different purchase patterns and drove extra visits to the coffee shop. The brand also leveraged its loyalty program by trialling new products and new promotions with loyalty members.? They were also able to collect a vast amount of customer behaviour insights.??

I also worked with a major car rental brand in Europe that sees very different behaviours from customers. Most of their customers rent a car from them every 2 or 3 years, and many don’t even remember which brand they rented a car from the last time. Attracting customers to sign up for a loyalty programme is challenging because customers don’t see the value of doing it, and it is tough to influence customer behaviour when they are infrequent and somewhat unpredictable. Therefore, this car rental brand chose to use other CRM activities, such as email communication and“refer a friend”, instead of a loyalty programme to retain customers.????

3. Can a loyalty programme bring value that no other marketing activity can do??

After all, a loyalty programme is one of marketing practices, and business leaders should constantly scrutinise which marketing tactic is the most efficient way to deliver their business objectives. Plus, customers see all marketing tactics coming from the same brand, and they don’t necessarily distinguish a brand’s loyalty programme from their social media activities. So before introducing a new loyalty programme, the business needs to do an audit: What marketing activities do you have already? Are there any gaps for loyalty programmes to fill? And, perhaps most importantly, is a loyalty programme the most efficient way to fill these gaps?

For example, a loyalty programme is very cost-efficient in driving purchase frequency, because brands understand customers’ behaviours and preferences via their interactions with the programme. In addition, every marketer knows that first-party data from consumers is like gold dust, and an increasing number of brands have now set first- party data capture as a business priority. For most FMCG and retail brands, having a loyalty programme is the best way to gather customer data, and few other marketing activities can do so thoroughly and efficiently. In this case, it is very worthwhile to consider a loyalty programme.

Final thoughts

There has been a boom in loyalty programmes in FMCG and the retail industries. However, a loyalty programme can only add value to customers and businesses when it is aligned with the business objectives, when it is true to customers' behaviours, and when it is in synergy with other marketing activities.?

If you decided to launch a loyalty programme (or already have one), please check out my article

Two strategic shifts to make your loyalty programmes relevant to customers

How to make your loyalty programme stand out of the competition