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Behind the lure and labour of loyalty programmes

Kick-starting a loyalty programme and achieving scale can be an uphill task for marketers, but once they ascend the acclivity, it is time for them to reap rich dividends.

March 29, 2019 / 08:08 AM IST

Manish Dureja

Moneycontrol Contributor

Time and again, loyalty programmes have proven to bring grist to the mill, serving as one of the most effective ways of engaging with and retaining customers. That is just the beginning. Several more aspects account for the customer’s propensity towards it, making it a compelling strategy for long-term growth.

Why customers love it:

Value perception

Customers remain active within a loyalty programme because they see an increased perceived value in their activities that have translated into a ‘wow’ factor.  According to persuasion expert Robert Cialdini, this positive experience triggers a desire to return the favour, steeped in the power of reciprocity. A report from Smart Insights says, “If a customer receives positive treatment like in a loyalty programme – they will be more likely to return the favour in the form of more visits, purchases or referrals”. In a recent KPMG survey, 74% of customers said they would go out of their way to shop at a store where they earn loyalty points, and 60% of the customers said they would shop at a store with slightly higher prices in order to earn a loyalty award. Quite for the same reason, in the travel loyalty space, the basket of benefits offered to members on their flight bookings is often extended to stay and dine experiences as a value-add.


Being valued

In the same KPMG survey, more than 80% of the loyalty customers said they prefer surprise deals or gifts to information on sales, special privileges, time-saving opportunities, or other traditional programme benefits.

Successful loyalty programmes act like motivational currencies that go-beyond the conventional route, through tangible and intangible rewards, to reach customer delight. Such engagements are indispensable for enduring relationships. Complimentary excess baggage, award flights, waiver on seat select charges and cabin upgrades for flight passengers go a long way in making them feel special.


Loyalty programme customers share a sense of pride in belonging. They feel they are part of an exclusive and privileged cohort, and that is an opportunity for marketers to seize. Exclusive privileges like VIP access to airport lounges and priority boarding, allow flight passengers to enjoy the special distinction that their loyalty programme offers them.

Why businesses design it:

 A proven growth driver

Many marketers use loyalty programmes as the go-to-strategy for new customer acquisition, business growth and expansion. Members of customer loyalty programmes generate between 12% and 18% more revenue for retailers than do customers who are not members of loyalty programmes.

 The silver bullet for customer retention

It is said that it is 5 to 25 times less expensive to keep a customer than to acquire a new one. Once customers form an emotional connect with a particular brand, they are expected to stay with it for an average of 5.1 years. These retention rates can be enhanced by running a referral programme -- customers who are referred directly by loyalty members have a 37% higher retention rate. What’s more, increasing retention by just 5% through customer loyalty programmes can boost revenue by 25% to 95%.

 Drives sales

Loyalty programmes can serve as a shot in the arm to drive sales. Depending upon where the incentive is provided, businesses can achieve the objective of upselling – incentivising customers to buy more of the same product, or cross-selling by encouraging customers to patronize the other product lines of the business, or those of its alliance partners.

Increased engagement

Loyalty programmes offer several experiences to its customers that keep them engaged and involved with the brand regularly. The key lies in sustaining the programme on an ongoing basis, and establishing the right metrics and KPIs to measure the engagement -- which is more than merely tracking the count of likes and followers.

Increased net promotor score (NPS) and brand advocacy

A well-sustained loyalty programme generally improves the NPS, with customers tending to recommend those products to others. When compared to non-advocates, loyalty members are 2-3 times more effective in persuading others to patronize their brand. In the KPMG survey, two-thirds of the customers revealed that they would give rave reviews to at least one loyalty programme that they participate in. Customer loyalty programs that incentivize reviews and ratings on websites and social media generally result in trustworthy and authentic user-generated content from customers. These also help in changing brand perceptions amongst other customers.

 Increased brand awareness

As loyalty customers engage more with the brand, they are more likely to be aware of the most recent updates, product launches and other information concerning the brand and the business.

 Pre-orders for new product launches

Loyalty customers are often given the first opportunity for pre-ordering a new or improved product ahead of its launch. Sometimes, a small incentive to spread the word within their circle also helps in awareness-building.

Enhancing lifetime value

Customer loyalty programmes are proven to increase customer lifetime value by up to 30% or more. For customers who actually share an emotional connect with the brand, this lifetime value can soar as high as 306%. The tier concept of recognition by which members are able to earn points, every time they do an activity with a partner of the loyalty programme they have enrolled for, enabling them to upgrade to the higher tiers of the programme and experience superior benefits. This creates longevity and a sense of accomplishment for a customer, ultimately leading to loyalty.

Understand customer behaviour

For marketers, the purchasing behaviour of their customers constitutes the important data set they can lay their hands on. Using these amazing insights, and through trial and error, marketers get a feel of the incentives that fuel the desire of their customers, and those that don’t.

Reputation boost

Well-designed loyalty programmes have a positive rub-off on the brand. With increased engagement, customers look at it more favourably than before.

With benefits are huge as these, there’s virtually no reason why businesses should shy away from designing a loyalty programme for their customers. After all, the rewards are enjoyed mutually.

Since the success of a good loyalty programme is parallel to tracking of consumer behaviour with the brand and understanding their level of engagement, technology plays a major role in the entire process. The whole system involved can be very complex and hence requires great investment in advanced technology, data analysis, modelling and liability management. Will highlight these areas in detail in my next article.

(Author is the Managing Director of JetPrivilege)

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Moneycontrol Contributor
first published: Mar 29, 2019 08:08 am
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