Sunday, November 20, 2011

Loyalty Programs: Driving Incremental Revenue?

I recently discovered that the 3rd largest retailer and #1 pharmacy in the nation has plans to roll out a massive loyalty program next year. Walgreens is currently running a pilot of Walgreens Rewards in Richmond, Kansas City, and Portland. The program is based on points that can be redeemed for substantial rewards like gift cards and merchandise. Even though Walgreens is late to market behind the competition, the program seems to build a relationship with the customer over time. In comparison, CVS ExtraCare Rewards are only good for a limited time and more difficult to keep track of. The program will be tweaked based on the results of the pilot, but it seems very easy to participate and rewards customers for behavior that they would be doing anyways. This got me thinking about loyalty programs and wondering if they actually drive incremental sales.
For me, loyalty programs work. I continue to go to Starbucks over any other coffee shop so that I can get closer to a free cup of coffee. I also added a credit card to my Chase account to get double the points from Chase Rewards. If I can be rewarded for behavior that I am already doing, I am likely to increase that behavior. I suspect this is probably true of many other consumers as well. In my opinion, there are a few best practices that will help create a successful loyalty program that drives incremental sales. After all, it costs 5-7x more to acquire a new customer than it costs to keep the ones you already have. So why not give them a reason to stay?

  1. Most important is ease of use. Customers don’t want to be bothered to think about their points. They should be easy to keep track of and just as easy to redeem.
  2. Collect data. Use the data from member profiles to target messages, offers and optimize rewards.
  3. Create an experience. Encourage your members to share their stories, pictures, etc. related to your loyalty program. This will increase engagement and allow you to have meaningful conversations you’re your loyal customers. This can also help to establish passionate brand advocates.
  4. It’s all about value. Customers will remain loyal and increase their spend if they feel they are getting a true value out of the rewards. An example is Southwest recently enhanced their Rapid Rewards program by allowing members to earn points for shopping at retail partners.  Consumers want the greatest value they can get out of each dollar they spend.

What rewards programs are you loyal to?

Jessica Wesley
M.S. Candidate, Integrated Marketing Communications
Northwestern University

No comments:

Post a Comment