Brands really care about customer loyalty but more often than not, the understanding and execution have to go beyond a basic loyalty program. In the last couple of years, there has been a radical shift in this with brands foraying into loyalty with full force. The aviation industry has always been a front-runner but brands in other industries are also catching up. For instance, Lufthansa just introduced NFTs in its loyalty program which speaks about how in tune it is with the times. On the other hand, McDonald’s had its loyalty program in 12 countries, but it really went all in with Loyalty only in 2021 with the launch in the US.
This increasing interest in loyalty is primarily because brands are seeing real business value in it with measurable ROI. In a recent article, Bill Hanifin coined a wonderful new acronym - LaaB (Loyalty as a Business) and it makes so much sense! Loyalty contributes a significant % to the revenues and there’s a tonne of data that supports this argument. Here are some stats from earnings reports of brands like Starbucks and Delta:
- In the first six months of 2023, Delta reported cash sales from marketing agreements with credit card companies, hotels, and rental car providers of $3.4 Billion, or approximately 12% of their revenue over the same period.
- Starbucks reported $1.6 billion in outstanding gift card balances and $196 million in breakage (unused gift card balances) in FY 2022!
- Amazon Prime Day members purchased more than 375 million items worldwide and saved more than $2.5 billion across the Amazon store.
And here’s some data from reputed analyst and research firms:
- Forrester predicts that the global loyalty market will reach $3.4 trillion by 2025.
- Gartner estimates that businesses with strong loyalty programs can expect to see a 25% increase in customer retention.
- BCG found that businesses that invest in loyalty programs can expect to see a 10% increase in revenue.
And as a pundit exclaimed during Delta Airlines’ earning call, “This is not a loyalty program, this is just another line of business!” It rings so very true.
Let’s build on LaaB as a new approach to loyalty marketing that treats loyalty as a business in its own right. This means that businesses focus on building long-term relationships with customers and creating a value exchange that benefits both parties.
What will make Loyalty a Business Line?
Now, to ensure that Loyalty becomes a business line in itself, there are some key points that need to be figured out. First of all, loyalty is not just a function of loyalty which means loyalty has to be built as a mindset throughout the organization. And secondly, loyalty program isn’t a quick fix; it’s important to stick with a loyalty program to see the results (provided the financial modeling and program design is top notch).
1) Choosing the Right Model for your Loyalty Program
There are several types of loyalty- from subscription to tier-based to coalition loyalty to B2B- as a loyalty marketer, it is crucial to understand what kind of a program will strike a chord with your customers. For instance, if you’re into fuel retail or any other operational business, along with a loyalty program for your end customers; it is also important to have a loyalty program for your employees/partners because they’d be the face of your brand in front of the end customers. And within a type of loyalty as well, you need the right partners to bring in elements like gamification which make a loyalty program sticky!
2) Measuring Emotional Loyalty
Emotional loyalty is the deep connection that a customer feels with a brand. It is more than just being satisfied with a product or service; it is about feeling a sense of belonging and attachment to the brand. Brands that can measure and understand emotional loyalty are better able to create marketing campaigns and loyalty programs that resonate with their customers.
There are a number of ways to measure emotional loyalty but one of the most advanced sciences here is the Brierley Loyalty Quotient which has the most advanced emotional loyalty measurement tools according to a Forrester study. Apart from measuring rational loyalty, it is critical to get signals from the customers on how emotionally they’re connected, and modern tools can help you do that to tip the emotions in a brand’s favour.
3) Proving Causality
This is a difficult one, but it is important for marketers to prove that loyal customers are buying more because of the brand's investment in a loyalty program.
It is important to be able to prove that loyalty programs actually have a positive impact on revenue and customer retention. This can be done by using a variety of methods, such as A/B testing and regression analysis to come up with a proper financial model. By proving causality, brands can justify the investment in loyalty programs and make sure that they are getting a return on their investment.
4) Financial Modeling
To calculate the RoI, it is important to have some kind of data before starting a loyalty program. With the retrospective data, sales predictions can be made for the future and co-related with actual sales to see the impact of a loyalty program.
Financial modeling can be used to predict the future revenue and profitability of loyalty programs. This can help brands to make better decisions about how to design and manage their programs. Financial modeling can also be used to set targets for loyalty programs, such as increasing customer retention by a certain percentage or generating a certain amount of revenue.
Conclusion
There’s evidence coming in from all over the globe that brands are taking their loyalty programs very seriously. Especially when one hears examples like Starbucks which reported $1.6 billion in outstanding gift card balances and $196 million in breakage (unused gift card balances) in FY 2022.
As Bill puts it in the earlier article, that’s an interest free loan from your own customer base! With such potential, more and more brands will surely focus on loyalty as a business line, and we’ll see loyalty tactics playing out across functions of a brand.
And with the advent of generative loyalty, we’re just getting started!
Editor’s Note:
With a background in tech journalism and corporate communications, Jubin Mehta is a customer loyalty and engagement analyst at Capillary Technologies. Capillary works with 250+ enterprise brands across the globe to deliver RoI-driven loyalty programs that customers love.
