4. What are Loyalty programs and do they really work?

Who isn't part of a loyalty reward program these days? Right from the My Starbucks Rewards to the reward points on your credit cards, all of us are part of multiple loyalty programs, some without even knowing ourselves. What inspires these companies to actually set up a loyalty program and reward their loyal customers?

Loyalty systems are an integral part of most Customer Experience Management strategies in the modern world. Being a member of an exclusive privileged club where you are rewarded for your every interaction with the brand is something every customer wants. On the other hand, brands want to improve their customer retention rate, because studies suggest it is five times costlier to acquire a new customer than to retain your existing ones. Also, a 5% increase in customer retention can increase profits from 25-95%.

A well planned, well-executed loyalty system allows a brand to receive immense data from their customers both consciously as well as unconsciously which include their name, email address, date of birth, as well as their purchase patterns. And what the customers get out of a loyalty system is direct discounts at every purchase or rewards based on accumulated purchase points or sometimes even both. The real success of a loyalty system actually lies in the customer's perceived value being higher to the information provided by them.

We have already spoken about Starbucks and their excellent Customer Experience practices, but their loyalty system - My Starbucks Rewards is a benchmark in itself. With a 25% growth in membership across two years and amounting to 40% of their total sales, the program has been another successful marketing exercise by Starbucks.

What particularly stands out about My Starbucks Rewards is how the company used the loyalty system as their gateway to their digital transformation. The program is a multichannel tool with access via an app as well as a card, and introduced to the online order system for every customer who doesn't want to stand in a queue on a Monday morning to get their coffee on their way to work. All the user has to do is place an order on the app, pay for it via the app itself and your coffee would be ready for take-away when you reach the store. All this comes along with the usual points earned for every purchase, exclusive deals for members and free beverage on your birthdays.

Another company that has set a new benchmark with its loyalty program is Amazon with its prime membership. Amazon prime membership started out as a simple discount system offering free delivery to members. And has now grown with so many inter-disciplinary benefits exclusively to their members like content streaming platform, ad-free music platform etc. Amazon has taken loyalty systems and their potential to a new level altogether by creating a 2-day e-commerce festival for its exclusive members - Amazon Prime Day.

Coming to the sports industry, most big teams these days have their own membership programs for fans which offer a basic discount (and sometimes free goodies) for fans on purchases from their official stores and some partner outlets. But with infinite potential to explore out of these programs, Loyalty programs and rewards based marketing is a highly unexplored territory in the sports ecosystem.

But after all this, one question still remains. Do loyalty systems guarantee customer engagement?

More on this in our upcoming articles (Sign up for our newsletter and be the first to be informed every time our new article drops.)