Ellipsis Perspective on 40 Years of Loyalty Programs
On the Ellipsis "Must Read List" recently is a report by Journal of the Academy of Marketing Science on the effectiveness of loyalty programs1. The Academy team conducted a meta-analysis of loyalty program research, looking at the effect of different designs, in multiple industries published between 1990 and 2020. We share some of their findings and our thoughts.
1. Loyalty Programs impact customer behaviour more strongly than their attitudes
Even as customers increase how often they buy from a brand, their attitudes towards the brand may not change. This is often seen with supermarkets; a customer may buy from Coles because it is more convenient, but the customer does not perceive Coles to be any better than Woolworths.
At Ellipsis we agree there are two ‘types’ of Customer Loyalty.
- Behavioural: Loyal customers buy from you when they buy at all and sustain this behaviour over time.
- Emotional: Having an attitude that leads to a relationship with the brand, with this attitude influencing behaviour.
Emotional loyalty is rare and exists where customers have a strong affinity, attachment and trust in your brand, and they may also exhibit behavioural loyalty by spending more, more frequently and staying longer.
2. Programs with ‘closed enrolments’ i.e. by-invitation membership, have stronger impacts on individual’s loyalty than ‘open’ of ‘free to enroll’ programs
Invitation only programs usually have a smaller number of members (compared to ‘free to enroll’ programs), however they have a stronger impact on loyalty. This can be seen for example, with the Amex Centurion Card and other premium brand loyalty programs. Spend levels in these types of programs are usually higher and reward thresholds are reached more quickly, encouraging loyalty from high value customers.
3. There is no systematic difference in effect between ‘free’ programs and ‘membership fees’ programs
The important point here is that programs with fees require a strong value proposition to ensure the value to the customer is obvious. Programs like Costco factor the income from membership fees into the discounts provided to all members, NRMA Blue provides a range of favourable benefits to members as part of the member value.
4. There is no systematic/predictable difference in effect between programs with tiers and those without
Similar to our comments above in Finding 3, if you are considering introducing tiers into your program first ensure you have a robust business case and value proposition.
5. Coalition programs do not have a larger impact on member loyalty than single company programs
Both Coalition programs and Single company programs can drive loyalty. Coalition programs do however have the added benefit of multi partner investments to increase marketing efforts and awareness.
6. Programs that rely on discounts are less effective than programs with no discounts (but other rewards)
Don’t rely only on discounts, cash is easily forgotten and the reciprocity the program is meant to invoke is satisfied by the purchase. Think about what other rewards you can provide. Getting the balance right is a fine art.
7. ‘Aggregation’ programs are more effective than programs without a ‘saving-up points’ mechanism
Aggregation programs are effective at driving loyalty, we know ‘saving-up points’ is an important mechanism for loyalty programs and these programs can help drive engagement.
8. Programs that only give special attention to members do not perform better than those that do not
Providing ‘special attention’ isn’t enough to build customer loyalty and this can create a perception of unfairness with other members. It’s important to provide a variety of rewards including tangible rewards.
9. ‘Soft’, exclusive rewards in programs produce better results than no soft rewards
Soft and exclusive rewards help to build a strong value proposition. They also help to provide an aspirational element to a program. Achieving the right balance of rewards for your program is important, from broad appeal to aspirational.
10. Direct rewards (giving away the product the customer buys from you) are the most effective rewards (e.g. hotels, free rooms; airlines, free flights)
The best rewards are your own products. This is why in airline reward programs the most popular reward is a free flight. Make your product part of the rewards mix.
11. Offering indirect rewards (e.g. a gift/merchandise catalogue in an airline program) is less effective than not offering indirect rewards
Customer loyalty data can give you a rich understanding of your customers which allows you to treat them differently and relevantly. There is a customer expectation that you will personalise interactions with them – not one size fits all. Customers expect you to know why they do business with you, don't leave it to them to work it out from a catalogue. Always remember the customer has a Head and a Heart.
12. Industries with relatively low frequency of interaction find programs more effective than high frequency industries
We often see this in loyalty programs where the purchase value tends to be high, and the frequency is low. This is because the high transaction values are more engaging and conscious, allowing programs to trigger loyalty initiatives to keep members engaged.
13. Cognitive program drivers (i.e. rational reasons to engage with the program) produce better results than drivers that are attitudinal
Reward generosity is key to attracting rational-thinking customers as they consider enrolling – recognition and privilege keeps them engaged. Balance enough investment in rewards to make the value exchange worthwhile to the customer (and you). Invest in the Art / Science of reward and recognition combinations.
These are some of the findings that we found interesting and particularly useful in this meta-analysis of 429 effects measured over the last 40 years. When thinking about the strategy and design of a loyalty program, it’s important to consider these 3 core questions.
Which Customers? ...are the most important to engage and retain?
Which Behaviours? ...do you want to explicitly encourage?
How Much Money? ...is required to invest, and for what return?
We are Ellipsis, the Customer Loyalty Experts. We help businesses thrive through solving complex customer problems. Please get in touch, we’d love to talk.
1. With thanks to Loyalty Science Lab for bringing this publication to our attention.