Do Loyalty Programs Cause Consumers to Spend More?
I belong to a number of reward and loyalty programs. My favorite program? The Capital One Venture Card. Two points for every dollar spent and an additional 40,000 points if you spend $3,000 within the first three months.
Once I had my shiny, new card in hand, I switched all my bills over to the card to ensure I put $3,000 on it by the end of the first three months. As I gleefully rejoiced in what equated to $400 in travel points, I wondered whether I end up spending more than I would have if there wasn’t a reward at the end.
And the larger question: Do loyalty program members spend more because of the potential rewards? Let’s jump in.
Life is about rewards; grades, raises, team trophies, promotions, and loyalty programs. Rewards drive the majority of the population. We work a hard spent 40 hours a week at our jobs, and strive to perform at our best so our boss sings our praise during the dreaded annual review. There’s also the monetary reward helping to drive our efforts throughout the year; if we perform well, we receive a raise.
Loyalty programs operate in a similar manner. You painfully part with your money and in return, are rewarded for it. Knowing a reward awaits at the end drives you. The psychology behind reward and loyalty programs attempt to reinforce a spending behavior.
Loyalty Programs Increase Consumer Spend
Typically, consumers spend more when they belong to a loyalty program.
According to the 2016 Bond Loyalty Report, 66% of consumers modify the amount they spend to maximize points. On the one hand, loyalty members buy more often and spend more than non-loyalty members, resulting in a 5-10% revenue increase. On the other hand, according to the same report, the average household is enrolled in roughly 13 loyalty programs, but only active in seven. You can’t simply start a run-of-the-mill loyalty program and expect a revenue increase.
Loyalty programs cause people to spend more, but not all are created equal.
Personalization, Attainable Rewards, and Experience
One size doesn’t fit all. Consumers want more personalization, a better digital experience, and a variety of earning methods. Creating attainable and realistic awards for your loyalty program is a must. Give your consumer an easy goal to strive for.
What’s the value of sending a coupon for coffee to a non-coffee drinker? Zero. Know your customers and personalize. Send the right offer to the right customer.
How can your customers redeem their rewards? Do you make it a simple or complicated experience? If point redemption entails visiting a website or app, make the redemption process intuitive.
Remove the branding, and most loyalty programs are indistinguishable from one another. The norm is to follow a points per transaction reward system. Consumers demand more. Think outside the box and offer rewards for checking-in to your establishment’s location via social media, writing a product or location review, opening a marketing email and taking action, or sharing a recently purchased product on social media.
It literally pays to create a well-thought out and customer-centric program. Remember, always place the customer first.
Guest Contributor: Andrew Cauthorn, Marketing Specialist at DataLogic