Moneyadviceblog » Business » Are Loyalty Programs A Good Idea?

Loyalty programs are intended to reward your best (loyal) customers. Businesses often opt to offer a rewards program so as to retain their current customers and turn new leads into loyal customers. These programs can range from rebate programs to earning points, and many more to incentivize sales.

However, there are certain pros and cons associated with a loyalty management platform. This article aims to provide you with the information you might need to help you decide whether a loyalty program is for you.

Let’s start with some pros:

1. Increase Customer Retention

Loyalty programs make customers feel valued, which entices them to continue doing business with your product or service. Generally, loyalty programs are designed to retain more customers by rewarding them to make repeat purchases with a particular brand. In fact, according to a study, it cost up to 7 times more to acquire a new customer compared to nurturing an existing customer.

2. Attract New Customers

A well-designed loyalty program helps businesses to attract new customers. With points or discounts, the new customers will happily subscribe to your mailing list to take advantage of the offers. Also, customers who are content with your brand may share their experience with friends and family members even without a referral program. Consequently, you will be able to attract new customers with loyalty programs.

3. Valuable Data

When a customer signs up for your loyalty program, you can register their information in your company’s database. This data enables you to determine customers’ behavior, buying practices, and preferences. Companies can use this worthwhile information to customize their offerings to particular groups of consumers and mapping the results of special promotions to aiding in inventory management and pricing. A well-developed loyalty program allows companies to segment customers and differentiate profitable customers from unprofitable ones.

4. Better Communication with Consumers

A loyalty program allows businesses a direct line of communication with their customers. This makes it easier to build brand awareness and increase loyalty by presenting valuable insights on a consistent basis. The more your customers know about your products and services, the more they will keep returning. Also, they will share the information about rewards with friends and family, so you can enjoy word-of-mouth publicity.


Now that we looked at some of the benefits of a loyalty program, let’s see what the potential downsides are:

1. Market Saturation

Many businesses are using loyalty programs, and sometimes these may be identical. They may be similar membership stipulations, purchase requirements and rewards. To counteract this, you should look to create programs that are unique and distinct. Advocate loyalty programs are a good way to stand out, as you can reward customers for unique actions that work for your audience. If you consult an expert firm like Linkeo Ltd, you can create an online customer loyalty program that is unique and stands out among others.

2. Difficult to Identify Loyal Customers

It is often difficult to differentiate brand loyal customers from repeat buyers. When consumers make frequent purchases with your business, it does not necessarily mean they are loyal to a product or service. They might be buying it because of the perks that you are offering. Hence, the accurate identification of loyal customers may not be estimated by the loyalty program.

However, if you merge your loyalty program with advocate marketing tactics, you will be able to fetch fruitful results. For instance, reward shoppers for referring friends, writing reviews, and so on. This will allow you to distinguish who’s just a frequent buyer and who is loyal to your brand.

3. Constraints of Collected Data

The data driven by loyalty programs often provide a limited overview of customers’ overall purchase behavior. For example, the statistics can’t track purchases from other brands and stores. Sometimes, customers are uncomfortable with sharing sensitive information to embrace the incentives of the program. Perhaps, the data may not be an authentic representation of customer loyalty. A frequent buyer is not certainly a loyal customer. As mentioned earlier, the consumer may be buying your product or service because it is convenient or the right price. There will be certain customers who are making repeat purchases to just get the benefits of your program’s rewards.


Additionally, past loyal customers do not always guarantee future profitability. Businesses offering loyalty programs should not rely on the behavior of past customers to estimate future revenue because their needs, incomes or lifestyle may change. And, these changes will definitely affect their purchase habits. Hence, when you are launching a loyalty program consider this fact and act accordingly to find out other ways to generate Return On Investment for your business.

There is no doubt that the benefits of loyalty programs outweigh the disadvantages. If you carefully and strategically launch a loyalty program in the market, surely you will generate profitability. All you need is expert advice and marketing agendas to market your program, and you will be able to retain more loyal customers with a customer loyalty program.

So what do you think? Are loyalty programs something you feel can work for your business? Be sure to share your views in the comments section below.