The value of a loyalty program

As I mentioned in my prior post, loyalty programs are a valuable tool.  They can help retain customers and companies can win greater share of wallet as a result.  If a customer can buy the same goods or services from multiple sellers, a loyalty program encourages customers to consolidate their purchases.  It might also create additional demand.  For example, a reward certificate can spur an incremental trip or customers may splurge in order to meet a spending threshold.

Another benefit of loyalty programs is the insight into customer behavior.  This has far reaching benefits.  Take the example of a retailer.  This customer insight can help both marketing and merchandising.  Using the data collected, a retailer can segment their customers based on past behavior so that they can tailor their messages and offers appropriately.  For example, marketers can use this information to personalize product promotions, cross-sell products and identify new customers that have the potential to become to best customers.

Further, this data will provide insight into what products bring new customers into the store, what products drive repeat purchases and what products are typically purchased together. Merchandisers can use this information to plan promotions and make buying decisions.

To be valuable, the data must drive actionable insights and be used to continually improve the loyalty program.  I will write about using data to evaluate the health of a loyalty program in my next post.