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The Importance of Loyalty Programs in Driving Business Revenue

Loyalty programs are a particularly useful way of driving revenue to a business. They incentivize customers to continue to shop at one particular business so that they can continue to reap further rewards. A recent academic study has investigated the impact of loyalty programs in the context of the mobile phone industry. The academics state that a, “serious question to which mobile phone service providers need to find a suitable answer is how to drive loyal customers’ behaviors to become involved in different electronic loyalty schemes to promote repeat buying and extend customer-supplier relationships.” They tested four different loyalty programs to answer this question and sent out a questionnaire to 478 customers who participated in one of these programs. For example, one of the types of loyalty programs is customer loyalty rewards. They found that loyalty programs drive the choices of loyal customers as well as drive repeat purchases. 

How Loyalty Programs Drive Revenue

The above study demonstrated the fact that loyalty programs increase customer loyalty. Customer loyalty refers to the occurrence of customers purchasing from a business more than once. This is often confused with brand loyalty which refers to a customer being loyal to a brand instead of a single product or service. For example, purchasing Samsung products because they are all made by Samsung. Customer loyalty and brand loyalty are good for businesses because repeat customers mean repeat purchases. This will in turn drive revenue for a business. A loyalty program can increase customer loyalty and as a result be a driver of revenue for a business. 

Examples of Successful Loyalty Programs 

Many brands and companies will increase their promotions and brand loyalty programs as the holidays draw closer. Some companies make significantly more revenue in the holiday season as a result. This demonstrates the importance of timing loyalty programs and other promotions with the right events. For example, a hardware store might time a power tools sale with fathers day,  or a jewelry store might offer increased customer loyalty incentives to purchase jewelry around valentines day. 

What follows are some examples of successful customer loyalty programs for brands that tend to see a boost in sales in the holiday season. 

Barnes & Noble 

Barnes and Noble runs a loyalty program that is unique in the sense that it is a paid loyalty program. This program costs $25 a year and comes with bonuses like free shipping and 40% off hardcover bestsellers. The effectiveness of a paid program depends on how well a company is able to market this program to their existing customers. If a brand is not recognizable, new customers might not be interested in the loyalty program so it is vital that it is concentrated on the current base of customers. Additionally, a paid loyalty program must have benefits which are only obtainable through the program for it to be effective. It is also important to nudge customers with testimonials and social proof to encourage more customers to join the program. It can be useful to include these testimonials on a business’s website to attract customers’ attention to the loyalty program. 

Lego VIP

Lego is another business that tends to see a spike in revenue in the holiday season. The Lego VIP loyalty program is similar to other companies in that purchases earn points that can be exchanged for discounts and other enticing benefits. Points can also be earned by following Lego on social media and completing surveys for the company. It is free to join the Lego VIP loyalty program and it offers perks such as early access to new collections as well as exciting gifts. According to recent research, the program has been a massive success for the company and it has generated over $41 million in one year alone. 

Final Thoughts 

Loyalty programs help businesses to retain customers and also help to increase their loyalty to the company and their products or services. This in turn can increase revenue for businesses and they will find that they are having a greater number of repeat customers. Additionally, it can be largely beneficial for a company to time their customer loyalty programs with special events. As an example, Lego will usually release new products when a new Star Wars movie comes out. This can be applied to any business as they just need to find the right timing to release special offers in their loyalty programs.

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