Impact of Loyalty and Rewards Programs on Companies

Rewards cards scattered together.
Caption: Most companies offer consumers some type of loyalty program. Source: Google Images.

Loyalty and reward programs can have a great impact on a company’s bottom line. These types of programs can help a company save money or even boost sales. In order for a loyalty program to be successful it must connect the company’s message with consumers. Furthermore, a successful loyalty program must address the following key elements: (1) know what target customers value, (2) drive profitability, (3) set clear attainable rewards, and (4) make it fun for customers.

Most customers are part of a company’s loyalty program for the rewards. Based on a recent survey reported by Marketing Daily, 45 percent of consumers who are loyalty program members only purchase specific brands or shop in certain stores to earn rewards. However, only 17 percent of loyalty program members joined a rewards program because they love the products or brand. Furthermore, 60 percent of consumers viewed the brands as offering loyalty programs only as a way to spur more sales, instead of creating more connections to consumers.

Starbucks, who recently made changes to its reward program, experienced a dramatic drop in its consumer perceptions. Starbucks, instead of rewarding customers based on the amount spent in stores, now rewards its customers based on the number of visits to a Starbucks location. Consumers reacted negatively to this switch through social media outlets, thus causing Starbuck’s brand perception to drop by 50 percent, based on article found on AdWeek. In lieu of Starbuck’s customers disappointment in the revamped Reward Program, Dunkin’ Donuts, a competitor, is attempting to grasp Starbuck loyalists though offering not only a $5 gift card but also a free drink for singing up for DDPerks rewards program.

Tweet from Starbucks introducing new Starbucks Rewards Program and response by customer who is dissapointed in the new program.
Customers are dissapointed in Starbuck’s new Rewards Program and have used social media to express their distaste. Source: AdWeek.

Other companies have also altered their rewards programs in the past, some more successful than others. Southwest Airlines revamped its Rapid Rewards program by changing its model to a point system from a system that was based on number of trips taken. Delta and United both switched their reward systems from miles flown to total dollars spent. Changes to a rewards program for a company may make loyal customers less loyal.

Although memberships in loyalty programs are rapidly expanding, active participation continues to fall. The barriers to joining programs are relatively low. However, most programs are undifferentiated and rely on discounts. Price considerations play a key role for U.S. consumers when evaluating a loyalty program. These loyalty and rewards programs must provide consumers with unique and timely messages to meet their needs. As brands move from offering consumers rewards programs as a supplement consumer engagement tool to an integral part of a company’s marketing efforts, brands must use the right level of technology.

Consumers, through loyalty programs, seek instant validation and highly personalized offers. Companies must align the rewards program with its customers. More and more brands are investing resources into digital strategies but other brands that have not are loosing customer acquisition and engagement. Loyalty programs, to continue to be successful, will need to become more creative, service-oriented and all encompassing. However, reward and loyalty programs can bolster marketing efforts by allowing for more varied ways to engage with consumers and enhancing personalized experiences.

From a marketing management perspective, here are some questions to consider:

  • Research other companies that have made changes to their rewards programs. What were consumer’s reactions?
  • What key elements are most important in creating a customer loyalty program for a company?
  • Do you think rewards programs can bolster a company’s marketing efforts?