How to Drive Business Growth with Loyalty Programs in the USA

Paid or membership programs, in particular, are increasing popularity. They expanded significantly throughout the pandemic as customers increasingly turned to internet avenues for purchase and interaction. There is still room for progress. Over 60% of digitally minded consumers under 35 say they plan to join at least one new paid program in the coming year, with 17% expecting to join three or more. Achieving such performance necessitates intelligent program design that is tailored to a company's consumer base and environment. It is not enough for businesses to just "copy and paste" programs from others. Instead, they must create unique programs that address specific, focused goals while taking into account aspects such as the company's market position, product context, and consumer wants. While most loyalty programs are simple to implement and gain some popularity, only those that are genuinely based on individual customer preferences and expectations will offer long-term loyalty and engagement as well as low attrition rates.

The importance of successful loyalty programs

Loyalty programs, whether encouraging coffee sales, ride-hailing services, or credit card usage, are more than just a gimmick for consumer-facing firms; they are a mechanism for corporations to interact with every single client in their ecosystem. In industries with high-frequency customer interactions, such as restaurants, credit cards, and beauty, the accumulated customer data alone can often justify investment in a loyalty program—especially since these programs not only assist businesses in collecting and storing valuable data, but also provide an avenue for monetizing it through highly personalized member engagement. Furthermore, loyalty programs can enhance customer stickiness and expenditure, with the best-performing programs seeing more than half of their members spend more with the business. They can assist establish new revenue streams and test new offers, thereby expanding the brand. They can also help firms obtain new clients, frequently through strategic alliances. Emerging trends Loyalty programs have developed over time, becoming more experiential and customizable. Partnerships are increasingly important today, and they are expected to grow in the future. Simultaneously, when consumer expectations shift, they are more willing to pay for a more satisfying experience.Paying for rewards.

Many programs are designed not simply to meet financial objectives, but also to collect client information.

Membership programs are becoming more widespread and impactful as firms' data and analytical capabilities expand. Companies still have many opportunity to create new paid membership programs or add paid choices to their existing programs, particularly in industries where customers have demonstrated an interest. (See Exhibit 1.) Even beyond those industries, we anticipate that more programs will produce considerable dividends in terms of loyalty and engagement, boosting top-line growth. including schemes are now being offered in companies that are not usually associated with membership programs, including as restaurants and automakers. Increased Customer Engagement. Several consumer-facing firms have experimented with novel program models and engagement strategies in recent years. We see an increasing trend in programs that aim to deepen customer interactions through partnerships and communities. These programs can provide value to clients that is not dependent on the cost of a company's product offerings. More importantly, they enable firms to leverage first-party customer data in more sophisticated ways. Walmart, for example, has wisely collaborated with Paramount Global to provide Walmart Plus customers with free access to the Paramount Plus video streaming service. This makes Walmart Plus competitive with Amazon Prime, while also adding new subscribers to Paramount's streaming service. In turn, Disney is looking for ways to create seamless linkages between its physical and digital services, such as offering exclusive discounts on Disney World resort hotels to Disney+ subscribers. In late 2022, the business also tested a new shopping option that allowed Disney+ users to buy unique Disney items online.

Another is that paid members choose the programs in which they are most likely to participate.

Sephora and Lululemon are taking a different approach, using their membership programs to create communities with their customers through in-store workshops and health and beauty events. Such communities can help to deepen customers' emotional connections to a company and promote brand loyalty in an organic way. Sephora's Beauty Insider Community, for example, has 17 million registered customers who may interact with one another by asking questions, participating in challenges, exchanging ideas, and uploading images of their "new looks." Meanwhile, Lululemon provides access to live events, such as community races and pop-up yoga classes, to both its free Essentials and premium Studio membership programs, in addition to the more traditional advantages. Diverging Program Effectiveness Given the continued expansion and popularity of loyalty programs, more businesses are considering launching or renewing them. However, developing a good program is not an easy feat. Our poll reveals that program performance, as assessed by customer loyalty and engagement, varies significantly across organizations, program kinds, and even within the same industry. For example, the percentage of members who consider themselves to be very or extremely involved spans from 22% to 82% of our respondents in grocery and mass retail, with a similarly large range of members claiming to be loyal to the brand. When it comes to increasing engagement and loyalty in free membership programs, we've discovered that personalization is the most effective approach. On average, free programs do not outperform paid personalized programs in terms of engagement and loyalty measures. In fact, top-performing paid programs outperform the average program by 24 percentage points in loyalty and 33 points in engagement. (See the slideshow.) One argument is that paid programs make users feel more committed in the service by charging them fees.