Loyalty programs are invaluable tools for driving consumer engagement and personalization. In L2’s 2016 Intelligence Report: Data & Targeting, brands with loyalty programs capture 52% more data, provide 29% more personalized on-site experiences, and effectively segment to 33% less of their email lists than their non-loyalty counterparts.

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Loyalty programs can not be viewed as silver bullets to addressing personalization and targeting challenges, as these programs can become cost centers that don’t always pay off. The double-edged nature of loyalty programs is evident in the amount of program churn over the past year—from 2015 to 2016, 28 brands across six sectors announced new loyalty programs, while 16 brands shuttered their programs. Consumer engagement with programs has also waned, from 72% of total memberships in 2014 to just 50% in 2016.

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Best in class retailer programs like Sephora’s Beauty Insider have driven beauty brands to be  particularly bullish on loyalty, with adoption increasing 50% year-over-year. However, as beauty brands seek to mimic the success of Sephora, they should be wary of Sephora’s inherent advantages as a third-party retailer selling across multiple brands and beauty categories.

Sephora’s loyalty program is highly popular and visible. The Beauty Insider program has more than 10 million members and appears on the first page of organic search results for 47% of searches for prestige Beauty brand loyalty programs. Walgreens has also become a player in the beauty space, potentially as the mass beauty counterpart to Sephora’s prestige focus. In October 2016, Walgreens extended its existing Balance Rewards program (which has 85 million members) and introduced Beauty Enthusiast rewards. The program provides an additional 5,000 points for every $50 spent on cosmetics, skin care, hair care, oral care, grooming, sun care, fragrance, and bath products. The two retailing giants have created a winner-take-all environment, making it difficult for smaller beauty brands to compete with individual loyalty programs.

To be a sound investment, Beauty loyalty programs must have a clear value proposition that addresses, and solves a source of friction in the beauty consumer experience.

 

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