Loyalty programs can be invaluable tools for brands, as well-executed programs can facilitate data collection, personalize on-site experiences, and drive consumer engagement. While these programs function as a customer lifetime value vehicle, operating a loyalty program requires considerable investment in a saturated market. Therefore, companies must consider a number of factors to determine whether a loyalty program is worth the investment.
Most importantly, brands must consider a loyalty program’s value proposition—what issue will a company’s loyalty program address for both the consumer and the brand? Every loyalty investment should facilitate a mutually beneficial value tradeoff between the brand and the consumer. For example, operating a tiered loyalty program that offers differentiated rewards based on spend allows for greater customer segmentation and more targeted marketing while simultaneously adding interest and additional incentives for consumers.
When the value exchange is skewed towards the brand, consumers have little incentive to signup; when it is skewed towards the consumer, brands bear the burden of expensive loyalty programs with little return on investment. To maximize ROI on these programs, brands must balance this loyalty exchange; otherwise, a program may not be worth the investment.