How to monetize a loyalty program

A loyalty program should be considered as a long-term investment and generate revenue for the company. The business should approach programs differently than just an ordinary marketing solution. A loyalty initiative is not a TV advertisement or promotional campaign. Thanks to its multi-level structure a loyalty program allows generating profits in a few ways, some not so obvious. We will take a closer look into that below.

Direct sales increase

A loyalty program increases the attractiveness of the brand and thanks to it, a base of customers. Nothing revealing. But going a step further – loyal customers tend to purchase more frequently and buy, on average, more than regular ones. By combining these two elements, you can see the relationship in which the loyalty program contributes to sales. It is also a relevant platform to support the increase of the average margin. Loyal customers represent a high trust and are more willing to buy products with high markup from other categories (cross-sell) or reach for exclusive products (up-sell).

Referrals

Most of the loyalty platforms have a referral or member-gets-member functionality. Using a personalized invitation, a member can invite friends or family members, and together they can benefit from it. Referral brings new customers and their purchases, which results in increased revenue. Recommending the program to friends has additional advantages. It decreases the costs of customer acquisition and increases the likelihood that the new customer will remain loyal to the brand.

Trading with the loyalty points

This revenue stream is for loyalty program operators, who cooperate with external partners and building multi-partner programs or coalitions. The process is based on considering loyalty points as a specific marketing service for which partners pay. When the customer purchases at the accrual partner he receives loyalty points for his shopping. This partner pays for the points accrual to the program operator for bringing customers to the store. On the other hand, after spending points on a reward from a given partner, this partner receives money from an operator. What’s important, the price of issued points is quite different than spend one.

Providing marketing broker services

Loyalty programs are perfect tools for gathering large amounts of information about customers and their behavior. The more extensive the program is, the more data it collects. This information can be valuable for program partners or external market research agencies. Because the loyalty program has its communication channels and database of contacts, the program operator can send messages that are beneficial to the program partners. The operator may also consider charging fees for creating joint offers.

There are many ways to benefit from a loyalty program. But the truth is, the program is profitable if it's a customer-oriented initiative. Initiatives that do not put the customer in the first place may not be attractive and, therefore, will not bring the expected income.

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