Do rewards really create loyalty? Content marketing agency Dialogue investigates

Points-based or reward schemes are the backbone of loyalty or customer retention, but with the variety of companies and programmes, how significant are rewards in creating true loyalty? Let's take a look.

There are, of course, a multitude of reward schemes available to consumers now – find out about the different types here. And customers, of course, seemingly want loyalty programmes with nearly 70% of respondents polled in the Yotpo annual State of Brand Loyalty survey, regarding them as the top experience that brands could offer to foster customer retention while 83%, believing belonging to a loyalty program influences their decision to purchase from a brand again.

However recent research and insights suggest that loyalty schemes are subject to the same competition and consumer fatigue as acquisition strategies.

The average consumer is ‘engaged’ in seven loyalty programs although they are actually enrolled in 15 – an engagement rate of less than half.

Meanwhile, according to Business Week, 60 – 80% of a business’s defecting customers describe themselves as ‘satisfied’ or ‘very satisfied’ just before they leave while Forum Corporation cites that 70% of the reason customers leave a company has nothing to do with the product.

Rama Ramaswami, Senior Editor Economist Intelligence Unit sums up the situation regarding loyalty;

“Executives are finding that the winning differentiator is no longer product or price, but the level of customer engagement relative to the competition.”

According to Statista, a survey carried out in 2022, revealed that supermarkets are the most popular sector for loyalty schemes. However, even in this sector, membership is in decline:

As brands struggle with more competition, so the number of customer retention schemes are subject to the same levels of competition too.

So which are the best loyalty schemes?

Four decades of academic loyalty program research
led by Professor Belli from the University of Adelaide in Australia, link at end of article, looked at which loyalty schemes actually worked. The methodology used meta-analysis, which allowed the results across different research studies to be statistically analyzed and combined to create useful and applicable insights.

The researchers analyzed 429 effects from 110 previous research studies looking at a variety of loyalty schemes including grocery and non-grocery retail, hospitality, financial services and airlines among others.

Here’s the bad news: the average programme’s impact on customer loyalty was small- to medium-sized:

8% of the effects were actually negative; 29% were medium to large); and the rest were positive but small in magnitude.

So while loyalty schemes are important, they don’t necessarily have the biggest on customer retention.

However there is some variation from industry to industry. According to the insight, loyalty programmes had the biggest impact in low-frequency industries like hotels rather than high-frequency industries like supermarkets.

The reality is that the impact of schemes can be highly diverse but it's how a business designs, runs and communicates through the program matters. Hence the value of content in the mix – see below.

In general, the research revealed that

• it makes sense to reward cumulative purchases instead of one-time discounts
• exclusivity and personalisation are increasingly valued by consumers .
• consumers want status but if you get the attention you give them wrong, it can have a a negative impact.
• schemes that are more restrictive, by invitation only can have a strong impact on consumers’ loyalty.
• programmes that are generic, like giving 10% off for all members are likely to fuel mercenary loyalty (in other words, a programme that is switched on only when necessary)
• tiered loyalty programmes (initial small rewards leading to repeat purchases by increasing value of rewards) and special attention program (birthday gift) are not valued by consumers either

Loyalty is not an off-the-shelf marketing plan or system you can simply switch on therefore and needs all the rigour that you’d give an acquisition strategy therefore.

Take advantage of our FREE content consultation here to talk to us about any loyalty or customer retention issues you're struggling with.

So where does this leave loyalty?

The success of a loyalty scheme can’t be as simplistic as sales alone.

Today’s consumers want more from the companies they shop from. According to the Deloitte Global Gen Z and Millennial Survey, link below.

"Gen Zs and millennials are doing their part—nine in 10 make an effort to protect the environment. In the near-term they are focused on small everyday actions like buying second-hand clothes or sourcing locally or organically produced food. In the longer term they see themselves increasing their civic engagement and bringing sustainability into their large purchases. Financial constraints may make it challenging for them to invest in more expensive items like solar panels and electric vehicles. Still, half of respondents say they plan on making these purchases in the future."

Meanwhile, our research on brand communities reflects these new demands from consumers – a move away from financial reward to an ethical or community reward instead.

"Brands such as Harley-Davidson, Sephora and Adidas, who invest in the long-term nurturing of their own brand communities, have proven that an engaged and committed investment to retain customers reaps rewards and our report shows there is an appetite, certainly among 16- to 24 year-olds, to be part of a brand community. The brands succeeding are the ones that understand the power of peer to-peer marketing built around a strong brand with mission and purpose rather than a top-down approach which simply pushes product all the time."

The value of content in loyalty schemes

As a result, while points may be the foundation of a loyalty scheme, nothing is as valuable as content and personalised communications to translate what the brand is about, its values and ethics and how it’s proving valuable to consumers.

Effective content is necessary to ensure you’re doing the following

• Communicating why your loyalty programme is generous (not just delivering pointless discounts and samples)
• Showing gratitude to the consumer for their continued loyalty and advocacy
• Outlining the benefits of every product and the brand itself
• Building a useful brand community that can help with promotion, advocacy, word of mouth and market research

At the heart of any loyalty approach is the need to not only continuously evolve and keep things exciting and interesting for consumers, but also to communicate effectively.

Connecting brands with its consumers or ‘fans’ by creating engaging visual and written content across all channels, but particularly email and social media, is a must.

This means creating a loyalty content strategy, that in turn requires:

• personalised content
• tactical content which not only sells, but engages
• content at scale and speed, which can be repurposed for different platforms
• content that can also be monetised (and so provide another source of revenue for the business)

In conclusion

In an age, where so many factors affect our consumer behaviour, it’s fair to say that rewards alone are not necessarily the only factor that affects the success of loyalty schemes.

A sophisticated approach is necessary therefore – one that encompasses many types of initiative and touchpoints; points, discounts and rewards coupled with the right software, personalisation, effective content and brand community thinking.

What’s more this approach will change from sector-to-sector, business-to-business in order to respond to the interests and idiosyncrasies of the target audience.

Resources

Yotpo's State of Brand Loyalty
40 Years of Loyalty Programmes
Statista
Deloitte Global 2022 Gen Z and Millennial Survey

Take advantage of our FREE content consultation here to talk to us about any loyalty or customer retention issues you're struggling with.