Loyalty programmes can have a positive impact on total sales and gross profit

New Ideas in MarketingEssential news for marketers, summarised by YouGov
April 24, 2019, 9:27 PM UTC

These research findings may help marketers justify the costs and spending involved.

The authors of this paper point out that the core motivation behind loyalty programmes (LPs) is to improve firm performance by trying to increase the value of their “best” customers. They looked back at the results of 322 publicly traded firms that introduced LPs between 2000 and 2015, and compared them with 1494 firms that didn’t. The companies covered five sectors including retail, hospitality and food and beverages.

The firms who had adopted LP initiatives saw a 7% increase in total sales and a 6% rise in gross profits compared with the others in the first year after the programmes started. After three years, the LP companies recorded and 11% boost in total sales and maintained the 6% advantage in gross profits compared with the same control group. So the authors conclude that LPs were a “solid marketing investment” in what they describe as both the “short and the long term.”

However, they were able to distinguish between types of programme that different impacts. In particular, they found that schemes that allow consumers to progress upwards through a “tiered system” and create a sense of status resulted in both higher sales and profits through all three years that were studied. Programmes where members earned points or credits toward further benefits also performed well. Finally the authors stress that firms should not expect an immediate bump in gross profits, as these seemed to be delayed until the second quarter after the LPs were launched. They urge firms to be “patient” as LPs have the potential to deliver “at least five years” of sales and profits growth.

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