Loyalty Programs: Moving Far Beyond Punch Cards and Key Fobs

Henry Helgeson |

July 25, 2013

Mobile Loyalty Programs

The idea of rewarding loyal customers is nothing new. It’s widely reported that it’s six to seven times as costly to retain an existing customer versus acquire a new one – making a great case for the effectiveness of loyalty programs. In the U.S. retail marketing programs featuring loyalty incentives date back to the late 1700s. Throughout the 1800s leading consumer brands begin using loyalty incentives to reward repeat customers by providing certificates that could be exchanged for promotional goods or other items. 

Over time, loyalty programs have expanded from local business owners to ‘big box’ retailers and grocery chains, airlines, and even credit card companies. In fact, leading analyst firm Aite Group estimates that approximately 900 million transactions will be conducted with cards connected to merchant loyalty programs in 2015, generating $1.7 billion in revenue for the providers, up from just $300 million in 2011.

Today, a majority of loyalty programs offer free product, merchandise credit or exclusive discounts and offers to repeat customers. For smaller businesses, loyalty is typically managed in the form of a punch card, a physical paper card – typically the size of a business card – that offers a free sandwich, bowl of soup or coffee after a set amount of purchases (for example, buy 10, get one free). An effective yet simple way to deliver incremental value to a merchant’s ‘best’ customers, punch cards are viewed as cumbersome by the consumer, requiring them to have the cards in-hand and remember to present the card during each visit for a ‘punch’ or ‘stamp’. And, without an integrated system, the merchant has no way of identifying the ‘loyal’ customer in terms of their name, demographics or transactional trends – outside of manually tracking the data.

Key fobs are another popular tracking method in loyalty. Typically mid- and larger retailers – those with an integrated solution for tracking customer data and transaction amounts - use key fobs that feature a unique bar code assigned to the specific customer. Each time the consumer makes a purchase they present (or scan) their key fob. Depending on the retailers’ specific offering, rewards are earned based on purchases (purchase amounts, product SKUs, etc.) with reward redemption via an email notification, paper coupon or, automatically through a system generated prompt at a future purchase.  

It’s reported that U.S. businesses invest over $50 million per year on loyalty programs alone, and, for the more successful ones, loyalty programs can generate up to 20 percent of a company’s total profits. So, with the ongoing movement to and reliance on mobile technologies and more than 137.5 million smartphone owners in the U.S. alone, what’s next for loyalty. According to a recent report the next step for loyalty is mobile, with some 73 percent of smartphone owners noting their desire to interact with loyalty programs through their mobile device. Another 91 percent confirmed that they would be likely to download a merchant’s loyalty program application, whether a general application or customized white label one. 

There’s no question that loyalty programs are an effective marketing tool for both customer acquisition and retention. A loyalty or rewards program is definitely a marketing tool that should be considered and implemented sooner rather than later. For those with programs deployed, the next step is moving to mobile, capitalizing on the fact that consumers are rarely separated from their smartphone and also on the ability to deliver a more seamless experience for the consumer – making rewards fun and easy as opposed to cumbersome and boring.

Mobile offers a point of connectivity not available in years past and merchants that seize the opportunity and capitalize on integrated loyalty alongside overarching marketing campaigns will be those that yield phenomenal results, not only in creating ‘Raving Fans’, but also driving incremental sales – and revenues – to the bottom line.  With mobile comes the ability to target consumers and message directly to them in real time, something that has never been possible before. 

In addition, the deployment of new loyalty programs gives merchants access to unprecedented amounts of data about who their customers are and what they’re buying. As the big box retailers have already learned, this data can and should be use to support amazingly targeted and tailored offers as part of the loyalty experience. The concept of loyalty programs as know them today will fundamentally change in the coming years and the merchants who embrace this new technology will have a definitive edge on their competitors and drive incremental sales at the same time.