Understanding The Value and ROI Of Customer Loyalty Programs

Time To Rethink Loyalty: How To Maximize Growth and Retain Your Best Customers

It's a well-known and often-repeated statement that it's easier to retain customers than to attract new ones; however, where marketers and decision makers run into stumbling blocks is being able to understand and demonstrate the expected results and return on investment (ROI) of customer loyalty.

With brands facing increasing pressure to ensure that every penny allocated towards marketing campaigns and initiatives is well spent, it's crucial to understand just how loyalty marketing and loyalty programs deliver value back to the brand.

Customer Loyalty Is The Foundation To Business Success

The truth is, customer loyalty is an integral part of any business, no matter the size, industry, or background. Loyalty programs have been around for decades now, but loyalty program design, technology, and loyalty strategy are currently experiencing a surge in growth, innovation, and corporate investment. More businesses are realizing that to stay competitive, they need to focus on key areas such as creating complete customer data profiles, building engaging experiences that activate consumers, and nurturing emotional connections that extend the lifetime value of their best customers.

In this guide, we provide an overview of research and industry insights that show how investing in customer loyalty and loyalty programs not only fosters relationships with existing and potential customers but also delivers ROI by increasing customer engagement, boosting revenue growth, driving more conversions, and improving profitability over time.

Why Do Brands Invest In Loyalty? Because It's Good Business

	Loyalty programs are proven to boost and sustain growth.  Loyal customers spend 67% more than new ones.
	Retaining a customer is far cheaper than converting a new one. Acquisition costs up to 7x more than retention.
	Loyalty programs deliver ROI. 72% of U.S. businesses with loyalty programs see a return on their investment.

Focusing On Existing Customers Is More Important Than Ever

Almost 70% of consumers agree that their loyalty is more difficult to maintain than ever, which makes customer retention a huge priority. As economies shift and markets fluctuate, strong customer retention is how brands can weather uncertainty while continuing to grow.

Repeat customers spend 33% more than existing ones	The probability of converting an existing customer is 60–70% vs. 5– 20% for a new prospect

Increasing customer retention rates by 5% increases profit by 25– 95%	A 10% increase in customer retention yields a 30% rise in the value of the company

Increasing Customer Retention Directly Improves The Bottom Line

Retained Customers Purchase More Existing customers are prime opportunities to grow the bottom line. Past research shows that future profits will come from just 20% of its existing customers. Among existing customers, As such brands should focus on opportunities with their current customers. Typically existing customers are more open to receiving cross-selling or upselling offers, and are also more likely to try new products or product launches.

Customer Loyalty Provides Tangent Benefits

While loyalty programs offer significant financial advantages, they also deliver additional benefits that make them an essential component of any comprehensive business strategy.

1. Loyalty Programs Provide Your Business With Valuable Zero-Party Data and First-Party Data Insights

Loyalty programs capture valuable transactional and non-transactional customer data, giving brands more detailed insights into customer needs, wants, actions, and behaviors. Engagement data and purchase data enable brands to power dynamic predictive segmentation.

According to research from McKinsey, initiatives that used behavioral segmentation to create personalized customer experiences yielded increases of:

• 10-20% in customer acquisition 
• 0-15% in long-term value & retention
• 20-30% in customer satisfaction & engagement

2. Your Loyal Customers Are Your Best Word–of–Mouth Advocates And Influencers

Customers who act as advocates for your brand have a vested interest in your brand’s quality, service, and reputation. They help to humanize your brand, which is crucial today as more customers crave genuine interactions and authenticity.

These customer advocates are also important because they can be valuable contributors to your brand reach through referrals and recommendations, which helps drive sales. Since 82% of consumers proactively look for referrals before making a purchase, brands need to identify, acknowledge, and nurture relationships with these types of customers.

3. Loyalty Programs Deliver Rewarding And Appreciative Experiences Expected By Modern Customers

More customers are progressively seeking rewards and recognition as essential components of their overall experience; one study showed 58.7% of users value earning rewards and loyalty points most as part of their shopping experience.

Customer loyalty programs are a vital way to meet and exceed customer expectations. But it's not enough to just have rewards - to differentiate themselves, brands need to utilize a tailored rewards strategy that offers rewards and benefits that are relevant and high-value to their customers.

Brands Who Don't Prioritize Customer Loyalty Risk Falling Behind

The challenge of staying top of mind in increasingly competitive markets is causing both B2C and B2B companies to allocate more resources and marketing budgets toward developing customer loyalty and retention strategies and improving their current tech stack.

A recent study from MarketsandMarkets™ estimates that the global loyalty management market size will grow from $8.6 billion in 2021 to $18.2 billion in 2026 in response to the increasing demand for more sophisticated loyalty services and data analysis tools.

Loyalty360's 2022 State of Customer Loyalty report found that: 

Current marketers believe their customer loyalty efforts are driving tangible results, especially for engagement, customer growth, and incremental value.

Almost 80% of marketers reported that their brand was interested in redesigning, enhancing, or updating their loyalty offerings to keep up with consumer demands and avoid stagnation.

Why Choose A Loyalty Program?

Loyalty Programs Drive Ongoing Personalized Experiences

One or two purchases aren't enough to make customers feel connected to a brand - establishing long-lasting loyalty requires both time and consistent positive interactions that build trust and make consumers feel valued by the brand. Loyalty programs help deliver relevant, personalized experiences that inspire customers to return.

35% of shoppers said they need to buy from a brand 5 times before they consider themselves loyal. Source: Yotpo

Loyalty Programs Have Measurable Impact

Customer acquisition, member retention, year-over-year program growth in revenue, lift in spend, purchase frequency, member growth & engagement, and similar types of metrics are all areas in which brands can understand and actively use program results. Establishing the right ROI model and analytics tracking systems from the start will ensure that the leadership of the program is stable and profitable.

Loyalty programs are responsible for an 18-30% increase in spend and frequency, Source: Paytronix

Loyalty Programs Boost High-Value Engagement & Emotional Loyalty

Points and discounts alone are not enough to maintain loyalty, and programs that follow purely transactional 'buy this-get-that' formats are seen by consumers as lacking and shallow. A strategic loyalty program grows relationships with consumers by providing value across all four main dimensions: the Economic rewards they receive, their participation and Engagement with the brand, the brand Experiences that show appreciation, and the Emotional relationship that recognizes the brand-customer exchange.

80% of consumers say belonging to a loyalty program influences their decision to buy again from a brand. Source: Yotpo

Examples Of Successful Loyalty Programs

Since its launch, more than 25 million US consumers have enrolled in the McDonald’s MyMcDonald’s Rewards loyalty program. According to executives, loyalty was a significant contributor to the 9.6% same-store sales growth in Q3 2021.

Starbucks reached a total of 28.7 million active rewards members in October 2022, giving the program a 16% year-over-year growth. Program members make up 51% of the chain’s US spending, per the company’s earnings call.

More manufacturers and brands are partnering with retail outlets to advance their loyalty programs. In November 2021 Dick’s Sporting Goods announced that Nike’s Loyalty Program would be available through the sporting goods store’s mobile app.