Thanks to Amazon Prime, customer loyalty and membership programs have entered into a new golden age of importance—and brands have been jumping at the chance to invest.
As of 2019, the global ecosystem of customer loyalty programs and services represents a $323 billion endeavor, according to LoyaltyOne, customer service consultants and the authors of a new study covering the rise of customer loyalty initiatives.
The firm says brands have invested $126 billion directly into customer loyalty technology and management programs. The rest has gone to supplementary components, like CRM, transaction enablers and customer engagement. Regardless, LoyaltyOne says this is all part of a global customer loyalty effort—and it continues to grow.
Sixty-nine percent of the C-Suite executives surveyed for the study said they’ve increased investment in customer loyalty over the last two years and 55 percent say they have plans to invest over the next two.
“While there are new and inventive means to identify customers, especially in digital channels, loyalty programs are still the easiest and most effective system for registering customers, delivering opt-in communications and tracking behavior across channels in real-time,” LoyaltyOne researchers wrote. “Across 25 years of running our loyalty program consulting practice, we see program customer penetration typically exceeding 50% of a company’s base, and sales penetration rates as high as 70-95%.”
For the report, LoyaltyOne interviewed “decision makers, experts and consumers” from companies with annual revenues higher than $250 million, including 1,224 loyalty operators and 4,721 loyalty program members. They gathered this information across five markets: Brazil, Canada, Singapore, the U.S. and the U.K.
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“Increasingly, the value of loyalty and the insights garnered from customer loyalty strategy are influencing decisions across organizations,” Caroline Papadatos, senior VP of global solutions for LoyaltyOne said. “In fact, while there might be a public perception that loyalty cards’ usage is waning, the opposite is true—their popularity is exploding.”
The report was able to identify the reasons most companies invest in customer loyalty and membership programs. Forty-two percent of respondents said they simply invested as a response to membership growth within the existing program. Next was technical maintenance at 36 percent—34 percent said they invested because the program had simply shown strong performance.
However, only 30 percent responded that they invested because they wanted to increase the value it provided to their loyalty customers. LoyaltyOne suggests this strategy may eventually leave value on the table and miss the point of investing in these programs in the first place.
“The fact is, many loyalty operators benchmark against the competition and take their lead from market forces, not realizing that demand is being shaped by their customer,” Papadatos noted.
While brands and retailers have learned to invest in customer loyalty programs to increase sales, the report found that many have yet to understand the underlying value of registering their best customers: data.
“In short: Loyalty matters more than ever to companies across industries, especially in highly consumer-driven areas such as retail, financial services and hospitality,” the report read. “Facing increasing competition and shrinking budgets, they’re relying on loyalty’s data collection, insights and rewards to unify end-to-end customer management and all the ways to activate customers and shape their behavior.”
LoyaltyOne also said, globally, the average amount spent by businesses on customer loyalty is between 2 percent and 4 percent of their total revenue.
The impact of that investment can have substantial effects on customer behavior. Forty-three percent of sales in organizations with loyalty programs come from membership programs, said LoyaltyOne, and 95 percent of the companies interviewed said that their members spend more than non-members annually. Sixty percent said that members spend “two to three times more” than non-members.