One question that will invariably get asked by prospects considering a loyalty initiative is, “Will the loyalty programme drive incremental revenue?“
Simple as this appears, the question is loaded. And an irresponsible, “Yes!” or “No!” is just that – irresponsible. While a safe, “It depends.” is just that – safe (but not meaningful).
So let us take a few examples to deliberate on this issue.
Think about it – “In low-margin categories like money transfer or fuel where margins are slim, would rewards and benefits amounting to 50 to 100 basis points really make you send more money or drive more?”
And if not, what explains the popularity of loyalty initiatives?
Loyalty programmes help a business in many ways. The most important being to non-anonymize sales. In other words as opposed to expressing the sales in terms of Geography (eg. Chandigarh comprises 3% of my business) or business line (eg. shampoos comprise 5% of my sales), they empower expression of business in customer terms. For example, 20% of my sales come from men, in 30 years to 50 years age group, who largely send money back to their families during Diwali, as emergency transactions, paying a premium price for instant money transfer.
Is this kind of expression of sales and profits valuable? You bet!
Recent reports suggest a single customer record of business valued and expressed in such terms can be valued substantially higher than those who don’t have this capacity (https://www.livemint.com/Money/ADue8yY3gAPjn01fy8fhCP/Jet-Airways-share-price-Jet-Privilege-sale.html)! And why might that be so?
It is because such understanding of customer value by segment allows for powerful customer relationship management (CRM). Powerful effort on CRM (enabled by all this wonderful customer-level data from the loyalty initiative) can prevent customers from splitting their transactions between me and my competitor (ie. higher share of wallet). And perhaps get me strong and meaningful referrals. And most importantly, have my clients stay with me longer because my product adapts to their buying behaviour fostering comfort and affection for my brand (higher retention, lower churn).
In conclusion, A loyalty programme can be a powerful driver of incremental revenue IF disciplined data collection is used in the service of powerful CRM. And powerful CRM can result in higher share of wallet, lower churn and meaningful referrals. Besides building stronger affection for the brand!
Or in simpler words, a loyalty programme could deliver incremental sales only as much as a gym membership can give you good health. It enables – However, you need to make it work!
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