Loyalty Programs: The Pros and Cons

It’s typical for companies to offer some form of incentive for customers who commit to a longer subscription plan. While there are definite benefits to offering such bonuses, it’s important to understand the potential downsides, as well. Savvy businesses conduct a periodic review of their loyalty programs, with an eye to exploring creative alternatives. Here’s a brief look at some pros and cons of loyalty discounts, together with a few creative additions to traditional programs:

Pros

• Familiarity: Customers understand and expect basic discount structures, including lower prices for longer contracts.
• Loyalty: When customers feel appreciated, they are likely to continue their relationship with a business.
• New product adoption: Premiums offer customers a chance to try new products that they will be willing to pay for in the future.
• Stabilized cash flow: Businesses benefit from customers who sign on for the whole year.

Cons

• No instant gratification: Traditional discounts for longer subscription periods offer deferred savings rather than immediate rewards.
• No enticement for hesitant customers: Customers who sign up for shorter periods may feel like second-class citizens.
• Profit margin questions: If a business can afford to offer its products at a discount and presumably still earn a profit, customers may wonder why they should pay a higher price.
• Expense: It’s important to use analytics to monitor the success of an incentive program, because they will demonstrate whether a loyalty program is profitable.

Alternatives

Creatively approaching loyalty programs allows businesses to mitigate the potential “cons” listed above, while still enjoying real business benefits. One way to reward good customers without the risk of losing revenue is to offer an extra product or service that the customer might not have requested. This promotes new product adoption while the regular subscription rates remain in place. Businesses can also surprise loyal customers by providing a premium or special offer that isn’t publicized. This obviously won’t be an effective marketing technique at the beginning, but it will have the strong advantage of making a customer feel special.

Demographic segmentation is also useful, allowing special benefits to be offered to specific groups: new customers, infrequent site visitors, and other segments. A tiered incentive program maintains interest across all market sectors, making new customers feel welcome. Rebilly can provide ample reports with which marketers can develop insights into these campaigns and customer behavior.

Developing a successful loyalty program requires careful consideration, but a creative approach to rewards will make any type of business stand out in a crowded marketplace.

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