Loyalty programs are popular, aren't they?
Too bad that they are often ineffective.
The key to a good loyalty program isn't the loyalty program. Rather, it is the inherent customer behavior that is tied to the loyalty program.
Loyalty programs have a chance of working under the following conditions:
- An annual repurchase rate of 60% or greater.
- Customer places five or more orders per year.
In any of the above situations, the benefit is amplified by purchase frequency.
Too often, I witness loyalty programs tied to infrequent customer behavior, as if the reason the customer doesn't buy more often is because there isn't a loyalty program. Wrong. If a customer has a 35% annual repurchase rate, and only purchases 1.3 times per year, there's very little incentive for the customer to buy more --- the customer simply doesn't have a need to buy more often.
Loyalty programs have the best chance of working when the customer is already pre-disposed to buy numerous times per year.