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Loyalty Blinks: How To Protect Margins with a Loyalty Program

A Nielsen/Les Binet study revealed a devastating statistic: 84% of price promotions are not profitable. A key reason behind this is that it usually requires a huge increase in sales volume to achieve profitability. Take a product operating on a 30% margin that is discounted by 15%; to break even it must double its sales volume! 

Instead of relying on discounts which not only erodes margins but increases price sensitivity whilst reducing quality perceptions, a more effective approach is to implement a loyalty program framework that offers a superior value exchange between the brand and its customers. 

Embedding a value exchange model into the program benefits both, as the exchange typically involves customers sharing personal data and preferences in return for perceived high value non-cash rewards. 

Marigold’s 2024 Consumer Trends Index (request a copy) revealed that 89% of loyalty program members are willing to share personal (zero-party) data to earn points/rewards, proving how important the value exchange model is for program marketers. 

Once members have willingly supplied personal information, brands must find ways to offer new and unique experiences that elevate the relationship between the brand and their loyal customer. These are three overarching strategies that guide customer relationships and can preserve profit margins without resorting to unnecessary discounting. 

Non-Monetary Rewards 

  • Invite loyalty customers to participate in special events like product launches or store openings, and surprise them with bonus service or extras with a high perceived value 
  • Reward actions that are not tied to a transaction. Create moments when customers can earn points (or other ‘currency’) for interactions such as reviewing a product, watching a video, or answering a quiz. These interactions will enrich the customer’s profile, enabling more personalised messaging opportunities in the future. 
  • KFC U.S.A. launched a new loyalty program with Marigold earlier this year, growing to more than 3M members in 6 months, with stated goals of incentivising specific behaviours such as ordering ahead.

Earn and Burn Variety 

  • Leverage customer preference data to promote complementary products that drive additional purchases at full price 
  • Encourage customers to accumulate points, spreading the ‘cost’ over multiple purchases and saving points to redeem for super-premium rewards
  • Create unique package offers that bundle high-margin products with lower-cost items 
  • Allow points to be redeemed for merchandise, exclusive offers, or points + pay 

Targeted Offers 

  • Create variable offers that dynamically target customers who are most likely to engage based on their past behaviour and preferences, avoiding a one-size-fits-all pricing strategy 
  • For example, Marigold has a Margin Optimisation tool that segments a list into high, medium, and low purchase potential. Brands can then configure up to three different offers that can be dynamically displayed when presented to a member. 

Brands that base their customer relationship strategy on a loyalty program have a proven track record of positive outcomes. Amongst Marigold’s clients these have ranged from 12%-18% higher AOV, reduction in churn between 5%-15%, and 5%-10% purchase value growth. 

To protect margins, ensure your loyalty program is not a discount program in disguise. If it is, it’s probably costing your bottom line.

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