From Kohl’s and Ulta to Starbucks and Panera, retailers and other marketers are investing heavily in loyalty programs, which they see as a key part of their growth strategy to hook today’s increasingly fickle and disloyal consumers to spend within their brand universe.
And for a good reason: Loyalty drives traffic and sales.
Take Ulta Beauty. On Thursday the beauty supplies retailer reported another industry-envied double digit comparable sales gain of 14.3%. One of the key contributors to that growth? “The strength of our loyalty program,” said CEO Mary Dillon in the earnings call. Ulta added 1.1 million net new loyalty members in the quarter to reach 24.5 million active members. Loyalty customers who shop both online and in its physical stores contributed to a 71% jump in Q1 online sales, the highest growth rate in three years, she said.
Loyalty programs are “a major revenue driver” for brands,” said Sean Claessen, EVP of strategy & innovation at brand loyalty agency Bond Brand Loyalty, in an interview. “They clearly see the benefit.”
Indeed, more than four-fifths of consumers said such programs make them more likely to continue doing business with brands while two-thirds of them said they modify spending to maximize loyalty benefits and nearly three quarters said they would recommend brands with good loyalty programs, according to a recent Bond Brand Loyalty study, in partnership with Visa. (The annual study, in its seventh year, covered more than 400 loyalty programs across retail, CPG and other industries and surveyed this year over 28,000 North American consumers who participate in at least one program, most of them in the US.)
However, the study also suggested that many marketers may not have gotten their loyalty programs right. While the number of loyalty memberships each American consumer belongs to has risen each year to over 14 from under 11 in 2014, the number of programs consumers remain active in has declined to under 7 from about 8 in 2014.
While brands continue to increase their investment in these programs, the study also suggested many may not spend money in the right place. Less than half (46%) of members said they are satisfied with their programs. And only 22% of loyalty members perceive their experience with the brand as better than that of non-member customers. With personalization being a big industry buzzword, only a quarter of loyalty members said they are happy with the level of personalization experience, the study found.
“Nobody has cracked the code on personalization,” Claessen said. His firm works with clients from Gap and Under Armour to Ford and Johnson & Johnson, parent of such brands as Neutrogena and Tylenol.