Why Running Your Own Loyalty Program is Worth It

Seventy-five percent of U.S. companies with loyalty programs generate a return on that investment. With so much success on the line, it’s surprising how many retailers still outsource loyalty programs, either directly or indirectly, to third-party vendors through cash-back partnerships.

Third-party loyalty partners are attractive to small and midsized retailers as they don’t require in-house technology or labor to offer incentives to customers for repeat business. However, even established companies with market share have consumers — even those already aware of their brands — turning to loyalty and cash-back sites for discounts or find themselves competing directly with their own loyalty programs. With their actions, many retailers have essentially outsourced loyalty, which is fundamentally counterintuitive.

Taking control of your own loyalty program can increase brand loyalty and sales at a much lower cost than working with third parties.

Competition Disguised?
Vendors that promise large, established audiences and extensive reach through promotional emails may not create as much incremental demand as promised. In these relationships, retailers share their customers and data with the loyalty provider, ultimately creating more loyalty to the partner and its currency than their own business. Based on their negotiating leverage, these loyalty partners also have the ability to promote competitors to your customers with the data they collect.

The Right Incentive to Retain Customers
The travel industry consistently creates some of the most intensely brand-loyal customers. Travelers covet exclusive silver, gold and platinum cards and statuses that provide clear, valuable benefits like upgrades, free Wi-Fi, access to VIP clubs, and priority access and boarding.

These brand-specific incentives keep customers coming back for more points and added benefits. Once they’re on board, there’s no alternative — their loyalty has been secured.

This kind of strong engagement is earned through three simple strategies that you should consider for your own loyalty program:

1. Reward customers with your own currency. Not only does offering your own currency encourage them to buy more, but it also deters them from spending with competitors and using third-party sites by incentivizing your customers to buy directly from you. In fact, many large travel brands are actively discouraging clients from booking on third-party sites, offering enhanced benefits for direct booking.

These brands also withhold benefits from external providers as those third-party sales cost them money. Marriott’s new policy is a great example. Similarly, I never book a Starwood Hotels & Resorts room on a third-party website because I don’t want to lose my hard-earned customer benefits.

Wayfair is a great example of a company in control of its loyalty program. The online retailer's in-house rewards program lets customers earn reward dollars back on each purchase, receive refer-a-friend bonuses and access member-only email offers. Wayfair even released a private-label credit card that provides benefits like financing on large purchases.

The result? Repeat customers account for 55 percent of Wayfair's total purchases.

2. Offer additional nonfinancial benefits. These could include providing your biggest and best customers access to special priority customer service numbers or free shipping. If you treat them well and make it easier to shop with you, they’ll be more inclined to buy from your brand in the future, leading to retention and more revenue. Remember: their time is money (that could be yours).

3. Target high-value buyers. These are the consumers who will buy the equivalent of a first-class ticket for a chance at an upgrade. Avoid price-sensitive consumers who spend time jumping around websites looking for $2 cash back. For example, through its $99 annual loyalty program, Amazon Prime offers multiple incentives, such as two-day shipping and free music and videos. As a result, members spend more than twice as much as nonmembers, and most don’t even price shop; that’s profitable loyalty.

Regardless of your industry or company size, it’s always better to build direct relationships with your best customers. To boost sales, retain customers, build brand awareness and improve market share, take control of your own loyalty program and offer the kinds of benefits your customers seek.

Robert Glazer is the founder and managing director of Acceleration Partners, a performance marketing firm focused on online customer acquisition for growing consumer and e-commerce companies.