Collinson on… The Cost of Loyalty

Marketing Team
Marketing Team
30 Jan 2024

It’s well recognised that loyalty and engagement programmes are worth investing in because of their effect on revenue, tenure and lifetime value. Our research* shows that all but the most nascent programmes provide positive return on investment.

These tangible benefits are also augmented by intangible benefits such as advocacy, referral, recommendation, social sharing and reviews – all of which amplify the brand’s reputation and reach without taking any toll on the budget.

So the ‘business case’ for sustained loyalty efforts and schemes is clear. But which loyalty programme elements require most spend, is there intent to invest and what returns are expected by those in the industry? 

What our research says on costs

Our research* asked ‘which element of your loyalty scheme is costliest’? And responses revealed technology and infrastructure to be one of the biggest budget guzzlers, with 30% of companies citing this cost centre. This is unsurprising perhaps, given that most loyalty schemes of substance depend upon tech platforms and CRM systems. The insurance sector spends the most on this area – 13% more than other sectors surveyed.

Equally costly are rewards points issuance and usage - still the mainstay of many schemes. Customers remain keen on this type of reward ‘currency’ so this is money well spent on relevant and appealing rewards though recent economic pressures have seen many retailers dilute the value of their points.

Service benefits provision emerged as the next costliest area of expenditure, with financial services companies out-spending companies in other sectors here. Programme management (outsourced and insourced) followed but at lower levels of spend.

Where’s best to invest?

When asked which areas were the focus for investment in the next two years, some interesting variances between sectors emerged. Travel, Transport & Hospitality companies reported intended investment in insourced programme management resources. Financial Services businesses were planning to invest in analytics and innovation more than any other sector. And loyalty programme operators in insurance planned greater investment in both reward points/miles and technology infrastructure.

Investment in enhanced customer experience and journey management topped the investment tree when the results for all sectors were combined, closely followed by rewards points or miles. Rewards innovation and technology infrastructure were not far behind.

What returns are revered?

So what returns are loyalty leaders expecting to see as a result of these significant spends and predicted investments? Across all sectors, creating a seamless customer experience is believed to drive the greatest return for a brand’s loyalty programme followed by embedding the programmes as a core business strategy. Travel, Transport & Hospitality programmes also rate innovative and relevant rewards and experiences much higher than any other sector as a driver of return for loyalty programmes.

The direction of loyalty is towards seamless and frictionless customer experiences – this emerges as a common strand throughout our business and consumer research* and was also observed by our expert panel at the inaugural ‘Marketplace of Ideas’ event hosted by Collinson recently (October 2023).

What’s the take-out?

Loyalty leaders are increasingly viewing loyalty as a strategic lynchpin of the business rather than just a transactional tool. Intent to invest is high – and companies that fail to inject monies ahead of the curve may well be in the rearview mirror of those who are accelerating their offers, ready for the road ahead.

*Sources: Collinson independently commissioned business and consumer ‘Loyalty Landscape’ research.

Marketing Team

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