And importantly, this all should happen before a company introduces a new loyalty program, to ensure managers have the benchmark data that will be necessary to measure the program’s impact. That means setting up data collection and analysis systems, allocating the necessary resources internally, and getting buy-in from the relevant stakeholders. To do that, managers must go beyond average results to track and analyze changes in purchasing patterns on an individual level. This illustrates how a better understanding of whose spending is likely to increase the most after joining a loyalty program can help marketers better target prospects going forward. However, this increase was not evenly spread out across all the members in the sample: Some customers contributed substantially to the increase in revenues, while others did not. On average, we found that customers spent more than twice as much per month after subscribing to the retailer’s loyalty program. We analyzed 15 months of transaction data for more than 24,000 customers, about half of whom had joined the program, and identified three key takeaways for managers: Go beyond averages and analyze trends on an individual level.
To explore this question, we conducted a large-scale study in partnership with a major Asian retailer that was launching a new, paid loyalty program in 2015. In light of this complexity, how can managers ensure their loyalty programs are truly profitable?
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The costs to the company of providing membership benefits can also be substantial, whether that’s a free cup of coffee, exclusive product offers, free shipping, or other perks. This may seem to imply that the program is responsible for a substantial increase in revenues, but the difference in spending could also be driven by self-selection (that is, customers who already intend to spend more may be more likely to choose to become members).
Proponents argue that increases in sales justify the costs - for example, while Panera may lose money on its drinks, if loyalty members buy a croissant every time they get a coffee, the program could still be quite profitable for the company - but these effects can be hard to quantify.įor example, the average Amazon Prime member spends more than twice as much as the average non-member. Loyalty programs like this are common in industries as wide-ranging as retail, food and beverages, health and wellness, and more. With the average American consumer spending more than $2,000 a year on coffee, this sounded like an incredible deal for coffee drinkers - begging the question, how could Panera possibly justify such generosity? For just $8.99 a month, members could get unlimited refills of their favorite coffee or hot tea at any Panera location.
In February 2020, Panera Bread announced the Unlimited Sip Club and rocked the coffee world.
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