As the competition for online customers heats up, loyalty programs are on the rise, according to findings from Jupiter Research, although only 24% of U.S. online retailers currently have a loyalty program, 43% expect to implement a program involving points, cash back, or other rewards values within the next year.
But they’ll need to proceed carefully, suggests the report, “Customer loyalty: Protecting ROI through rigorous program evaluation.” Including the online retailers with loyalty programs already established, the number expected to join them over the next 12 months means that about two-thirds of online retailers will have loyalty programs, making it more difficult for retailers to use such programs as a means of differentiation.
“Consumers have had years of experience with airline and credit card loyalty programs and are inured to offerings that are difficult to redeem, commonplace, or ‘dressed-up coupons,’” according to the report. “The challenge will be to create a program that bolsters the retailer’s overall value proposition through a combination of experiential and recognition effort.”
Among retailers with formal loyalty programs, 77% offer regular promotions, 60% offer premium customer service, 58% provide exclusive offers and events, and 56% include a toll free contact number on all site pages. Other features of formal loyalty programs operated by online retailers include fast shipping capacity, offered by 56%, personalized offers on the site or by e-mail, 50% and privacy and fraud protection programs, 50%.
Retailers with formal loyalty programs use an extensive array of tactics to implement them, and they tend to be larger in size than those without loyalty programs, meaning that they can support investments in the systems necessary to capture and analyze transactional data critical to keeping the program profitable, according to Jupiter. The report notes that their marketing budgets are an average of 55% larger those of retailers without formal loyalty programs, and that the marketing team is on average 5% larger. The added resources behind the loyalty programs have resulted in average increased in conversion rate, average order size, and total customer spending that are more than double the increases that retailers without formal loyalty programs experience, according to Jupiter.
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