The mounting case for the use of loyalty programs

With 80% of U.S. consumers affiliated with at least one loyalty program, and more than 55% of consumers agree these programs are more important than ever — this, according to a new LendingTree survey of nearly 2,100 Americans. – it’s safe to say that loyalty breeds loyalty.

A recent McKinsey report found that members of paid loyalty programs are 60% more likely to spend more about a brand after subscribing. But of course, it’s not just companies reaping the benefits here. The result of this business model – especially subscriptions and Pay With Points (PWP) – is mutually beneficial, improving the customer experience while driving better results for retailers and brands of all sizes.

Why Subscription Loyalty Models Work.

Consumers love loyalty programs for the discounts, freebies and other rewards they give them access to – access being the key word here. Because the appeal of a loyalty program lies in its perceived value, not necessarily in what a consumer actually redeems. When a customer has a high perceived value of a product, service, or experience, their brand affinity responds in turn.

According to the latest Subscription Economy Index report from one of the leading subscription management platform providers, Zuora, the subscription businesses in the index have increased 4.6 times faster than the S&P 500 over the past decade. Churn rates have also declined, supporting the idea that consumers who subscribed early in the pandemic are sticking around.

My Company, Dotcom Distribution’s latest research – a study of 1,150 US consumers who shop online – also found that demand for subscription services was unwavering; where our 2021 study found that 25% of consumers subscribed to one or more subscription services during the pandemic, adoption of subscription services increased to 35% in 2022. And with UBS predicting growth 25% of the subscription economy from 2020 to 2025, an exploratory dive into this model is a worthwhile investment of time.

Why Pay with Points (PWP) loyalty models work.

Despite the abundance of currencies and payment options available to online shoppers, consumers have clear payment method preferences. Given all the buzz surrounding Buy Now, Pay Later (BNPL) over the past two years, it would have been fair to assume that as a fan favorite, but according to Dotcom’s research, a majority of consumers – 63%, to be exact – are more likely to pay with points or rewards. By comparison, 10% would prefer to split payments across multiple methods, 15% would opt for BNPL, and only 3% are in the cryptocurrency camp.

PWP has become an increasingly popular model that retailers and brands use to retain customers and increase sales through recurring revenue. For many sellers, especially smaller and emerging ones, PayPal’s Pay with Rewards program is what allowed them to play in this space, presenting a modern option that loosened restrictions on how, where and when buyers can redeem points. It was a great lesson in adapting to changing consumer behavior.

In the world of e-commerce, there are two things consumers don’t miss: 1) choices and 2) competition for their attention and money. More and more brands are realizing that winning the battle on both fronts requires increasing customer lifetime value, and creating unique, exciting and personalized experiences through strategic loyalty programs is one way to win. the most valuable customers.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.