Co-written by Hunter Murray and Anand Patel from Loyalty & Reward Co
Loyalty programs are powerful mechanisms for fostering long-term customer relationships and driving business growth. However, achieving strong Loyalty ROI requires careful design and strategic implementation. By leveraging a fit-for-purpose loyalty program design, including a clear strategic partner and data strategy, and the technology to support it, businesses can create loyalty programs that maximise value (for both customers and the business) while minimising costs.
Loyalty Designs with the Greatest ROI Impact
Reward costs are the largest expense item of any loyalty program, but rewards are also the most important driver of engagement. Optimising the reward range efficiency (low cost to the business, high perceived value to members) will make a large impact on loyalty program ROI. Additionally, choosing the right design for your loyalty program can significantly impact Loyalty ROI. Key strategies include:
- Member Pricing - is one of the simplest loyalty strategies to implement and understand. This model offers exclusive discounts to loyalty members, incentivising sign-ups and driving higher spend. In the US, many retailers have used member pricing for years, but it is increasingly being layered onto traditional earn-and-burn programs. Tesco Clubcard is a prime example of how member pricing can be integrated into a broader loyalty strategy, offering immediate savings alongside long-term reward accumulation.
- Earn and Burn - is the longest-standing loyalty model, with variations such as stamp-based (E.g., coffee shop punch cards), points-based (E.g., Tesco Clubcard), and cashback-based (E.g., Asda Rewards). The key to maximising ROI in an earn-and-burn program lies in the balance between base and promotional earn rates.
- Base earn rate: Typically follows a "the more you spend, the more you earn" structure, rewarding customers proportionally to their spending.
- Promotional earn rate: Personalised and dynamic, these incentives drive targeted behaviour and are crucial for long-term ROI. Businesses should minimize base earn rates to free up investment for high-impact promotional earn campaigns.
- Burn value flexibility: The ability to adjust redemption costs ensures rewards align with business goals. Lower-cost, high-perceived-value rewards should be encouraged to enhance profitability.
- Tiered Programs - this approach ensures the highest value members receive greater rewards, reinforcing their loyalty to the brand and increasing their lifetime value. Examples include Giant Eagle and Starbucks, where customers unlock progressively better benefits as they engage more with the brand.
- Subscription-Based Loyalty - provide a direct revenue injection while allowing businesses to offer richer benefits. These can be standalone or integrated into a broader loyalty framework. For subscription models to succeed, members must consistently perceive value in their ongoing participation.
- Membership Programs - commonly seen in retail and fashion (E.g., Nike Membership), usually offer a mix of non-monetary benefits such as birthday discounts, free shipping, and early access to sales. Unlike subscriptions, these are often free but serve as a gateway to deeper engagement and incremental spend.
Leveraging Data to Drive Loyalty ROI
Loyalty programs are a very effective mechanism for collecting customer data, which, when harnessed appropriately, can generate significant value and ROI for the business. Key applications of loyalty data include:
- Targeted Marketing & Customer Engagement - Loyalty data enables retailers to move beyond generic campaigns and embrace hyper-personalised marketing. By understanding individual preferences, retailers can deliver tailored offers, enhance customer interactions, and create a more engaging shopping experience. This personalised approach not only boosts conversion rates but also maximises marketing ROI by ensuring the right message reaches the right customer at the right time.
- Dynamic Pricing & Promotions Strategy - With insights into customer price sensitivity and buying habits, retailers can develop data-driven pricing and promotional strategies. This approach strikes the perfect balance between maximising margins and delivering meaningful value to customers. The result? More effective promotions, increased customer satisfaction, and stronger ROI.
- Optimized Assortment, Supply Chain & Operational Efficiency - Loyalty data helps retailers identify top-performing products, optimise in-store and online placement, and improve demand forecasting. These insights lead to better inventory management, reduced waste, lower logistics costs, and more efficient workforce planning. Ultimately, this creates a leaner, more profitable retail operation.
- Data-Driven Growth & Competitive Advantage - Loyalty data provides the foundation for smarter decisions in store clustering, expansion, and eCommerce opportunities. Combined with consumer research, retailers can refine their unique value propositions, identify high-potential customer segments, and differentiate their offerings in a crowded market. This strategic advantage positions retailers for sustained growth and long-term success.
Unlocking Loyalty ROI with Strategic Partnerships
Strategic partnerships can amplify the ROI of loyalty programs by expanding their value and making the program more cost-efficient. Key strategies include:
- Reward sourcing - collaborate with complementary brands to offer rewards at reduced costs. Providing partners with a direct sales channel to your captive audience can result in a favourable offering for the loyalty program. These cost savings can either be passed onto members or absorbed by the business to optimise ROI.
- Loyalty currency - selling loyalty currency to brands can be a very lucrative model for the right program. There may be businesses wishing to acquire new customers who desire your loyalty currency and want to gift or reward the currency to customers who engage with their business. It’s important to note your loyalty currency desirability must be high prior to taking this route.
- Data monetisation - selling aggregated member behaviours and preferences to partners who have an interest in your loyalty program members is big business. For retail, the real objective here is to create a data set and a language where suppliers and merchants can collaborate to grow the business.
- Retail media - selling retail media space creates a valuable revenue stream by allowing partners to advertise directly to your customer base online and in-stores. This approach not only diversifies revenue sources but also boosts the program's appeal through the addition of new offers or earn opportunities for members.
What's Next?
If you have been keeping up with our Loyalty ROI series we hope it has provided you with some value - we’d love to hear your feedback! Our final article of the series will delve into the importance and tangible impact of robust program management on Loyalty ROI.
Loyalty & Reward Co have a proven method for helping businesses calculate loyalty ROI. Connect with us to discuss how our LROI™ approach can help you.
Eagle Eye powers loyalty programs for retailers across the world and has personalization solutions proven to deliver a 7:1 ROI. Contact us to find out more about Eagle Eye.