Consumers prefer a blend of rewards and special privileges from retail loyalty programs, and are less likely to defect from a program that offers both.
That value proposition fared best when loyalty marketing research firm Colloquy tested five loyalty scenarios for a national big-box retail client. The combination of hard-benefit reward merchandise and soft-benefit member privileges (without discounts) did the best job building revenue and stopping attrition.
Cincinnati-based Colloquy conducted two consecutive six-month tests across 75 stores with 60,000 consumers, picked from the retailer’s house credit card file for their shopping frequency and higher-than-average transactions, and automatically enrolled. (Half the consumers—30,000—made up a control group that got no special treatment.) Each test scenario (except “Awareness only”) had five tiers of rewards and a minimum-spending threshold.
In the top-performing scenario, Members accrued points to redeem for goods sold by the retailer and got special privileges including special checkout lanes, preferred parking, gift cards and offers from local restaurants and spending reports that tracked their purchases by department. This scenario boosted revenue the most and had the least attrition, and the revenue lift stayed robust five months after the test ended.
Here’s how the other four value propositions performed:
Rebates: Members got a 2% to 4% rebate on qualifying purchases, via cash rebate or credit card credit. Revenue lift was substantial, but attrition was above average, and the revenue lift dropped off significantly five months after the test ended.
Rewards: Members accrued points to redeem for goods sold by the retailer. Its impact on revenue lift was solid and it performed well against attrition, but revenue from participants fell dramatically five months after the test program ended.
Awareness: Members got personalized direct mail touting current services for all credit-card holders. It did nothing to improve revenue or cut attrition, but revenue actually increased five months after the test ended.
Service: Members got discounts up to 50% on selected products, special checkout lanes, preferred parking, gift cards and offers from local restaurants, and spending reports that tracked their purchases by department. It had the least impact on revenues and attrition, and revenue stayed below average after the test ended.
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