- Loyalty programs can be beneficial to businesses, but can also focus too much attention on already high-spending customers
- Researchers look at customer spending habits to determine how businesses can direct their attention to winning customers who will buy more products or increase their spending
- Location plays a key part in finding such customers
Summary by Dirk Langeveld
Loyalty programs, offering perks such as freebies after a certain number of purchases or members-only discounts, are a common marketing tactic used by small businesses. When effective, the incentives can help encourage customers to make repeat visits and ramp up their spending.
However, the programs often have a limited impact since they are targeted at people who would visit the business regardless of whether they were a member in the program. Brett Hollenbeck and Wayne Taylor recently published the results of a two-year study analyzing 2.4 million purchases by more than 10,000 people to scrutinize buying trends and see how loyalty programs can be improved.
The researchers found that signing up for a loyalty program typically had no noticeable impact on a customer’s behavior, including how often they visited and how much money they spent. But there was also a subset of shoppers who ended up buying more products or spending more money, and Hollenbeck and Taylor sought to determine how they businesses can attract more of these customers to their loyalty programs.
- Targeting customers who are more likely to be swayed from a competitor resulted in their spending at a business going up 45 percent, while loyalty programs directed at already frequent customers had no noticeable income on spending levels
- A customer’s location is a key consideration, as people are more likely to increase their reliance on a business’s loyalty program if they live nearby
- This consideration can be complicated by other factors such as whether competitors are located along the route or conveniently clustered at another location with other businesses where a customer does business
- Utilizing machine learning and data analysis can help businesses review this information and determine which customers will be the most valuable additions to their loyalty programs