Loyalty programs have evolved far beyond their humble beginnings as simple “earn and burn” points systems. While many still view them primarily as marketing tools to drive repeat business, today’s loyalty programs have become sophisticated revenue engines that can significantly impact a company’s bottom line.
Consider this surprising statistic from our annual customer service research: 46% of U.S. consumers are willing to pay more for companies that have good loyalty programs. Even more telling, 39% have chosen one brand over another, even if it is more expensive, simply to earn more points in a loyalty program.
The transformation of loyalty programs into revenue generators became especially apparent during the Covid-19 pandemic. While airlines were grounding their fleets, their loyalty programs were still generating substantial revenue through partnerships with credit card companies and other businesses. If you use a credit card tied to your favorite airline, you have experienced this firsthand. You don’t have to fly on the airline to continue to earn points and awards. This revelation led to some interesting valuations of these programs, sometimes worth more than the core business itself.
I had a chance to do an Amazing Business Radio interview with Aleksander Kaczmarek, the vice president of loyalty at CarTrawler. Car Trawler offers a technology solution that connects car rentals to brands such as American Airlines, Uber, Emirates, American Express, Hilton and many other brands you are familiar with. If you’ve ever bought an airline ticket or booked a hotel and were asked if you needed a rental car, you may have experienced Car Trawler.
According to Kaczmarek, modern loyalty programs are far more powerful than the points and awards most people think of. They’ve evolved from simple point-collection systems into sophisticated customer engagement platforms. Today’s programs leverage technology to create seamless experiences that encourage customers to interact with brands in multiple ways. For example, many retailers’ loyalty apps now include features like mobile payments, personalized recommendations and exclusive access to products or services.
Kaczmarek says revenue potential comes from three key areas:
- Direct Program Revenue: This includes membership fees (think Amazon Prime or Walmart+) and partnership revenues from other businesses that want access to the program’s member base.
- Increased Customer Spending: Loyalty program members typically spend more than non-members, partly because they’re trying to earn rewards and partly because the program makes it easier to do business with the company. (This is reflected in our research and the findings mentioned at the top of the article.)
- Data Monetization: The insights gained from loyalty program data can help companies make better inventory decisions, create more effective marketing campaigns and identify new business opportunities.
According to Kaczmarek, the most successful programs share several characteristics that drive both customer engagement and revenue:
- More than Points: They offer immediate value beyond points accumulation, such as priority service or exclusive access.
- Emotional Connection: They create emotional connections through experiential rewards rather than just transactional benefits.
- Partnerships with Other Businesses and Brands: They leverage partnerships to expand their value proposition beyond their core business.
- Using Technology for a Better CX: They use technology to deliver a seamless customer experience across all touchpoints
However, companies need to strike a careful balance. Kaczmarek says, “There’s often debate about whether loyalty programs should focus on generating revenue or enhancing customer experience. The truth is, they need to do both.”
This dual focus is crucial because customers aren’t loyal to the program—they’re loyal to the experience the company provides. A great loyalty program can enhance that experience and drive revenue, but it can’t compensate for poor service or products.
Kaczmarek notes that the future of loyalty programs goes beyond anything we’re seeing today, especially in the travel industry. “Looking ahead, we’re seeing innovative approaches to loyalty programs emerge. Some cities and business districts are exploring ‘destination loyalty’ programs that reward customers for engaging with multiple local businesses. Others are creating coalition programs where complementary businesses share a single loyalty platform.”
So, whether you’re a small local business or a major corporation, loyalty programs can be more than just a customer retention tool. When properly designed and executed, they can become a significant source of revenue while strengthening customer relationships.
Just remember, the typical loyalty program doesn’t actually create loyalty. It is a marketing program that simply rewards and reinforces repeat business. True loyalty still comes from consistently delivering great experiences that make customers want to say, “I’ll be back!”