Why customer experience is key for loyalty programs

Why customer experience is key for loyalty programs

By Jess Huang, Phyllis Rothschild, and Jamie Wilkie

Research shows that monetary rewards are not the only drivers of customer-loyalty programs. Experiential rewards provide greater long-term benefits.

Loyalty programs are supposed to unlock great value for companies by driving higher sales and boosting brand affinity. So why aren’t they doing this? Although more and more companies now have loyalty programs (they’re growing at 9 percent a year), the number of customers who actively participate in them continues to hover at only about 50 percent, suggesting that there is still something missing in most programs.

In late 2017, we surveyed more than 9,000 consumers about their experiences with loyalty programs across nine different business sectors, including grocery/drug/mass merchandise, retail, airlines, hotels, car-rental organizations, and restaurants. We asked consumers what they value in loyalty programs and how they engage with them.

We found that having a successful loyalty program does, in fact, drive significant value and is critical for growth. Having a program scoring high on what we call the Loyalty Performance Score is strongly correlated with greater shareholder return, especially in the airline, retail, and grocery/drug/mass-merchandise sectors. This measures both how customers feel about loyalty programs and how well programs drive value for the company—for instance, how often customers choose the brand over other options or pay more to earn a higher status.

Read the full article on Sloan Management Review.

About the author(s)

Jess Huang is an associate partner in McKinsey’s Silicon Valley office; Phyllis Rothschild is a partner in the Boston office, where Jamie Wilkie is an associate partner.

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