The Best and Worst Loyalty Programs

warehouse-scratchinghead-730x280.jpgAs consumers, we are inundated by loyalty program offers on a daily (hourly?) basis. It feels like every time I check my email, there’s another offer to tempt me into buying more from a retailer. This is fine and expected, but most often the offers aren't compelling.

“Spend $5, get two reward points"
“Get 2% back on gas purchases"
“Every $100 spent gets a free item**"
** Item must be valued below $10, excluding this, that, and everything else I really want... 

It can feel like a sea of mediocre offers that, in the end, don’t really do much for me. The same run-of-the-mill offers retailers have been peddling for decades. But, there is hope yet! This model citizen for loyalty programs may be a surprise to some. 

The Best

This loyalty program is so successful that people actually pay to be a member. It’s so successful that over the past six years, same-store sales have increased year over year with revenues jumping from $76 billion to $114 billion. By now you probably have guessed this isn’t Amazon. In fact, only 3% of this company’s sales are from e-commerce transactions. 

Good job to those that guessed Costco. With a reported 81 million members as of 2015, they have found the key to any good loyalty program. It’s simple, easy to understand, and constantly rewarding in the form of across the board, deep discounts. It’s so good that 90% of sales are generated by existing customers.

While some other warehouse style retailers are struggling to compete with Amazon’s ability to lure shoppers through their Prime program, Costco is enjoying their insanely effective loyalty program. Did I mention that this very program inspired Amazon to create Amazon Prime?

The Worst

There was a simpler time, many years ago, when airline frequent flier programs were straightforward and simple. Take a flight, earn some miles, and redeem them to pay for another trip. Makes sense and seemed simple enough. Fast forward to present times and we now have a complicated mess, full of fine print, fees, restrictions, and convoluted business logic. 

A prime example of a less than stellar frequent flier program is Spirit Airlines (apologies to any Spirit fanboys). While Spirit is known to have several ways to earn miles and rank up in status, they make it difficult to actually spend them. With Spirit, if a traveler lets three months go by without any activity, their miles disappear. To make matters worse, there’s no option to transfer. So really, what’s the point of a rewards program if you can’t spend the reward on something? 

Lands' End Canvas

Canvas_by_Lands_End.pngWhat’s interesting, is to see specialty retailers take a page out of the Costco and Amazon loyalty program book. According to a recent Washington Post article, Lands' End announced the (re)launch of their “Canvas” clothes line, which originally appeared back in 2009 and was buried soon after due to poor adoption.

This isn’t the news though. Lands’ End has followed suit and started their own Prime-like loyalty program. 

The question is, will it work for them? Is a 20% discount across a limited assortment of clothes worth it? The new program is only for their Canvas line, which could potentially limit initial success. Will free returns and shipping sway new members to fork over $50 a year? After all, what’s keeping shoppers from going to Amazon and using their Prime membership to buy Lands’ End clothes there? 

The power in this type of program stems from an optimized assortment, full of options and variety. If shoppers don’t find what they want, they will go elsewhere. 

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Topics: assortment optimization, loyalty, rewards

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