CPG industry starting to embrace Loyalty Programs in 2018
Attaining consumer loyalty has been always holy grail for manufacturers and retailers alike. Plethora of studies have proved that acquiring a new consumer is 6 to 20 times more expensive than retaining an existing consumer. But in the current environment of barrage of new substitute products hitting markets, expanding retail private label footprints, cut-throat price wars and advanced marketing tools available at hands of every small or large agency, retaining the consumer loyalty leveraging traditional marketing Ps is starting to feel more difficult for an average CPG company. That is where Loyalty Programs come in to play.
Impact of Loyalty Programs?
Wait a minute! But aren’t CPG companies already spending enough on trade and marketing to improve consumer acquisition and retention? A previous post here lays out the mix of trade and marketing spend a typical CPG company entails (retailer trade incentives, pricing discounts, promotions and coupons) to get the product in the hands of consumers. This spend represents approximately 20-25% of CPG annual revenue, and is typically second highest spend after manufacturing itself. Considering this enormous spend, should a CPG company launch loyalty programs in the mix as well? The reasons to look at loyalty programs can vary for product categories, brands and organizations themselves. But it is often proved a mistake not to consider loyalty programs. Some of the consumer surveys recently showed following statistics:
- 85% responded have continued to purchase products for years from companies which have strong loyalty programs
- 33% switched brands due to previous company not having good loyalty program
- 82% responded on their intent to continue purchasing products from the companies which offer loyalty programs
- 75% respondents expect any credible retail chain to have loyalty program in place
- 68% of millennials wouldn’t be repeat purchase a brand that without a good loyalty program (Loyalty Report)
Why Loyalty Programs?
While it has been common (and easier) for retailers to establish loyalty programs, manufacturers are catching the trend as well. A good incentive for such trend is not only obtaining consumer loyalty, but also consumer insights. While consumers get reward points or freebies or discounts, manufacturers can get something beyond consumer loyalty itself – Point of Sale (POS) insights (consumer’s demographics, decision drivers and purchasing patterns).
These data-points meant of no use a couple of years ago, but today these enable actionable insights for manufacturers which influence future purchases by consumers. A few examples of such use could be:
- A manufacturer can improve promotion spend effectiveness by reducing the spend in regions where loyal consumer base already exists, while increasing in other regions.
- A manufacturer could also initiate targeted and personalized promotions and communication with consumer if the consumer’s loyalty information includes contact details
- With consumer identities becoming more digital in nature (Facebook, Twitter, Instagram etc), manufacturers today can evolve loyalty programs beyond the traditional POS channel, and go one step further to establish direct communication channels with consumer through chatbots and AI based tools.
- Understanding the consumer through loyalty programs, companies can personalize offerings and create emotional connect through marketing and elevate consumers to brand evangelists
These examples are only a few of many, and potential to leverage this information is limitless. This is the reason driving more manufacturers to offer loyalty programs in 2017 and 2018.
Which CPG manufacturers offer loyalty program?
Although loyalty programs are catching trend in 2017 and 2018, they are not new to CPG space. Here are some cosmetics companies which have head-start over others in this space:
- Estee Lauder’s MAC Cosmetics brand offers loyalty program in form of “MAC Select”. The unique offering of their loyalty program is the tiered structure. The consumers get elevated based on their annual purchase amounts, starting from “Seduced” at no purchase to “Devoted” tier at $350. Needless to say, the higher up the tier, better the rewards. The highest tier consumers in “Obsessed” tier get 2 complimentary makeup applications, have first access to new collections and complimentary 2 day shipping on purchase of $50 or more. Getting to “Obsessed” tier requires annual purchases of $500 or more.
- Sephora offers loyalty program named “Beauty Insider”, and boasts over 10 million loyal consumers. Similar to MAC Select, Beauty Insider entices the consumers to achieve higher tiers by making more purchases. Top tier “Rogue” would have consumers shell out $1000 in annual purchases. It offers consumers rewards unmatched to any other tier- private hotline, exclusive events and free shipping. To redeem rewards points, “Rewards Bazaar” offers a variety of products at achievable purchase points.
- L’Oreal recently launched their “Worth It” loyalty program and has done for the right reasons. It is structured with two tiers “Bold” and “Fearless”. Through this program, L’Oreal offers points to consumers for purchases and online community interaction. One of the interesting possibility to claim points by consumers is by uploading receipts, which is a new in the industry. Needless to say, the program offers benefits at par with Sephora and Estee Lauder loyalty programs.
How should a CPG company go about starting loyalty programs?
While above sections establish business case for loyalty programs, wanting to initiate loyalty programs and getting these done is a whole different game. This is even more challenging for a CPG company due to lack of access to POS data. Due to this, a few considerations which every CPG company needs to pay due attention include:
- How would loyalty programs fit within the mix of existing consumer incentives and marketing plan?
- Can the loyalty programs offered through retailer’s existing loyalty program?
- How to get access to POS data to establish rewards points for the consumer?
- What rewards to give to consumers and how to enable rewards redemption by consumers?
- How to capture consumer information and how to utilize it effectively?
These questions are just a few to get the thoughts whirling. Since loyalty programs require an organization to lay out a solid foundation, and most CPG companies are not positioned to get into actionable state currently. The ones which are getting there are bound to see success and are positioned to continued growth in future!