Finding the Path to a Profitable Loyalty Program for Marketers

With marketing budgets under increased scrutiny, leaders recognize just how valuable a loyal customer is to a brand. Loyalty programs are essential for driving both new customer growth and retention, as well as boosting the bottom line in a time where every dollar counts. Marketing leaders must reimagine how they measure, defend, and grow brand loyalty programs in order to fully unleash their potential.

From the Gartner Marketing Symposium/Xpo, we spoke with Brad Jashinsky, Director Analyst in the Gartner Marketing Practice, to explore how to unlock the profitability equation for brand loyalty programs.

Journalists who would like to speak with Brad regarding this topic can contact Juliette.Dixon@Gartner.com. Members of the media can reference this material in articles with proper attribution to Gartner.

A: Gartner’s 2024 CMO Spend Survey revealed that CMOs are living in an era of less, and are focusing on customer acquisition over retention as loyalty programs slip down their investment priorities. As a result, it’s crucial that leaders be proactive about calculating the true value of their loyalty programs and defend against budget cuts.

Teams often make mistakes in their measurement by grabbing onto simple statistics, ignoring costs or focusing on the wrong metrics altogether - this can overvalue the contribution of the loyalty program and limit its long-term success.

It is through holistic, multi-layer measurement that leaders can accurately assess how their loyalty program is driving business profits. Leaders should:

• Calculate the entire cost of the loyalty program

• Take a holistic view of loyalty metrics to ensure unintended impacts of the program aren’t ignored

• Isolate incremental loyalty program revenue using advanced data analysis, and use predictive analysis to estimate the impact of program changes

A: When customer data silos are broken down, marketers can realize the full potential and understand the value of data collected via a loyalty program, whether that be zero-party or first-party data. Leaders should create a cross-departmental team to properly track the value of loyalty data, thus ensuring that credit is given to the loyalty program for improved metrics or benefits. For example, this could be done with  lower advertising costs due to better targeting.

A: Once the necessary reporting framework is established, and leaders have unlocked the value of loyalty data, they can commence improving the profitability of their loyalty program by updating benefits.

Marketing leaders should avoid:  

• Offering mass discounts and only transactional benefits, which can limit differentiation and profitability. Leaders should instead restrict discounts to only customers who are members of the loyalty program and explore adding experiential benefits.

• Static programs - and focus on continually adapting the loyalty program to changing  customer and business needs.

• Promising unsustainable benefits to loyalty members that require benefits to be taken away in the future causing customer dissatisfaction

Leaders should instead focus on exclusive discounts and tiered programs, reserving higher-value benefits for more profitable customer segments. For example, experiential and transactional benefits, such as premium customer support and preferred pricing for high-spending customers, boost profitability. “Surprise and delight” benefits also allow business greater flexibility to increase and decrease discounts as needed, avoiding set-in-stone member expectations. 

To experience the full value of “surprise and delight” programs, brands should explore personalizing individual offers and benefits based on the specific needs of individual customers and the business. For example, providing a discount on an overstocked item to a loyal customer who buys complementary items in other categories, but doesn’t typically shop your brand for the category that the discounted product is in.

Gartner clients can learn more in the following reports:
How to Create a Compelling Value Proposition for Your Loyalty Program
Use Experiential Benefits and Experiential Earning to Maximize Loyalty Program Effectiveness

About Gartner for Marketers

Gartner for Marketers provides the objective, expert advice, and proven tools that CMOs and other marketing leaders need to seize the right opportunities with clarity and confidence, and to stay ahead of the trends that matter. With in-depth research and analysis, Gartner for Marketers helps you focus on the opportunities with the greatest potential to deliver results. More information on Gartner for Marketers is available online at www.gartner.com/marketing. Follow news and updates from the Gartner Marketing practice on X and LinkedIn using #GartnerMKTG. Members of the media can find additional information and insights in the Gartner Marketing Newsroom.

About the Gartner Marketing Symposium/Xpo

The Gartner Marketing Symposium/Xpo is taking place June 3-5 in Denver, providing marketing leaders with actionable advice about the trends, tools and emerging technologies they need to deliver business results. Follow news and updates coming out of the conference on the Gartner Newsroom and on X and LinkedIn using #GartnerMKTG.