There is no set fee to put in place for a customer loyalty programme. The price you pay will depend on the scale of the scheme and your specific requirements. Also, how you choose to operate it for your audience will also affect cost. However, there are always common cost centres to consider.
In this article, we will discuss the five key investment areas to consider when setting up your customer loyalty scheme. Balancing the economics with what the customer wants is "the holy grail" with loyalty scheme development. That is according to Jess Huang, a former director in Google’s small to medium-sized business advertising division.
She said: “It’s tough because you have to spend to offer something compelling that creates value for consumers. But if you spend too much on the business-economics side, you can quickly lose a ton of money.”
Huang, a partner at McKinsey & Co at the time of her comments, said do not waste money on factors that do not enhance your specific objectives.
She advised that a good loyalty programme will identify features and benefits valued by consumers that come at a small business cost. If you can find this balance, it presents a good starting point in the development of your loyalty scheme.
Epsilon, for example, has unparalleled experience and expertise when it come to providing loyalty programmes with a compelling return on investment. We share more than 4 billion campaign messages every month with more than 600 million loyalty customers, on behalf of companies of all sizes building incremental value.
Through our Epsilon PeopleCloud Loyalty Platform, we ensure brands stay in touch with their customers’ unique preferences and purchases, so brands know what messages to share, when to share them, and what to offer to earn customers’ purchases to retain their loyalty.
Initial Set-Up Costs of a Customer Loyalty Programme
McKinsey has previously estimated the first-year costs for large organisations to establish a programme at circa $30 million. But things are different today, and the costs differ depending on what you want it to achieve.
Loyalty scheme providers offer a range of price points and payment structures. This enables you to develop a programme that meets your specific budget and requirements.
The set-up cost will reflect the sophistication of the software you choose to build a loyalty scheme on. The capability of a third-party loyalty company’s technology and the additional services they provide also have an impact.
Ongoing Maintenance and People Costs
There will be ongoing operational costs to running a customer loyalty programme.
For example, the success of a scheme can lead to further expenditure. That includes investment in people to manage the data and opportunities it generates.
Clive Humby, Terry Hunt, and Tim Phillips addressed much of this in their book 'Scoring Points: How Tesco is Winning Customer Loyalty'. The publication looks at how Tesco’s Clubcard grew into one of the most successful loyalty programmes. The authors wrote that “new knowledge means new skills, new ways of planning and working.”
Marketing teams often split roles by brand, product and channel. But a loyalty programme will mean they become inundated with new customer information. If they are good at their jobs, they change the way they work. With new data, a fresh marketing approach may entail targeting consumers and sub-groups based on the previous behaviour. Data from loyalty schemes allows for more personalised communications.
To act on this requires investment in customer relationship management personnel and systems. More recruitment activity to find data analysts, heads of insight, and other specialist job roles may also be necessary. Indeed, a fast-growing loyalty programme will need a whole team of people. This will ensure an organisation optimises all the benefits arising from the scheme.
In this scenario, you will need to include salaries, recruitment fees, and related operational costs when costing up a scheme.
For big businesses, where the loyalty schemes become a central cog in how the organisation runs, training will need to improve. All staff will require training on the different features of the programme. The learning will include the benefits it brings to the organisation, and how to promote it to customers at every opportunity.
In addition to the costs associated with building a loyalty programme, there are fees required to store and protect the data of members.
On 25 May 2018, the EU General Data Protection Regulation (GPDR) came into effect. It contains rules on processing people’s personal information. Any customer loyalty scheme will involve holding personal data, meaning you must make the relevant investments to protect that information. Members will also need to access their own data when they request it.
Marketing the Scheme
Word of mouth and customer-facing staff will help market a loyalty programme. But to truly grow a loyalty programme, significant investment is required to market these schemes to the general public.
Multichannel marketing is the modern way of spreading a message to the masses. That means the cost of implementing a customer loyalty scheme will likely include fees for one or more of the following:
- out-of-home advertising
- television and radio advertising
- printed material in newspapers, magazines, on leaflets, and through direct mail
- email marketing and web banner ads
- pay per click activity
- social media marketing, including paid social and in-house campaigns
In February 2022, restaurant chain Pizza Express launched its first customer loyalty programme. The Pizza Express Club promises to reward consumers with points for every meal bought.
Pizza Express launched the new programme via a television advertising campaign. The adverts featured the voice of comedian and Peep Show actor, David Mitchell. Your business plan must build in the costs associated with celebrities and influencers in the promotion of a loyalty scheme.
The Customer Rebate
Loyalty programmes offer various deals and promotions.
The Tesco Clubcard Plus scheme provides discounts to members. Sainsbury’s Nectar or Boots Advantage Card allow members to exchange points for goods offered. But all schemes generate a customer rebate cost.
If you are looking to run a loyalty programme, you must ensure the value of the loyalty achieved covers the cost of the ongoing customer rebate.
Often schemes will be tweaked over time as the benefits they offer become a challenge for the business to afford. Waitrose’s loyalty scheme began with free coffee and free newspapers for members. But various revamps of the programme have removed these benefits for customers.
The supermarket chain offered a free newspaper when MyWaitrose members spent £10 but that deal ended on 22 February 2022. The decision to remove the deal coincided with a period of cost-cutting by the retailer’s parent organisation, The John Lewis Partnership.
Huang said it is important to have “a good internal understanding of what value you’re willing to give away and to whom.” The value proposition will differ for each type of consumer, she explained. She advised designing tiers within the scheme and not giving away everything to everyone.
Addressing these factors will help balance the customer proposition with business economics.
Consider the Cost of Not Implementing a Customer Loyalty Programme
If you are still uncertain if a customer loyalty programme is for you, a key question to consider is what will be the cost of not implementing a loyalty scheme?
That is when the true value of an investment becomes clear.
Tried and trusted digital advertising techniques are becoming more difficult to put in place. That is because the big ecosystem players have tightened up their strategies in the name of greater privacy on the web.
In the future, it will be more challenging if you rely on targeted marketing via third-party platforms to communicate your message. To grow, businesses will need more first-party data because it gives them greater power when choosing how to communicate with customers.
Mechanisms such as loyalty programmes enable this collection and optimisation of first-party data.
And what is more, loyalty members spend three times more than non-members. Think of the additional revenue you are missing by not having a customer loyalty programme. Think about the speed you could recoup loyalty scheme costs by increasing the average spending of your customers.
In a competitive world of commerce, the cost of inaction is a crucial metric to contemplate. That is true of retail, e-commerce, travel, quick-service restaurants, and finance.
Is a Customer Loyalty Programme Right for You?
Businesses cannot rush budgeting, researching, and scoping out a customer loyalty programme. You should make sure the investment you plan to make is suitable for your individual organisation’s needs. The partners you are working with also need to be a good match for your organisation.
But as you undertake your cost analysis, you should remember the following:
- Plan for upfront and ongoing costs. A good customer loyalty programme will need continual investment
- Prepare to invest more money – and in new areas – as the loyalty scheme gains traction
- Always balance the customer proposition with business economics
- The cost of not investing must be a consideration.
Customer loyalty programmes bring many benefits, but there are several layers of costs involved in designing a scheme.
The most successful loyalty schemes will continue to evolve and bring new costs. Organisations considering the common cost centres from the outset are best placed to build the best schemes.
Now that you have a better understanding of how much a loyalty programme costs to implement, what should you do next?
Check out our comprehensive "Loyalty Programme Guide" by clicking the link below. With this comprehensive guide, you'll learn everything you need to know to start, grow, and measure your customer loyalty scheme.
Learn More About Loyalty Programmes
- Definition of a Loyalty Programme
- How to Measure a Loyalty Programme's Success
- Tips for Implementing a Successful Loyalty Programme