If you’re reading this, you’re probably wondering whether customer loyalty programs really work (spoiler alert: they do) and what are the pros and cons of starting one for your business. Whether you have a physical store, a website, a mobile app - loyalty programs can do wonders for your business. But as with any major decision, it’s important to weigh out the advantages and disadvantages beforehand. So without further ado, let’s dive right into it.

Pros and Cons of Loyalty Programs

Pro: Customer Retention 

Super obvious, and we’ve already talked about retention only like, a gazillion times, but it’s only because of how much it really makes a difference in businesses. Retaining customers means instead of spending money on acquiring new ones, you’re making the most of the loyal ones you already have. According to Hubspot, there is a 60-70% chance of selling to an existing customer. Meanwhile, when it comes to new customers, the chance of closing a sale stands at just 5-20%. 

To make it as simple as possible, loyalty programs incentivize customers to always come back for more. You can reward them for making another purchase, hitting a certain milestone, trying out new products - all ways to raise your customer retention rates. 

Con: Loyalty Programs Require a Lot of Time and Effort

Building the right loyalty program requires tremendous dedication, whether in the process of building it or maintenance afterwards.  

First, you have the effort it takes from the team to build a loyalty program. It can take developers up to 20,000 hours to build an in-house loyalty program - which is valuable time and effort that most people would argue should be spent on core-functions instead of supporting functions.

That’s why we recommend outsourcing your loyalty program entirely. There are several loyalty providers out there so you can easily find the best fit for your business according to your needs.  

We strongly recommend talking to one of our loyalty experts to help you reach a decision that’s best fit for your company.

Pro: Easy Customer Acquisition with Referrals

86% of loyal customers will recommend the brand to their friends and family, while 66% will write a positive online review after a good experience (Source). When you have a loyalty program your customers love, they’ll want to bring in more people into the experience. An even stronger point for acquisition is rewarding customers for referring others, creating exponential growth.

Con: Loyalty Programs Can Affect Your Profit Margins 

If you’re constantly offering discounts and free products, that’s definitely affecting your profit margins. In other words, you’re reducing how much you’re actually making from each sale.  This affects your profit magins because the cost is staying the same, but the revenue is less. So basically, you’re giving up short-term profit for the sake of attracting or retaining customers. Which can sound like a nightmare. 

The best way to prevent reduced profit margins is diversifying rewards into financial and non-financial. Non-financial rewards, like points, badges, or other virtual items that represent their loyalty or achievements. This way, your customers feel recognized and appreciated without you having to break the bank.

Pro: Capture Customer Data (And Provide Personalized Experiences)

With loyalty programs, you can understand your customers way better, which is incredibly meaningful enough. Collecting data such as customer behavior, preferences, and demographics can provide actionable insights that can help Prevent losing customers (such as sending a perosnalized offer when they haven’t been active in a while)  or Reward VIP customers with exclusive rewards.  

Con: It Can Be Difficult To Measure Loyalty ROI

ROI, short for Return on Investment, is basically a metric that tells you if you’re getting your money’s worth. It lets you know what’s working and what could be working better, and how effectively you’re managing your budget. If you discover that something isn’t really bringing in the kind of results you’re looking for, you can reallocate funds somewhere better. 

Once you begin having a clear understanding of your ROI, you can set measurable and attainable goals to optimize your marketing strategy. 

If you’re not measuring your loyalty program ROI, you could be missing out on some seriously valuable insights on how to optimize your loyalty program and maximize its value. 

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However, it can be tricky to measure ROI when it comes to your loyalty program, luckily enough, we created an in-depth guide to help you out.

Pro: Stand out From The Crowd

Lastly, if customers truly find added value in your loyalty program, they’re more likely to choose your brand over others. Especially if you offer rewards that are hard to resist, it’s nearly impossible that your customers will look towards competitors. Through a loyalty program, you’ve found a nearly effortless way to create an edge that makes customers love you. 

Conclusion

Those are our top pros and cons of loyalty programs - if you’re still trying to make a decision, we strongly recommend talking to one of our loyalty experts to help you reach a decision that’s best fit for your company. Or, if you’re already feeling confident - try it out for yourself.

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