Consumers have mixed feelings about the economy. There is a sense of optimism as inflation has stabilised… But spending levels remain similar to previous quarters. Consumers are still trading down in search of better value and roughly one-third are continuing to monitor their expenses carefully.
This has put ‘brand promiscuity’ at an all-time high. Consumers are simply mindful of any incremental expense. For some, brand loyalty may feel like a luxury – if an alternative seller is offering a better deal, they may well clinch the sale, over familiar and even well-loved brands.
Consumer-facing businesses face a tipping point. They need to earn every sale, yet the proliferation of loyalty programs and demand for better value from their favourite brands, means they need to respond differently to before. Those that combine loyalty tactics and pricing strategies for better personalisation can stand out by bolstering the holistic value they offer loyal customers.
Lots of companies already deliver value to customers through a range of loyalty, pricing, and promotion strategies, but not many consistently orchestrate these strategies to create an integrated customer experience. Those that do could unlock new and sustainable growth.
Pricing in loyalty programmes: a foundational discipline for customer value
First, though, let’s look at the premise of loyalty programmes and pricing. A loyalty programme can be a helpful tool to drive long-term customer engagement and stickiness. When loyalty pricing is layered in, it can be a highly effective tool for the programme to offer new ways to deliver tangible value to customers, and so helping grow their reach.
In many cases, giving programme members exclusive promotions like percentage or cash discounts is the simplest, most effective way to capture the benefits of integrated pricing and loyalty – because it makes the value of theprogramme crystal clear. The strong, clear link between the programme and the value it delivers not only reinforces the loyalty of existing members – it often entices non-members to join.
Overall, therefore, the positive end-to-end experience helps create more loyalty members, who often make more frequent or larger purchases than non-loyalty members.
What can a successful loyalty programme look like?
Amazon Prime provides a good example of a pricing benefits scheme boosting a loyalty programme. Amazon first launched Prime in 2005, offering free shipping to members who were willing to pay an annual flat fee. A decade later, it used the incentive of preferred pricing for loyalty members to launch Prime Day – a limited period of major discounts for Prime members. In its first year, Amazon achieved just under $1 billion in sales. By 2023, Prime Day was generating nearly $13 billion in sales, with analysts estimating the event led to an incremental $5 billion in revenue forthe company.
Membership of Prime has also grown over time. As more benefits have been added, including two-hour delivery with Prime Now, or free e-books through Prime Reading, the number of members has shot up. Amazon’s ability to integrate pricing and loyalty has had a dramatic impact. In the US, roughly 75% of US households were Amazon Prime members, spending more than four times as much as non-members over their lifetimes according to 2023 figures.
Personalisation: taking it to the next level
With pricing strategies in place, consumer-facing brands can achieve greater growth by beginning to shift away from standard mass offers and experiences, and moving towards a simple personalised experience that integrates loyalty and pricing to deliver greater value for customers. Personalised pricing and rewards can be achieved through the hyper segmentation of members, the co-ordination of cross-functional teams, and building analytical and technical capabilities.
Typically, companies test and scale personalisation using a mix of loyalty data (like customer identification, purchasing patterns, and shopping preferences) and pricing or promotions (discounts and storewide events, for example). We’ve seen significant impact when this strategy is integrated successfully. At companies with pilot programmes, we’ve seen a two to four percentage point margin improvement on gross margin achieved through personalised marketing experiences such as customised imagery, text, and emails based on purchase history, and pricing offers includingdeeper discounts for higher loyalty tiers.
The beauty and challenge of personalisation is that it gives the customer what they want at any given moment. This might mean a coupon for 25% off over a Bank Holiday weekend, a personalised message for a loyalty anniversary, or a mass message and offer for Black Friday, all of which might change the following year. Knowing which promotions and tactics will work requires constant readjustment and analysis, and brands need to be prepared to constantly add new tactics to the recipe to keep customers engaged.
The goal: stronger loyalty and sustainable growth
Successful loyalty programmes can offer an antidote to brand promiscuity, driving long-term engagement, changes in consumer behaviour, and ‘stickiness’. They can also reward the bottom line when personalised marketing experiences are combined with personalised pricing offers.
The sector is ripe for evolution. Driving loyalty alone isn’t enough to retain and engage customers, while pricing alone is becoming less effective. Delivering an integrated pricing and loyalty strategy can fuel greater future growth. But it isn’t easy – it requires new ways of working, deep analytical capabilities, tools for integration, and dynamic changes over time.
But companies that can capitalise on this new capability may well speed ahead to the leading edge of the consumer-facing economy.