How can loyalty programs benefit Aussie businesses during inflation?

The phrase ‘every little helps’ could not be more pertinent amid the rising cost of living. How can loyalty programs give consumers that little extra help, and are customers satisfied with the rewards offered in exchange for their loyalty?

Loyalty programs usually require consumers to sign up and divulge some of their sought-after data in return for membership benefits. However, do consumers find the benefits of a loyalty program subscription a worthwhile exchange for their personal information, especially if they have to spend a certain amount before earning rewards? GetApp investigates what Australian consumers seek from a loyalty program. Do members have data privacy concerns, and are they satisfied with their rewards? 

Moreover, we wanted to know how consumers use and interact with loyalty programs to help small to midsize enterprises (SMEs) understand consumer needs when devising an effective marketing plan to attract and retain customers. We surveyed 1,007 Australian consumers in November 2022 to gain further insights. 

The full methodology of the study is at the end of this article.

Inflation has sparked increased interest in loyalty programs

The latest release in September 2022 of Australia’s consumer price index (CPI) reported a rise of 7.3% over the previous 12 months. The CPI measures household inflation and includes statistics about price changes for categories of household expenditure. Notably, the CPI has reported a sharp annual increase since September 2021 compared to previous years, but have Australian consumers noticed an increase in household costs? 

When we asked survey participants if they had experienced the negative impacts of inflation when shopping this year, 54% of respondents said they had experienced it to the point where they switched brands or started to buy less. A further 38% said they have noticed the price difference due to inflation but have continued to shop as usual without making any changes.  

Loyalty programs can incentivise budget-conscious consumers to continue buying from the same brand by, for example, offering them the opportunity to earn discounts based on accumulated purchases. Unsurprisingly, most respondents (61%) are more interested in loyalty programs now than before because of the current inflation issue.

36% of Australian consumers are always after a deal, regardless of inflation. However, 59% of respondents confirm they have started looking for new ways to save money on their shopping because of inflation. The coincidence of interest in loyalty programs with the current period of inflation indicates that consumers view loyalty programs as a means to save on shopping costs. 

90% of Aussies are subscribed to more than one loyalty program

The loyalty programs market in Australia continues to grow and is expected to record an 11.7% compound annual growth rate (CAGR) from 2022 to 2026. This growth represents the widespread popularity and use of loyalty programs by consumers. While this growth may be boosted by inflation, we wanted to further evaluate the popularity of these schemes. 

From our survey, 84% of respondents currently use loyalty programs, while another 7% have used one in the past, which confirms the popularity of loyalty programs in Australia. A further 6% have never used one but are interested, which leaves only 4% of respondents indifferent towards them. Among current users, 9 out of 10 respondents said they use more than one, with the majority (60%) signing up for between two and four different schemes.  

SMEs should decide what type of loyalty program to offer based on their business objectives and an analysis of their customers. 

According to our survey, points-based loyalty programs are the most popular: 92% of respondents said they use this type of program, but in which type of industry do they use loyalty schemes the most?

Essential goods and services dominate the loyalty market

The spend more, earn more concept is the basis of many loyalty programs. They encourage consumers to increase their spending and specifically aim for consumers to make regular repeat purchases with an organisation. In addition to the popularity of loyalty programs, we wanted to take a closer look at where and how often consumers use loyalty programs to better understand how organisations can drive repeat business.

Organisations that align the type of loyalty program on offer with the consumer's spending habits can drive repeat business. For example, a tiered loyalty program may be a good choice for less-frequent, high-value purchases in comparison to a cashback loyalty program that requires a minimum spend on more frequent purchases.

The majority (87%) of users surveyed belong to a supermarket loyalty program, making it the most popular industry for users. Fuel stations, second to supermarkets, were cited by 40% of loyalty program users. In terms of popularity, it is no surprise that points-based loyalty programs coincide with essential goods and services such as supermarkets and fuel stations. Essential goods and services often involve more frequent, repeat spending. 

Further reinforcement of regular spending habits is indicated by 35% of users who said they use their loyalty program(s) two to six days per week. As a result, points-based loyalty programs may favour more frequent, low-value purchases, but what benefits do consumers seek from loyalty programs?

Discounts drive interest in loyalty programs

Nearly half (56%) of loyalty program users are somewhat satisfied with their overall experience using loyalty programs. However, only 21% of users are extremely satisfied, which highlights an opportunity for loyalty programs to up their game to meet consumer expectations of what they seek compared to what they currently receive.

According to 78% of users, the main advantage they currently get is regular rewards such as coupons to spend on that particular brand. While 67% cite receiving discounts as one of the advantages they currently get, a higher number, 76%, seek discounts as a benefit.

Focusing on offering regular discounts as a benefit would also satisfy the majority (57%) of respondents interested in loyalty programs but not using one yet. Discounts are a way for consumers to feel like they are making savings on essential goods and services where consumers notice the effects of inflation. Loyalty programs that incentivise discounts could prompt more users, especially those interested in signing up but who haven’t yet done so. Discounts could satisfy more users with their overall experience using loyalty programs, as this is the benefit most users seek. 

Are regular rewards such as coupons enough to satisfy users and keep them subscribed to a loyalty program?

Rewards requiring high spending trigger loyalty program dropouts 

There is a fine line between how much a consumer needs to spend to receive a reward and the value of that reward. If rewards are unattainable or unsatisfactory, this can cause a negative outlook or disinterest, or even prompt a customer to sign up for a competitor program. 

The main disadvantage of loyalty programs, cited by 44% of users, is that they have to spend a lot to get good rewards. This disadvantage also caused some users to quit. Among the 28% of users who had ever stopped using a loyalty program, the two most common reasons given for leaving were that rewards tend to be useless and users had to spend a lot to get good rewards, each cited by 46% of this group.

The second most cited disadvantage by 41% of users was receiving too much spam mail, which also corresponds with the third most cited reason (38%) why users stopped using a loyalty program. SMEs tend to gain from gathering customer information by developing custom marketing campaigns based on their data to promote products and drive repeat purchasing. 

Despite the marketing overload, consumers are mostly happy to provide their data for loyalty programs. Only 26% of users currently using loyalty programs said brands tracking their shopping behaviour is a disadvantage. Only 18% of those that stopped using a program from another brand in the past did so for that reason.

At what cost should you retain customers' loyalty?

One way or another, customer loyalty programs come at a cost for an organisation. Organisations will need to offer a reward of value to the consumer to either collect their data to better understand what their customers like to buy or to incentivise repeat purchasing. This cost may also depend on how customers perceive the price of their loyalty and what motives they think lie behind an organisation’s loyalty scheme.  

Most respondents (68%) think that brands primarily offer loyalty programs to retain customers and increase sales. 19% perceive their primary reason as a way to give something back to their customers, and only 13% think the main reason is to collect customer data.

As we found in part one of this two-part series, the theme of value for money echoes throughout customer loyalty. Consumers want to earn something in return for their repeated custom, but the reward must be attainable and worthwhile. Our survey shows that brands risk seeing a decrease in loyalty program users if consumers feel they are not being rewarded appropriately.

However, companies that give customers that extra little help by offering discounts through loyalty programs at a time when many are looking to save money are more likely to retain their loyalty and secure repeat business.