How loyalty programmes help brands grow

Mention Byron Sharp at a loyalty conference and you risk being taken to one side and quietly shot.

That's because in his ground breaking book that explains the science of How Brands Grow there is a chapter called "why loyalty programmes don't work".

The science is settled. Take any category supermarkets, cars, soap powder, banking and you will find that the brand that has the most customers has the highest share and the highest loyalty.

The key to growth is penetration - acquiring new and low frequency customers. Do this better and faster than your competitor and you will grow market share.

Does that mean that loyalty marketing is a waste of time? Possibly, but it doesn't mean that loyalty programmes are.

How so?

Well, Sharp helpfully explains the three components that drive penetration growth :

• The brand proposition (eg price, service, taste)
• Physical availability (eg number of outlets, visibility within the outlet)
• Mental availability (eg distinctiveness, memorability)

And well run loyalty programmes contribute to all three :

• For many brands the loyalty programme is fundamental to the proposition, the discounts on offer at Tesco or Sainsburys, to take two leading UK retailers, are such that without them their competitiveness would be seriously diminished
• Loyalty programmes can drive physical availability, particularly when integrated into an app or walletpass that's constantly visible to the customer
• They create distinctiveness and memorability and so also drive mental availability

And their benefits extend beyond this.  Loyalty programmes enable brands to know and understand their customers and that informs smarter decisions on price, promotions, range and services.

They also create the foundations for retail media and data monetisation.

Retail media is the fastest growing segment of the ad industry and retailers like Amazon, Tesco, Sainsburys with effective loyalty programmes are capturing an increasing share of this market.

Retail media is the only media that drives both physical and mental availability.

Loyalty programmes enable better ad targeting, audience creation and media measurability.

Traditional media and non retail digital media can't match this.

And so loyalty programmes do work, provided they are used in the right way.

They need to enhance the overall proposition, they must be visible and available, they need to be memorable, distinctive and data generating and growth enabling.

The key to growth is acquiring new customers and well designed loyalty programmes facilitate this.