Loyalty Programs Financial Structure


Determine the financial structure of loyalty programs. The information will be used to make a decision on a loyalty program and the relationship with their corporate master brand.

Early Findings

Loyalty Programs Financial Structure

General Insights on the Reward Model

  • Existing customers typically "spend 67% more than new customers.
  • Given this, customer loyalty "really pays off" and these rewards programs can be considered as an endeavor that can eventually pay for themselves.
  • Some loyalty programs are fee-based and paid for by the customers to avail of premium benefits.
  • Some businesses also typically provide non-monetary benefits to their loyal customers.
  • Companies also partner with other firms to provide customer loyalty programs that can help increase customer engagement and grow their business metrics.
  • In the case of credit card companies, merchants are mandated to pay a certain portion of the purchase amount to credit card companies.
  • In this case, incentives for cash back rewards are shared by the credit card company and the merchant.
  • Some of the best loyalty programs come from Sephora, Virgin, Amazon Prime, TOMS, American Express, Swarm Perks, REI Co-op, and Apple.
  • Rewards programs typically bring in more sales but the loyalty program liability also needs to be considered.
  • This liability translates to the eventual cost to a company once customers claim their rewards.
  • However, careful analysis and factoring the financial impact of these loyalty programs into the balance sheet can turn them into investments.
  • If this is followed, the expected return should be greater than the implementation cost.


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