How brands use loyalty programs as a ‘focus group’ to drive growth

By 2022, Jiggy had launched its puzzle club, which is a paid subscription service for people to receive regular puzzle deliveries, as frequently as once a month or as infrequently as once a quarter. Marcotte credits the habits she saw from her loyalty members, and subsequent conversations, with forming the foundation for the program.

“Those are your one-percenters, they’re your focus group,” she said. “We’ve definitely tried to glean insights where we can from that data, then follow that up with more qualitative and real-time feedback in conversations with loyalty members to develop different programs and product extensions.”

While customers are flocking to loyalty programs in the hopes of discounts and free shipping, retailers and brands can also use that first-party data to improve the customer experience and tweak growth strategies.

Deloitte found in its 2024 retail outlook that strengthening loyalty programs was retail executives’ most cited growth opportunity. And that’s no surprise in a moment when customer acquisition costs have risen since the earlier days of online advertising — a widely-cited SimplicityDX study from 2022 found in a survey that the average retailer’s CAC had gone up 222% in the previous eight years. But beyond acquisition, brands can use their loyalty members as mini-focus groups, as well as a way to help better understand their customer.

Brendan Witcher, Forrester vp and principal analyst, said companies are wise to use loyalty information to help create personalized experiences. “They really need to understand that loyalty programs and the data that comes from them is an opportunity to look at the profile of the customer,” he said, “and to uncover what it is that they really truly care about, and then get surgical about what you’re going to say to them.”

Matt Smolin, founder and CEO of loyalty provider Hang, said the year is shaping up to see a major growth point for loyally programs in light of rising customer acquisition costs and the dissipation of cookies. Brands like fast-casual chain Sweetgreen and apparel company Hanna Andersson have launched new programs in the past year, while Sonos is angling to launch one later in 2024.

“You have to worry about how to offset increases in CAC, and the best way to do that is to find more value in your customer and loyalty is a way to do that,” Smolin said. “If there are no more third-party cookies, brands need to have first-party data more than ever before.”

Informing new product drops

Once up and running, a loyalty program can provide important insights about shopping patterns. Jiggy’s Marcotte said feedback from loyalty members about what they’re looking for has helped her decide to launch different sized puzzles, or add-ons like frames.

Agueda Trujillo, head of marketing for hydration brand Waterdrop, said the brand’s loyalty program has been around since the company was founded about seven years ago. It gives customers 10 points for every dollar spent, then those points can be used for coupons or free products. About 50% of all customers are part of the club, or around 370,000 active users. They tend to be “the most valuable and engaged customers,” shopping about 50% more than non-club members. 

Trujillo said Waterdrop will survey the customers for thoughts about product design or or future flavors. The loyalty members recently weighed in on what products would be featured in the holiday season limited edition advent calendar, which is curated off of their recommendations. . 

“It’s a great asset,” Trujillo said. “They’re able to give us product reviews, with actual feedback. And we can go through all of them and actually read what our customers have to say about our products.”

Location, location, location

Francesca’s, the apparel and accessories retailer, launched a loyalty program in the fall of 2022. Customers accumulate points based on how much they spend, like a $10 reward once they hit 100 points. While the company told Modern Retail last year that the program makes a “remarkable difference” in driving repeat purchases, there’s also a secondary benefit from having first-party data about their customer.

“We’ve really grown our own customer base that way,” said Traci Graziani, vp of marketing and brand partnerships at Francesca’s. “And so you we can look at and understand who our current customer is.”

When the brand made it first foray into connected TV in late 2023, the team looked at user information from its loyalty program to help decide where to run the ads and who to target. Instead of randomly choosing markets, having that first-party data meant that the brand could hone in on certain ages or regions full of engaged customers to air the spot.

Similarly, Waterdrop’s Trujillo said that loyalty data helps provide a “heat map” of where loyal customers are. This can help inform their retail store strategy.

Improving the customer experience

Marcotte from Jiggy said getting to know her customers better through the loyalty program has helped inform strategies beyond transactions. The data showed that some members kept purchasing puzzles from the same artists, indicating they were becoming fans of the people who created the artwork featured on the puzzles. In response, Marcotte started launching content around studio tours and artist interviews.

She said that this kind of feedback’s especially critical for small teams that may not have many staff to weigh in product decisions help winnow ideas.

“Prioritization and focus is so crucial,” Marcotte said, “so I think being steered by what your community tells you is number one.”

Witcher from Forrester said that brands can look for ways to improve their customers’ experience based on their loyalty program information. For example, a makeup company loyalty member who has a profile saved could have that information pre-loaded when they access a virtual try-on. Or an airline can recommend a car service to a traveler after they’ve booked.

“That’s the way I think we’re really looking at the future of using data from loyalty programs, is to create this feeling like, ‘Oh, this company gets me,'” he said.