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Loyalty trends and best practices

CPG Loyalty: How to Create an Effective Structure

by Arif Damji
April 19, 2016
CPG Loyalty: How to Create an Effective Structure

It is no secret that code-on-pack is on the decline. The approach of using product packaging as a method to allow registration of product purchases can be expensive to the brand and inconvenient for the customer. As a result, many CPG programs have been left with low enrollment and participation rates. However, this is certainly not a reason to overlook the power of a loyalty program for your CPG brand, and today we’ll discuss how CPG brands are utilizing new partnerships, structures, and technologies to create effective loyalty programs.

So, why is CPG loyalty traditionally seen as ineffective?

Our VP of Loyalty Strategy, Zach Woith, often says that “the purpose of a loyalty program is to change the behavior of a member segment to align them with the objectives of the brand.” This means that you want your members to increase spend, stay active, become brand advocates, and build further brand affinity. In order to be able to do so, the program is predicated upon its ability to drive enrollment and participation. Unfortunately for CPG, many programs are plagued with:

  1. Low enrollment rates:  Given the inconvenience of code-on-pack, as well as occasionally limited spend with a specific brand, there are low enrollment rates associated with CPG loyalty programs. Often we see programs in the CPG space with well under 5% enrollment.

  2. Low participation rates:  Even once members have signed up, the member experience is not necessarily conducive to encourage members to participate. Those that do are often using it as a “couponing” opportunity with an ambition of lowering the effective price paid per item.


What are the commonly seen loyalty program constructs?

Similar to other programs in other industries, CPG-based loyalty programs appear on a spectrum ranging from transactional programs to engagement-based ones. Their suitability often depends on total spend with the brand and possible engagement activities.

For program structures, there are a number of factors that play into the decision of what type of program is ideal. As expected, legacy programs commonly appear as “Purely Transactional” based programs. Also, since these programs are based on a funding rate, they normally exist where the spend or frequency of purchase is high enough to allow for meaningful rewards (common for umbrella programs). For a “Purely Engagement” based program, they may not have the spend component, but instead tap into the excitement of customers around the product/brand, or the value add components of improved education (think about best practice make-up applications or the use of healthy eating products in a balanced diet). Hybrids also exist for programs with the potential to capitalize on both transactional and engagement elements.

What about the partnership opportunities?

One notable trend for CPG-based loyalty programs has been the use of a technology partner to try and address the issue of a manual reporting process for transactions or engagement opportunities. Traditionally, brands rely on a mechanism where the brand and the customer interact directly, through a “self-reported” transaction. This commonly exists as a purchase reported online with a code on the pack, or even returned in the mail. For an engagement-based program, this may just be interaction with content through the website. Occasionally, brands use a third party tool (white-labelled or otherwise) to try and facilitate transactions and make reporting from the members’ perspective even easier. Examples of this are seen with receipt scanning and promotion delivery.  In some cases, programs use a partner to ensure that interactions with the brand occur in an automated manner through either purchase information sharing or, for engagement programs, badging and gamification. On the purchase side, this could occur through a direct relationship with the retailer or through a purchase aggregator that is able to receive purchase information and pass it on to a third party.  Below, we highlight a few example brands with programs that fit into each of these respective designs/interaction methods.




So, how can a brand take steps to create an effective program?

In the end, it begs the question of how to best determine the type of program and utilize tools available for use. Here are a few pointers:

  • Map the program structure to what is likely to cause enrollment and participation:  A transaction-based program for a low value purchase is unlikely to drive high enrollment as there will be a cap on benefits received a year. Likewise, a program built on engagement for a product that doesn’t warrant any excitement or have any reason to engage will be ignored.
  • Consider the role of partners in your program structure:  The correct use of partners can help boost the program effectiveness. An entire plethora of partners exist, ranging from the retailers willing to share data (if the program is built around their distribution), third party apps, or content creators with a big member base and a connection to the brand. Even receipt scanning or automated purchase data aggregators can help enhance a customer experience by lessening the need to report transactions.
  • Build a mobile-centric infrastructure:  Microsites are useful, and they provide a member has access to all program content and details in one convenient fashion. However, unlike an eCommerce retailer where the customer is coming to the website to shop, there is no reason for a member to come to the CPG microsite unless it is to interact with the program. This naturally makes other more accessible channels, such as mobile apps, an ideal method of communication for the program. As technology advances and we start to see NFC chips in products, this will become even more relevant.

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Looking for more support with your CPG loyalty program?

At 500friends, we enjoy solving the predicament faced by CPG loyalty programs and the steps necessary to designing such a program. If you would like to know more about how we are able to do so, please reach out to me directly at adamji@merkleinc.com.


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