Is an open-loop loyalty program right for your business?

An open-loop loyalty program can work for companies of all shapes and sizes.

We've all seen and used loyalty programs offered by airlines, supermarkets and other multi-national corporates. Most of them have a similar model. Customers sign-up to earn desirable rewards, while the company collects data they then use for email marketing campaigns and newsletters.

There's no way small or medium-sized businesses could also offer something so sophisticated. Right?

Well, actually, that’s not really true anymore - because the emergence of a new type of loyalty program have suddenly given small and medium-sized companies the chance to run their own effective, rewards programs.

This article is going to outline the pros, cons, facts and reasons why open-loop loyalty programs are going to help small businesses fight back against the global giants.

What exactly is an open-loop loyalty program?

An open-loop loyalty program is a program where customers can use the same account to collect points at thousands of different companies.

From the point-of-view of the companies, it’s similar to a normal rewards program, but most of the risk has been removed. That’s because in open-loop loyalty programs, individual companies don’t need to pay for all of the associated costs of setting-up, maintaining and promoting their own stand-alone loyalty program.

All they need to do is sign-up to a small monthly subscription. Then they get all of the benefits you associate with a successful loyalty program, such as increased retention, increased revenue, more loyal customers - and access to valuable data.

What’s wrong with closed-loop loyalty programs?

There is one massive issue that nearly all loyalty programs have to face - they inevitably end up competing with each other. 

To illustrate this point, think how many loyalty programs you’ve signed up with over the last 10 years. Now, think how many loyalty programs you actively still use today?

If you’re like most people you have probably signed up to between 8-11 programs - and you are still an active member of just 2 loyalty programs. 

This is largely because the less you use a loyalty program, the less likely you are to hold on to the swipe card they gave you. Or re-install the app when you get a new phone. Or remember your password, when trying to sign-in on the website.

If your local coffee shop has a loyalty program that’s one thing. However, so does your local car wash. And your local cinema, and your gym, and the chain restaurant around the corner, as well as your airline, etc.

And all of these individual loyalty programs have a catchy name. And points, and tiers and rewards - and it just becomes too much to keep track of. 

In the industry, we call this the ‘Participation Problem’. And it’s a big deal.

What exactly is the Participation Problem? 

The Participation Problem essentially boils down to this: After the initial launch period of a loyalty program, participation rates will inevitably start and continue to fall.

This is because your customers are people. And people move away, people lose cards and phones, people change their minds and they lose their jobs. Most of them are always on the look-out for a better deal - and most importantly of all, people like new things. 

The only way for a closed-loop loyalty program to fight the Participation Problem is to spend money on promotions, or increase the value of the incentives. However, both of these options will start to eat into the profitability of the program.

Eventually, you’ll get to the point where your loyalty program is costing far more than the total accumulation of the benefits it brings in.

However, there is a new solution at hand...

How open-loop loyalty programs solve the participation program

When you join an open-loop loyalty program, instead of competing with everyone else’s loyalty program - you're actually working together with them. In fact, the more companies that join, the stronger the network becomes.

That’s because customers only need one account to save everywhere. So the single swipe card on their keychain, or the single app on their phone, lets them collect points and earn rewards everywhere. Even online, when buying from webshops.

Let’s take Mr Higgins for example. He’s married, in his mid-30s, with three kids, and he’s just moved out of the big city to a family home in the suburbs. On Saturday mornings he likes to take the family into town and stock-up for the weekend.

First stop is the baker, where he buys a loaf of brown bread, and swipes his card to collect points. Today he’s collected enough to get three free donuts. That's the kids sorted. Next stop the butcher, where he again swipes the same card and collects points. Same thing at the fish shop, the pharmacy and finally the florist, where he picks up some flowers for the wife. 

An open-loyalty program makes it easy for him to be constantly collecting points and earning rewards. 

Of course, if he has the choice between two similar companies, and one is a member of his open-loop loyalty program and the other isn’t, which do you think he’s going to choose?

Open-loop loyalty programs have a lot of other benefits too

Loyalty platforms give companies of all sizes and shapes the chance to enjoy the benefits of a loyalty program, with none of the associated set-up costs.

They can join an established platform, so no need to create their own identity or mechanics. No need to create new designs and communications. There’s no need to hire extra support staff.  

With millions of people using the platform every day, participation is guaranteed.

Making the most of technology

All of the transactions from loyalty members are automatically recorded by the platform, and a user-friendly dashboard lets you quickly see who your best customers are and how your program is performing.

From here you can create one-off marketing emails, or monthly newsletters. You can even segment your customers by giving them customer attributes. For example, a vet can include which type of animal each customer has - and then send different promotions to individual groups, such as special discounts to cat owners one month, and dog owners the next.

You can also use your data to create your own email list, then start sending a monthly newsletter to your best customers, letting them know about new stock, special offers and other industry updates. Newsletters like this can be an incredibly effective way of strengthening the relationship you have with your customers.

Extending an open-loop loyalty program for even better results

Once you have your open-loop loyalty program up-and-running, it's possible to fine-tune your program and make it work even harder.

Digital gift cards are a great way of increasing sales and introducing your company to a new audience. It’s even possible to include a widget on your home page, where customers can purchase gift cards directly from your website. 

Another example is setting up triggered emails, which are sent automatically when certain events happen. One popular example are celebratory emails with a special offer on customers' birthdays. Other examples include requesting reviews are the 5th visit, or offering a special offer if a customer hasn’t visited in the last 3 months. 

The future of loyalty programs is open-loop

Huge corporations, with enormous resources, will always be able to continue with their closed-loop programs - however even they will have to keep finding new solutions for the participation problem.

For small and medium-sized companies, open-loop programs are the obvious way forward. They provide all of the benefits - for just a small monthly subscription.

They also give these companies the data they need to compete with the corporations.

The open-loop loyalty program we offer is called Piggy and we currently have over 8,000 outlets and 2,500,000 users.

If you're interested in exploring how an open-loop program might benefit your business, arrange for one of our loyalty experts to give you a demo by clicking here.