Loyalty pricing: what it is and how to apply it for increased customer loyalty
01/15/2025 - Price optimization
Customer loyalty is in jeopardy. Data concurs: Forrester states that 25% of traditional brand loyalty will vanish over the next few years. That’s not all; 40% of consumers are willing to switch their preferred brand for more affordable options, according to PwC’s Voice of the Consumer Survey 2024. It is therefore crucial to adopt strategies that ensure customers remain loyal. This is where loyalty pricing takes centre stage.
This article explores loyalty pricing: what it is, why it is crucial to your business success, and how to implement it using AI-driven Price Optimization Software.
What is loyalty pricing?
Loyalty pricing is a strategy that offers exclusive prices to repeat or loyal customers to reward their ongoing loyalty. According to FasterCapital, it involves offering preferential treatment to consumers who have already demonstrated their commitment to the brand.
Unlike discounts, loyalty pricing is customized based on the customer’s purchase history. It helps build a stronger relationship and ensures that price cannot be a reason to switch from their preferred eCommerce, brand, establishment, etc. Loyalty pricing offers optimal prices considering the profit margin and how much consumers are willing to pay.
Why is loyalty pricing important?
1. Counter loss of loyalty
As mentioned above, 25% of traditional loyalty will soon be lost. In these economically uncertain times and during inflation, users try cheaper alternatives. Therefore, offering special prices or promotions to the most loyal users helps protect that relationship and counteracts the trend of swapping out for more cost-effective options.
2. Make the most of hyperpersonalization
Hyperpersonalization is one of the key trends in retail. According to McKinsey, personalization can cut customer acquisition costs in half, and increase revenue by up to 15%. Loyalty pricing makes it possible to offer a shopping experience adapted to each customer, making them feel valued and understood.
One example is combining the power of data and AI to deliver fully personalized promotions that will help increase retention.
3. Improve the shopping experience
More than half of consumers say they will return to a brand that offers a positive shopping experience, both online and in-store, according to Publicis Sapient. Dynamic pricing personalized to each customer group enhances the experience and encourages repeat purchases.
How to apply loyalty pricing successfully
Implementing an effective loyalty pricing strategy requires proper planning and the right tools. Here are some key steps:
1. Segment your customers
Identify loyal customers based on their purchase history, frequency and spending amount.
2. Define personalized price levels
Offer different price levels depending on the degree of loyalty. For example:
- New Customers: Standard prices or welcome promotions.
- Recurring Customers: Moderate discounts.
- VIP Customers: Exclusive offers and special prices.
3. Use price optimization software
Price optimization is essential to implement an efficient loyalty pricing strategy. Reactev’s Price Optimization Software allows you to adjust prices according to customer sales history, competitors, market trends, demand forecasts and profit margin.
4. Analyze and adjust your pricing strategy
Measure the impact of loyalty pricing on your sales and customer retention; this is significantly easier with Reactev’s dashboard. Adjust the strategy according to the results obtained to maximize its effectiveness.
Benefits of implementing loyalty pricing
★ Increased customer retention: Loyal customers feel valued and less inclined to switch brands.
★ Differentiate yourself from competitors: Offering exclusive prices makes you stand out from competitors.
★ Increase in repeat sales: Satisfied customers tend to buy more and more frequently.
At a time when customer loyalty is having a wobble, loyalty pricing is a must-have strategy to keep your customers loyal. Implementing this technique with a price optimization tool like Reactev means you can personalize your prices, improve the shopping experience and ensure that price is not a reason to switch brands.
Category: Price optimization
