This type of business model belongs to the “rare but significant” category — there aren’t many such publishers in the affiliate network, but they’re big ones that get impressive results. Here we’ll tell you how loyalty programs work as publishers.
This article will explain:
- What a loyalty program is
- How a loyalty program can be combined with CPA
- Features of CPA loyalty programs
- Some statistics
Let’s get started!
What a loyalty program is
A loyalty program is a kind of club for people who like a particular store or service. For a participant in the program, it works like this: a user has a special account (tied to a loyalty card for a store or to a personal account) for accumulating points. The store can award points for any actions it wants. For example, a user might:
- Buy from the store itself
- Buy from affiliated stores
- Pay for purchases using a card from an affiliate bank
- Participate in the store’s or its partners’ deals
- Join the store’s group on a social network
- Leave a review on the store’s site or an independent marketplace/review service
- Invite a friend to become a customer of the store or service
- Any other action that encourages existing customers’ activity and attracts new ones
You have a loyalty card for Grocery Store N. The loyalty program works like this: for every $100 you spend in the store, you get 10 loyalty points that can be exchanged for a 1:1 discount (i.e., a $10 discount on your next purchase). If the customer spends $1,000, they can save $100 on their next purchase.
The customer can accumulate points for future purchases and exchange them for discounts or prizes. The store sets the exchange rate for loyalty points based on what discount it’s ready to offer users in the future in exchange for their “brand loyalty.”
Points might be called simply “points,” or “bonuses,” or “miles” (for airlines). The basic idea doesn’t change: the more users spend in the store and its affiliates now, the less they’ll spend in the future, and the more bonuses they’ll get for subsequent purchases. This gives the loyalty program a gamelike quality: customers try to complete a quest by getting as many points as possible. They pay less attention to how many points they’re spending now. Their goal is to spend less in the future.
The number of points can vary depending on what action the user completes. For instance, when paying for an order with a card from Bank X, they’ll get 5 bonus points, but they’ll get 10 if they use a Bank Y card, since Bank Y is an affiliate of the store. They might get a $1 bonus for every $100 they spend and 50 points for every review they write.
A loyalty program decreases the amount the store will receive from the customer in the future, but it stabilizes the income flow: the customer will come back to the store more often and choose it over competitors, all else being equal (“I’ve got a lot of points and a discount waiting for me here—why go somewhere else?”). What’s brilliant about this is that even if a competitor is offering the product for less, the user will still go to the store where they’ve been accumulating points. That’s where loyalty comes in.
How a loyalty program can be combined with CPA
An obvious question arises when a loyalty program is being developed: how to make sure that discounts and bonuses don’t exceed profits and that customers’ LFV (lifetime values) always remain positive. Naturally, stores will try to make the program as generous as possible for customers in order to secure their business, and users will try to maximize their discounts, making their subsequent purchases smaller and smaller.
To make up for portion of the discounts, stores get affiliates involved, trading customers with them. If this affiliate scheme works under CPA, the loyalty program will be a traffic source for the affiliate advertiser. Here’s how it works:
- Store X displays a set of offers from affiliates on its site. For each offer, it indicates how many loyalty points a customer can get for making a purchase from the affiliate. Let’s say every $100 spent on an order from Affiliate Y brings the user 10 bonus points that can be exchanged at a rate of 1:$1. Store X, which launched the loyalty program, makes this decision.
- Affiliates use a CPA approach and are advertisers in the affiliate network. Affiliate Y pays the publisher (our loyalty program is, after all, a publisher) a 10% commission on orders placed using the affiliate link.
- A user goes to the site of Affiliate Y from the loyalty program page and places a $1,000 order. They thus earn 100 points, which translates into a $100 discount under the loyalty program of Store X.
- Store X brings Affiliate Y a $1000 purchase, for which the latter pays it $1000 * 10% = $100. This is Store X’s revenue as a publisher.
- And so it turns out that when the user places another order with Store X, its profit decreases by 100 discount dollars, but the $100 earned under CPA cover that amount. Store X ends up just breaking even and gets the customer’s loyalty.
The situation is ultimately win-win-win: the customer benefits, and the store and affiliate get a quality lead.
Features of CPA loyalty programs
This method of securing users is suitable for stores and services that meet everyday demand (food, communications, filling stations), as well as for expensive goods and services that are used repeatedly at intervals (for instance, air travel). This is natural: you need to have something to offer so that users have something to earn points on.
The more often users place orders with your store or use your services, the more competitive your loyalty program will be, since its main goal is to stabilize the flow of repeated purchases and tie the user to your brand. The same is true for expensive (not necessarily luxury) goods. Remember: your CPA loyalty program will be competing with similar programs and needs to have value for the user (just like your products) even without points from affiliates.
You decide what partners you want to work with. You can exclude competitors or choose brands that offer complementary products (for instance, a filling station’s loyalty program can work with advertisers that offer items for cars). Nonetheless, experience shows that it’s better to connect as many advertisers as possible in order to put together a “portfolio“ and diversify your sources of revenue.
When working with affiliates using CPA, it’s also important to monitor how relevant their offers are: rates change, bonuses appear, and you need to monitor the figures and adjust the terms (without forgetting to notify your users). Also, if turnover is high, you can try to have the affiliate advertiser raise the rewards for your program, allowing you to offer customers bigger bonuses.
We’ve compiled statistics for top Admitad loyalty programs for the past three months. Below you’ll find average figures generated by our analysis. We analyzed the popularity and revenue of various categories in which affiliates (advertisers) work, as well as the average earnings you could get from one purchase in each category.
We see that the majority of point-collection takes place on Chinese marketplaces: they account for over 80% of all orders from affiliates. In second place are digital and household appliances purchased from local players (a total of 6.8%), followed by clothing and shoe stores (both single-brand stores and hypermarkets).
If we look at how much loyalty programs earn from affiliate programs, the situation is pretty different: true, products from China are still in first place thanks to high turnover, but their share totals only about 40%. The reason? Low rewards and low average orders. That’s why Chinese products are being overtaken by clothing and shoes (17%), appliances (15.8%), and food and grocery delivery (11.9%).
If we look at how much one purchase on an affiliate’s website brings a loyalty program, we see that the greatest revenue comes from sales of music systems and accessories (often jewelry and watches). Goods from China bring the lowest revenue per purchase (but we’ve already seen that they generate the greatest turnover overall). This figure can be taken into account when the bonus scale and the exchange rate for points are calibrated.
Keep in mind that these figures represent the average for multiple advertisers (there can be more than ten in a category). Also note that data is given for 15+ loyalty programs, and revenue and number of completed actions are distributed a bit differently for each, in different ratios. However, these average figures are still realistic, and you can let them guide you when you launch a program. In any case, the first thing you look at should be the figures of each advertiser you’re working with. That way you’ll be able to manage demand and your revenue from affiliates.