Reward Program Strategy

Buying or Making a Loyalty Program: Making the Right Choice

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Make or buy, buy or make? This is a question that is asked by every corporation evaluating a loyalty program. Is there a right answer?

making a loyalty program versus

The decision to make or buy a loyalty program is not one that can be answered with 100% certainty for every company. There are pros and cons to each that need to be considered before making the final decision.

In this post I will share with you my thoughts on when each is the better choice, and the answers might surprise you!

 

Making a Loyalty Program

When I say making/building a program, I am talking about having your development team custom code one for you or using a provider who will build a custom one for you.

making a loyalty program pros

Making a loyalty program often seems very appealing! When you are looking for something very specific it is often easier to ask someone to make it than it is to go out and find it. Building a loyalty program gives you customization that allows you to accomplish very specific things.

Say your company sells clothing that supports anti-bullying campaigns. Your ideal loyalty program rewards your customers for making purchases, sharing your store on social media, referring friends, and writing an anti-bullying message that is posted to a specific page.

making a loyalty program desired rewards

This exact program could be built from scratch and check all the boxes you need. However, even though you might be thinking “great let’s get started”, there are some other things to consider when you take the “make” route.

making a loyalty program cons

While you may be able to get exactly what you are looking for, you have to evaluate the cost of that customization. Not only is there the actual dollar cost of implementing this custom program, but there is also a time cost.

Let’s start with the obvious cost. When you look to get something custom-made, it will no doubt cost you more. This is because it is more expensive for you to build one (man hours, testing, servers, etc…) than it is to use a solution from a loyalty provider.

making a loyalty program buying component

It is slightly less expensive to get a loyalty provider to make you something custom, but they are also doing a one-off project that they will need to get compensated for. Think of it like getting a custom suit or dress made. These providers will be faster than you but it will still take time, which creates an opportunity cost.

The longer you take to get a loyalty program launched the more potential revenue you are losing. This is because a loyalty program creates an increase in key metrics like average order value and purchase frequency. At Smile.io, our programs usually generate a 28% sales lift through retention.

making a loyalty program losing profits

Let’s look at an example.  In this scenario a store with $1 million in revenue (chosen for simplicity) is potentially missing out on $280,000 by delaying the launch of a loyalty program by 1 year. That means that on top of the cost of building your custom loyalty program you are also missing out on $23,500 each month your program is under construction.

making a loyalty program losing profits monthly

These are the costs you need to think about when you are looking to create a program that has very specific needs/requirements.

 

Buying a Loyalty Program

On the flip side you can start a program using a tool that allows you to easily create a program out of the box.

Buying a loyalty program refers to using a loyalty providers ready to use solution to create a program for your business.

making a loyalty program pros

The biggest pro of this type of solution is the speed at which you can implement it. Smile.io (to pick a completely random example) can be up and running after anywhere from 1 day to 5 weeks. Obviously these solutions cannot include all the options that a custom-built program can, but that is where you need to weigh the cost and benefits.

Let’s go back to that hypothetical program from before. If that store were to buy a loyalty program, what concessions would they need to make to the functionality of their perfect program.

making a loyalty program buying less rewards

In the case I illustrated above, they would be able to do everything they wanted with a bought solution except for rewarding points for anti-bullying messaging. This then becomes a question of whether that feature warrants a longer implementation time and higher cost.

A bought solution will always be cheaper and faster than building something custom for your business.

making a loyalty program buying cons

I am sure you can guess what the cons are here. You lose customization and must build within the framework the loyalty tool provides.

This is usually not as big of a deal breaker as many might think. Loyalty solutions you can buy have implemented countless programs.  As such, they’ve seen what works and what doesn’t. The ways you can reward your customers with these solutions have been proven to be effective.

making a loyalty program buying effective

Better yet, these solutions may actually help you avoid over-complicating your program and ultimately lead to better customer adoption and program effectiveness.

 

Which is Best for You?

A custom program always looks more appealing when you first begin to evaluate loyalty solutions, but you need to realize it comes with a monetary and opportunity cost. On the other hand, buying a program will always be faster and cheaper but you need to decide if it will work for you.

The best way to decide which is best for you is to map out the functionality of your ideal loyalty program. Once you know what you are looking to build, reach out to loyalty program providers to see which components are possible with their solution (we’re nice people, you can ask us).

making a loyalty program next steps

Once you know which components of your ideal program are not possible with a bought solution, you can begin to weigh the cost/benefit of including them. You need to ask yourself if the added time and money of building this program is worth more than proceeding with the one that is possible.

The bottom line is that it is almost always a better idea to buy a program than it is to make one in house. These loyalty providers have much more knowledge and experience in the space, and will be able to help you create a better program in less time.  If those aren’t selling features, I don’t know what is!

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