Although the economy is in recovery, CPGs are still facing fierce competition from value-priced, “private label” store brands. Over 40% of Gen X and Gen Y shoppers purchase based on price rather than brand loyalty and therefore tend to choose private labels, according to a recent study by Acosta Sales and Marketing. 64% of grocery shoppers admitted that over half their cart contained private label products, Accenture reported last year. In fact the majority of US shoppers admitted that they really couldn’t discern a difference in quality between national and store brands.

In this environment, CPGs have their work cut out for them. Weekly coupon mailers and inserts have been effective historically, but while coupons may drive one-time sales, they don’t inspire loyalty. They inspire a thirst for deeper discounts, and can negatively impact brand image, as well.

Loyalty and rewards programs are also effective as a currency to drive consideration and continuity for both products and the stores that carry them – without negatively impacting margin or brand image. Customer rewards cards have become a regular aspect of our brick-and-mortar shopping experience, and most consumers are comfortable using them in exchange for the cost savings they offer. In fact, the 2013 Colloquy loyalty census reports that there were 2.65 billion loyalty memberships in the US by the end of 2012, a number that grew by 26.7 percent since 2010. Additionally, and importantly, customers are also becoming more comfortable with receiving communications from these programs, which opens up a wealth of opportunities for one-to-one engagement and relationship building.

Online points programs, the newest addition to the loyalty market, have also proven effective at driving in-store sales without taking a significant chunk of the bottom line. Many CPG brands have found them more effective than coupons at driving in-store purchases, particularly since points often have an actual dollar value for consumers. Chris Tuleya, VP at Underscore Marketing reported that a CPG client was able to craft an offering that motivated consumers to purchase their product at a particular convenience store because the value of the points exceeded the price of the product. The campaign was still profitable for the client, as rewards points are far more cost-effective than couponing.

Outside of the threat of private labels, the CPG market is crowded and fiercely competitive. Consumers have a lot of choice and once one brand offers a new product or feature, the rest will follow suit, so it can be difficult for them to outsell one another. CPG brands are in a unique position to set themselves apart from their competitors by not just offering new products but by actually connecting with consumers on a regular basis via rewards programs. And the benefits of those programs can’t be denied – According to the Center for Retail Management at Northwestern University, about 12-15 percent of a business’s most loyal customers contribute 55-70 percent of the company’s total sales.

Brands and retailers that participate in loyalty and rewards programs essentially partner to deliver customer benefits that directly translate to sales for them both. Retailers are, in most cases, the distributors of rewards cards, and tend to do the heavy lifting when it comes to communicating with loyalty members, but brands that those retailers carry also receive the benefit of increased awareness and engagement with new customers. But to maximize that benefit, it is important for brands to stay in the loop on rewards program communications from the retailer and leverage those conversations to strengthen their customer relationships and brand affinity.

The additional benefit of the loyalty or rewards program for CPG brands is the data and insight into customers’ needs, wants and buying patterns that can be used to not only determine performance but also develop new products, more targeted offers and better customer relationship management. That is something that coupons cannot provide.

Ultimately customer rewards programs can encourage the same shopping behavior as coupons, but the benefits to brands with regard to engagement and insight are much better, and do not carry the same negative brand impact that coupons do. Moreover, consumers enjoy the choice and continued benefits that rewards offer – and are receptive to communications about these programs. Brands and retailers that   participate in these programs have an opportunity to build strong relationships with their audiences.