Cannabis industry reports

Loyalty Programs Pay Off: A Look at the Purchasing Habits of Loyalty Program Participants

January 17, 2020

Executive Summary

This report uses Headset data from customers participating in loyalty programs to examine their spending habits. We examine what people in these programs buy, how much they buy, and what categories they buy in. We also examined whether loyalty programs actually create loyal (i.e. repeat) customers.

Introduction

Loyalty programs have become an increasingly important part of the cannabis retail landscape. Nowadays, any dispensary worth its salt has one, and customers are encouraged to sign up as they check out. The idea is, of course, to build a repeat customer base, and to delight customers via loyalty-linked discounts and promotions.

But does it work? Do loyalty programs make a discernible difference in how people spend their money, or are they—like the ubiquitous grocery discount cards—an afterthought? Turns out, they do. Consumers in a loyalty program spend more, buy more items, and buy more expensive items.

That said, they do have their pitfalls. A loyalty program does not automatically create loyal customers, and plenty sign up for one transaction, only to disappear from the data. 

Loyalty programs are an interesting window into changing consumer behavior, and we hope this report will help retailers and general readers alike to better understand their use.

Methodology

Data for this report comes from real-time sales reporting by participating Washington State and Colorado cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. It also includes data from those retailers’ customer loyalty programs. The data in this report are from Washington State and Colorado in 2017. Those data are cross-referenced with our catalog of over 285,000 products to provide detailed information on market trends.

Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.

More Money, More Items

Loyalty customers spend more and get more. Baskets among loyalty customers are 35% larger on average than non-loyalty transactions. The average loyalty basket size is about $40, whereas non-loyalty consumers spend only $30.

This is driven by two factors: A slight increase in the number of items, from 2 to 2.2, and a significant increase in the average item price (AIP) of those items. AIP for items in non-loyalty baskets is $14.70 on average, which jumps to $18.41 for loyalty consumers. Though these increases might seem relatively slight, the effect is clear. For whatever reason—target discounts, already enthusiastic customers, or some combination of the two—loyalty programs lead to larger purchases.

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Basket Trends and Analysis
Top Selling Products
Purchasing Patterns
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Segment Analysis
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