Nothing compares to the euphoria of acquiring a new customer. For a long time, marketing departments focused heavily on messages and also product positioning in order to attract new customers to their brands. However, while generating new leads will always be a part of the job, it is equally important to convert existing customers into returning customers. According to surveys, it costs at least six times as much for businesses to acquire new customers as it does to keep an existing customer. As a result, investing in loyalty programs, as well as the digital technologies and platforms that support them, should be a growing priority for any brand.
Customer loyalty programs are more than just discounts and promotions. They use the customer’s purchase history and data to show well-timed and relevant offers, and they improve the overall customer experience. Businesses can also increase their customer base and offer more appealing rewards by forming innovative partnerships with companies that operate in a related industry.
Today’s article addresses some of the most common types of loyalty programs, as well as some examples of them. But first, let’s go over some basics.
What is a loyalty program?
A loyalty program, by definition, is a marketing strategy that recognizes and rewards customers who buy something or interact with a brand on a regular basis. A company may award points or benefits to customers who purchase more and promote them to higher levels of loyalty. These incentives frequently result in customers returning more frequently or, better yet, becoming brand advocates. Benefits can include free goods, rewards, coupons, or advantages such as early access to new products.
Companies can, however, exercise caution when giving away free items – but this is a low-cost strategy. Norbert Schwarz, a psychologist, discovered that spending as little as a penny can create reciprocity between two people. According to studies, members of a loyalty program or customer club spend up to 18% more than other customers.
Including a small extra product or service for free with a purchase is a great way to reassure the customer that the purchase they just made was a good decision. Everyone enjoys receiving things for free. And every dollar invested in a customer club is likely to yield several times that amount in return. When a customer leaves a company, that source of income is usually lost forever. “95% of customers say trust in the company increases their loyalty ” Trends in Customer Trust Report | Salesforce Research.
According to surveys, 95 percent of customers believe that trust in a company increases their loyalty. Furthermore, studies show that 91 percent of customers say that their trust in a company increases the likelihood that they will shop there more frequently.
Why are loyalty programs important?
Customer loyalty programs have the following advantages:
- Better customer retention: Today, customers make purchasing decisions based not only on price, but also on shared values, commitment, and their overall experience with your brand.
- More customer testimonials and reviews: If your customers enjoy the benefits of your loyalty program, they will tell their family and friends about it.
- Cost-effectiveness: It is more cost-effective for your company to retain satisfied customers than it is to regularly try to create and win new ones.
- User-generated content: Programs that encourage satisfied customers to leave reviews and ratings on websites and social media platforms create credible brand advocates.
How to build loyalty during each step of the customer journey
So how can your company create a better customer loyalty strategy?
Customer loyalty is a valuable scarce resource. If a competitor makes a better offer, your customers will accept it, even if they have previously had a positive experience with your brand. According to the second annual report “State of the Connected Customer“, 57% of customers have stopped buying from a company because a competitor offered a better customer experience.
As a result of my decades of marketing and sales experience, I am convinced that developing a customer-focused corporate culture begins long before implementing a loyalty program. For example, it is critical for businesses to develop customer service that connects with customers through multiple channels, such as contact centers, social media, and in-store interactions. Companies should establish credibility through personalized customer interactions in which previous interactions between the customer and the company are accessible for customer service. It is also a good idea to provide added value to customers by inviting them to an online community for the product, for example.
In any case, a well-designed customer loyalty program will contribute to the brand’s relationship with its customers. However, keep in mind that what drew the customer in could be the offer of an additional benefit at the point of sale.
While a customer is on board, you should aim to gradually gain momentum with the goal of establishing a lifelong relationship. This usually entails giving the customer multiple ways to maximize their loyalty rewards. You will also send them intelligent and targeted communications to commemorate their “milestones” with the brand and to meet their specific needs and preferences.
A new focus on the customer experience for marketers
As loyalty programs form the connective tissue that drives the customer experience, what I have seen is that the role of marketing departments is changing. Marketers used to be in charge of product positioning, messaging and advertising, and social media posting. However, many companies are now shifting their focus to managing the customer journey and focusing on customers who have already had contact with the brand.
If the future of marketing is a radical transformation in which marketers become the ones who build bridges between different experiences – from first contact to sales and customer service – then it is critical to create a common view of the customer for all departments within the organization. Marketers are increasingly tracking customer data and are aided by rapidly evolving tools such as artificial intelligence (AI) to gain necessary insights and understand the data.
Furthermore, dedicated customer loyalty platforms allow businesses to manage the customer experience after the sale. This type of software can help businesses track key metrics like customer loss, response rate, and retention, allowing them to assess the effectiveness of loyalty programs and learn what customers think about the company in general. So, investing in either developing such software or hiring a third party is important if you want to collect the necessary data to help you build an effective marketing strategy.
Important metrics for customer loyalty programs include:
Retention of customers: This demonstrates how long customers stay with your company. This figure should rise over time in a successful loyalty program as the number of members increases.
Negative customer loss: If the frequency with which customers leave the company is measured as loss, negative customer loss is a measure of customers who do the opposite by upgrading or purchasing additional services.
Net Promoter Score: This is a customer satisfaction metric that assesses, on a scale between 1 to 10, how likely people are to recommend your company to others.
Customer Effort Score: This metric measures the actual experience, specifically how much effort a customer must expend to resolve a problem with a company.
What are some of the best loyalty programs?
The most basic type of loyalty program gives customers greater rewards the more they buy from, say, a retailer, or the more frequently they visit, say, a restaurant. Examples include airline bonus programs and initiatives used by some hoteliers to reward guests who frequently stay at their hotels.
Becoming a paying member of Amazon Prime is essentially pledging allegiance to them, and as a result, you receive benefits such as free shipping and streaming. Fashion retailers such as the Banana Republic have a program in which credit card members can be upgraded to “Luxe” status, which allows them to make free changes and provides other benefits after a certain amount of money is spent. This provides them with advantages such as free shipping for online orders and the ability to select any day when they receive sale prices on the products.
How to start a customer loyalty program?
Here are some pointers I’ve gathered to help your company launch its own loyalty program.
- Create a points system – but make it simple: allowing regular customers to earn points that can be converted into rewards is an essential component of a customer club. This works best for quick, low-cost purchases at retailers in the fashion or food industries, for example. It is critical that the link between points and physical rewards be as simple and intuitive as possible.
- Offer rewards in levels: a leveled loyalty program typically provides a small incentive for the customer to make the first purchase. The value of the rewards increases as the customer progresses through the levels. This type of program works best for things that cost a little more and have only one option, such as airlines, hotels, and insurance companies.
- Charge entry fee: it might be a good idea to ask customers to make a one-time payment that allows them to avoid common roadblocks later on. The membership fee for Amazon Prime, for example, enables subscribers to make frequent, repeated purchases without having to worry about things like taxes and shipping.
- Collaborate with another company: consider other companies that would be a good fit. For example, if you sell hiking backpacks, you might want to consider partnering with a company that sells hiking boots to create a loyalty program. When customers receive something of value and relevance to them that is outside of what your company can offer on its own. It demonstrates that your company truly understands and cares about the needs of its customers. Companies can also expand their networks to reach the customers of their partners. Companies with several brands can also have a common program for these.
- Offer clear rewards: a bonus for purchasing a company’s product does not always have to be a discount on a future purchase. Customers who spend a certain amount of money may be eligible for free event tickets or subscriptions to other products and services. Also, keep in mind that two-thirds of customers are more willing to invest in brands that take a stand on social and political issues which are important to them. Customer clubs can capitalize on this feeling of altruism by stating, for example, that a certain percentage of each purchase will be donated to a specific charity.
- Invent a unique name: to attract interest, the name of your customer club should stand out from the crowd. For example, Sephora’s customer club VIB put a fun spin on the term “VIP” (Very Important Beauty Insider).
Starting a business isn’t just about making customers happy with the first purchase. It’s about encouraging them to return and continue purchasing the products that drive your returns – and then telling and inviting new loyal customers. Customer loss is not cost-effective, but on the other hand, returning customers do spend more – and spend more frequently. They also recommend you to their friends and coworkers, which is priceless.