The Real Benefits of a Customer Loyalty Program
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In the competitive world of e-commerce and retail, it can often feel like loyalty doesn’t pay. However, when it comes to the customer, nothing could be further from the truth. Repeated engagement and commitment is profitable. One way to encourage customers to keep purchasing your goods and services is with a loyalty program offering substantial rewards. However, what type of loyalty programs are available, and would they help your business? Here’s a closer look at the nitty-gritty of customer loyalty and how to secure it.
What represents customer loyalty?
You’ve probably heard lots about customer loyalty in the past, but what do we really mean by the word? Moreover, why does it matter quite so much?
The definition of customer loyalty is when a customer returns to buy a brand’s products or services on multiple occasions. Of course, this may depend entirely on the nature of the product. If you’re selling cars, for example, you wouldn’t expect customers to be purchasing very frequently but their initial instinct to return to you first would be vital in defining their loyalty.
Loyalty arises based on multiple factors, not merely on getting the best deal. Good value is quite often associated with customer loyalty, but there is a psychological connection too. This may be because the customer was treated well by the company’s representatives on a particular occasion, or because they have a long history of purchasing there. Whatever the reason, this combination can be compelling and lead to fierce loyalty.
If you’re thinking that loyalty sounds like a lot of effort when you could simply be targeting new markets, you might want to consider the matter further. A loyal customer is worth far more than one who makes a single visit when you factor in the cost of the marketing.
The consensus is that loyal customers are extremely valuable. Compared to the amount you pay in marketing, and other incentives, a loyal customer is worth between 5x-25x more than one who engages only one time.
What is a customer loyalty program?
As you can see from the above stats, customer retention and generating loyalty is where the healthy profits lie. It’s essential to tackle this from various angles, including offering excellent service and good value for money, plus a customer loyalty program.
Not every business operates a customer loyalty program, but when it’s done well, it can be extremely beneficial for both parties. The customer feels valued while the business reaps the rewards of repeat purchases.
A loyalty program works by handing out rewards to customers who regularly buy from your business. The exact nature of the reward scheme can vary wildly from offering substantial discounts and free merchandise to coupons, monetary rewards, and even access to new products before the rest of the market.
The Air Miles program is one of the most popular types of reward schemes which originated in the 1980s. Current loyalty programs are commonly found in supermarkets who offer some points-based system of rewards. Some theatres provide loyalty programs too where regular theatre-goers and subscribers get notification of available tickets first.
Do customer loyalty programs work?
Customer loyalty programs have been criticized in some quarters as being nothing more than a gimmick and failing to offer customers anything of real value. Experts tend to disagree as research shows that rewarding customers properly for loyalty can be extremely beneficial.
The key word here is “properly,” as this is the one area where many businesses fail. If you want your loyalty program to perform, you need to invest in both the concept and its delivery correctly. The best plans can find a way to continuously remind customers about the benefits of remaining loyal while motivating them to do so.
The basis of loyalty programs and reward schemes sound somewhat dubious; for them to work, you have to accept that not all customers are equal. In a world where equality is king, this idea might sound preposterous. The key lies in knowing whom your valuable customers are and incentivizing them to keep returning.
Could a customer loyalty program work for you?
Customer loyalty programs are more naturally suited to some businesses more than others, but with the right strategic planning, they could deliver significant benefits.
If you can tick any of the following boxes, a loyalty program could work exceptionally well:
- You’re a business which attracts new customers every month
- You have several competitors in the market
- You operate in a niche market where the price is a priority
If any of the above three factors apply, a loyalty program could deliver big rewards for both you and the customer alike.
The full benefits of a customer loyalty program
We’ve mentioned above the extra revenue that a loyal customer can deliver, but here’s a quick run-through of all the potential benefits associated with a loyalty scheme:
- Keep your existing customers
- Attract new customers
- Encourage existing customers to spend more often or to a higher value
- Create brand influencers. These are customers who will do your advertising or marketing on your behalf, by word of mouth or social media
- Allow you to identify your most valued customers. This can then inform future campaigns or merchandising decisions
- Give you the cutting edge over the competition
- Cut back on longer-term marketing costs by streamlining the process using the data obtained.
To put a customer loyalty program in place properly takes planning and business acumen, but when executed professionally, you could enjoy all of the above benefits while keeping your customers happy too!
Additional References:
https://beyondphilosophy.com/customer-experience/customer-loyalty/
http://lexicon.ft.com/Term?term=customer-loyalty
https://hbr.org/2014/10/the-value-of-keeping-the-right-customers
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