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Just what is a customer loyalty programme – from the perspective of a customer loyalty consultancy? Whilst the specifics of each programme might vary, the base functionality remains the same. A loyalty programme is a marketing system which rewards customer’s purchases, thereby increasing the customer’s incentive to remain loyal to the business. A loyalty programme may offer discounts, credit, prizes, or any kind of other benefit which may win the loyalty of a customer.
Consumer loyalty programmes are proven to grow market share. Customers who are passionate about a brand are more motivated to keep purchasing and, are also incentivised to purchase a brand’s new products.
Despite this, even today there is a disconnect. Retail leaders recognise the value of customer loyalty programmes but few are doing anything about it. Lots of firms are running customer loyalty programmes that were developed years ago when customer expectations and the competitive landscape was very different. They simply don’t have get the full performance and ROI out of their loyalty programmes.
If you are not yet using a loyalty programme in your marketing strategy, or are unsure as to whether it’s right for your brand, the 10 reasons below should demonstrate how a loyalty programme can accelerate your business’s profitability.
Why do you need a loyalty programme and a customer loyalty consultancy ?
1. To Increase customer retention
The primary function of a loyalty programme is to keep customers by rewarding them for their repeat custom and purchases. In fact, Khan and Khan on their research, The Perceived Benefits of Customer Loyalty (2006) have claimed, “Loyalty exists when a person regularly buys from a business that he or she knows, likes and trusts.” In other words, a customer loyalty programme is a key tool to keep customers by giving them a strong motive to make a repeat purchase from the company – as well as ingraining repeat purchase as a habit.
There are several studies which have described the partnership between a loyalty programme and customer retention rate.
According to a report published by Annexcloud on the Statistics of Customer Loyalty in 2016, a well-implemented loyalty programme can accomplish the following:
- Loyalty programmes raise overall profits by between 5% and 10%.
- Participants in loyalty programmes spend, on average, 5-20% than non-participants.
- Loyalty programme participants make purchases 5-20% more often than non-participants.
The direct effect that customer retention strategies have on improving your bottom line is a well-established fact. An organisation with a 60% customer retention rate is churning twice as many customers as a company with an 80% retention rate. Boosting customer retention by just 5% boosts profits by 25% to 95%, according to the advisory company Bain & Co. Unsurprisingly, out of all the benefits of a loyalty programme, increased customer retention is though to be the most important.
2. They’re cheaper than you think
When some online marketers think of loyalty programmes, they begin to envisage a large volume of their existing resources being funnelled away into a programme that may or may not deliver results.
In reality, seeking new customers is actually the real resource burner – a February 2013 article in Forbes asserts that retaining an existing customer is seven times cheaper than winning a new one. Therefore, even the resources you use in developing a loyalty programme will certainly pale in contrast to the cost of winning new customers.
Depending on the scope of your loyalty programme, the initial outlay to set up a loyalty awards programme can be rapidly outweighed by the extra revenue generated by retaining your existing customers for longer.
3. They boost your reputation
Loyalty programmes have two functions: to incentivise new customers to remain after buying your services/products and, to ensure that existing loyal customers feel valued by the company.
Naturally, by launching a loyalty programme, you not only boost brand loyalty, but you also improve the odds that existing customers will share their delight with their friends, family and colleagues. The more a customer feels valued by a company, the more he or she is likely to remain loyal to that company and recommend it to others. This can have a significant increase in organic customer acquisition – the bottom line is that people trust recommendations much more than they trust advertising. Loyalty programmes decrease customer acquisition costs as well!
4. Rewards encourage purchases
Successful loyalty programmes have the capability to improve the average order value of each transaction. Customers value loyalty programmes because they offer added incentives for making a purchase which they were going to make anyway but by rewarding customers to make larger purchases, customer’s have an added reason to increase their basket size. A loyalty rewards programme can give you a greater share of your customers’ wallets.
This will only happen if the rewards you offer match the needs and desires of the customers who visit your business. It is important to mention that loyalty rewards programmes are unique to the business that operates them, and the incentives and rewards need to be well planned (and tailored to the business’s customers) to be truly effective.
Your rewards programme could attract customers to spend even more at a given time, but only if the reward you offer is worth it.
5. Drive business growth
Each type of loyalty programme can produce wildly different results but, as a marketer, you need to remember that loyalty programmes have been tested time and time again and have actually shown to be successful in many markets.
The “Growth Hacker” explosion – a recent group of marketing experts and business owners whose single goal is the growth of the business – started by utilising loyalty programmes as their model to expand their companies. These people assigned all of their energy towards growing their organisation and, subsequently, saw customer loyalty as one of the easiest means to ensure this result.
6. Improving customer profitability
One of the less considered benefits of loyalty programmes is that they let firms identify and drop unprofitable customers. A properly designed loyalty programme allows companies to segment consumers and uncover unprofitable and profitable customers. This enables businesses to focus their efforts on higher value customers that either purchase higher value items or make frequent purchases. Lower value customers can often cost more to service than the revenue that they generate so having a tiered and segmented approach to customer loyalty can drive substantial gains in overall business performance.
With a tiered loyalty programme, firms can reward more profitable customers and minimise the pay-out to unprofitable customers. Without a shred of doubt, this is one of the most efficient methods of maintaining the company’s most profitable customers without wasting money on the unprofitable ones.
7. Improving customer satisfaction
The benefits you give through your loyalty programme establish your company as the brand of choice because you are offering more value than just the product being immediately purchased.
By launching a loyalty rewards programme, you are sending a message to your present and future customer base that you are not just interested in making money from them but are interested in a long-term, mutually beneficial partnership. You offer services, products and benefits that are seemingly altruistic which increase trust and brand preference.
This act of goodwill will enhance the opinion of your customers, which will inevitably have a favourable effect on your business.
8. Benefits can be in-person and online
One of the most popular elements of a loyalty programme is that the rewards can be redeemed across a number of different channels. Loyalty rewards can also be accrued across multiple channels such as purchases made online, in person, or via a third party vendor. This offers the possibility of providing rewards to a larger pool of customers.
If the majority of your sales are online, it may be time to launch an online specific customer loyalty rewards programme. On the other hand, if the majority of your sales are face to face then an in-store focused programme would work better. There are multiple loyalty programme platforms available that can be used, depending on the business’s needs.
9. Gather market insights
By offering a loyalty rewards programme, you are conducting a kind of research study that will provide information on your customers. By experimenting and using a “Test, Learn, optimise” methodology, you’ll begin to see which incentives and rewards inspire your customers to purchase – and which fall flat.
This enables you to refine and deliver the rewards that are most valued. With this customer insight, you can selectively give the most popular rewards to increase sales on your most profitable products or services.
10. Once it’s set up it’s easy to keep going
Establishing a rewards system requires effort to set up. It needs a preliminary study to identify the best type of rewards programme for your products as well as calculating the value of the rewards you can afford to give.
However, once you have a rewards programme established, it practically runs itself. Because of the cyclical nature of rewards inspiring more purchases, rewards programmes often only require fine tuning once set up.
Continually updating the rewards will ensure your customers remain interested; however, the work it takes to manage this will be dwarfed in comparison to the return on investment that a customer loyalty programme can deliver to the business.
New Model Loyalty
The original model of loyalty is no longer effective for millennial customers. Points mean prizes no longer wins customer loyalty and, businesses need to adapt to retain customers. Loyalty programmes can still drive market share, but they must be easy to access, relevant to the industry, and also interesting to today’s digital consumer.
To be worth the investment, any decent customer loyalty consultancy will tell you that customer loyalty programmes need to engage the ideal customer and be built with a solid economic design (the loyalty business model).
So how do you do that? Begin with a strategy to develop your four top priorities for optimum results.
- Begin with the customer experience. An excellent loyalty programme will enhance the customer experience, but it will not make up for a poor one. Businesses need an accurate method of measuring the customer experience and getting it into a good shape in preparation for the loyalty programme.
- Utilise your data effectively. What separates a good loyalty programme from an excellent one is how it uses customer data. Businesses need use customer data to optimise all business activities, not just the loyalty programme.
- Change the rewards. Loyalty programmes have to have some consistency but, customers get bored with monotony. With the right (test, learn, optimise) strategy and personalisation, a loyalty programme can regularly introduce different and new rewards which benefit and delight consumers at a sensible cost. At the same time, running performance reports that outline rewards redemption will identify those rewards that are well received and those that aren’t – so you can continue to optimise the rewards programme to delight your loyal customers with more of the rewards that they love.
- First, design the business model. Before you fret about budget, determine what programme you want to make and create the business model from there. This will enable a lot more creativity when coming up with the initial financing and loyalty benefits.
Recognising what your consumers find valuable is essential – it’s not always about saving them the most cash. In a recent KPMG survey, 50% of the loyalty customers surveyed said they would do “nearly anything” to gain even more benefits in a programme. A customer loyalty consultancy will always prioritise getting data to help businesses understand their customers better.
The rewards programme has to be flexible. Customer preferences vary, so your loyalty programme has to change with them. In the survey, more than 80% claimed that they favour surprise offers or gifts to advanced sales notifications, special privileges, time-saving chances such as rapid checkout, and various other conventional programme rewards. A programme which provides regular surprises will likely see a spike in sales and also can be lower in cost if done right.
Businesses should think about a collaboration to make a loyalty programme much more cost-effective. Co-branded credit cards or partnering with suppliers to minimise product costs are just two ideas among lots of collaboration alternatives.
How to build a loyalty programme – step by step guide by a customer loyalty consultancy
Step 1: Set the Goals for Your Loyalty Programme
Without a goal, your loyalty programme will never get off the ground – set a concrete objective before embarking on your journey to guarantee that you reach your destination. These steps from a customer loyalty consultancy can help you start your loyalty programme.
Identify metrics that are easily measurable and will allow you to benchmark your progress – a customer loyalty consultancy can help with this. Figure out how much you want to improve your customer retention rate, average basket value, or purchase frequency to help keep your rewards programme on track.
Step 2: Determine Exactly How Customers Earn Points
After your goals are established, you need to calculate how customers will earn reward points. It’s exceptionally important to give multiple options for how your customers can gain points. This keeps them engaged and also motivates them to earn rewards based on their personal preference – keeping them motivated.
The most effective way to engage your customers in the loyalty programme is by offering rewards for actions that they would consider doing. There’s no point offering a reward for purchasing dog food to someone who doesn’t have a dog. What are they most likely to engage with? Just how do they connect with the business?
Reward your customers for the following to maximise the efficiency of your loyalty programme:
- Opening an account.
- Signing up to the customer loyalty programme.
- Celebrating a birthday.
- Buying – transaction value, volume and frequency.
- Engaging with your brand on social networks.
- Participating in a survey or offering feedback.
Step 3: Select how you will reward members
Selecting the rewards that you will offer is one of the most essential steps – the rewards are the main incentive for your customers to earn points (and the main cost to your business). Don’t make the common mistake of thinking that customers want to accrue points – benefits and rewards are what actually motivates them.
A customer loyalty consultancy can help you to offer customers a varied range of benefits to increase the chance that at least one will be desirable. Place yourself in the customer’s shoes: Would you be bothered by a loyalty programme offering a 5% discount to members when they run 20% off sales to the general public every few months? Probably not! A programme such as that would see very little return on investment.
Keep consumers motivated to earn points by offering benefits such as:
- Free items.
- Free shipping.
- Members only sales/discounts.
- Percentage price cuts on all products/certain ranges.
- Access to exclusive events.
- Exclusive content.
- Early access to new products.
Make your loyalty programme irresistible by providing rewards that customers cannot buy – so called “priceless rewards”.
Step 4: Determine how much a point is worth
How much a loyalty point is worth is a critical deciding factor in whether a customer will remain loyal or not. Points can be gained in a variety of methods but, if it takes 10 years and 50,000 points (£50,000 spent) to be able to buy anything, it’s not likely anyone will want to be a member of your programme!
The key is to strike a balance between the expense of points for you and also the value of points for your consumer. The best scenario is to have incentives with a high perceived value which have a low actual business cost. This will motivate customers more to earn points, redeem benefits, and stay loyal!
Establish the value of your currency at a reasonable equilibrium between the value to your customers and the uplift in revenue to your company. Remember, you actually want your consumers to be benefiting from the programme – that’s what will drive brand loyalty.
Step 5: Brand Your Loyalty Programme.
Branding your loyalty programme makes it feel linked to the rest of your business and makes it very easy to keep in mind for members. Create a loyalty programme with its own brand name (good examples being Nectar and Avios) and integrate it into all customer touchpoints to make it accessible and easy to promote to new customers.
Taking notice of these kinds of details will see that your customer loyalty programme is the one that stands out in your customers’ minds. Try using these strategies to keep your customers returning over and over:
- Use brand colours for the programme
- Give the points a catchy name
- Choose a memorable name for your programme
- Make sure that your graphics and copy match your brand’s aesthetic and tone of voice
Step 6: Make sure you promote the programme
Producing an explainer web page is a fantastic method of informing individuals about your programme. This standalone web page uses visuals and copy to show exactly how customers can earn and redeem their rewards and benefits in the customer loyalty programme. A calculator app is a smart approach that can allow people to see the rewards they could earn based on their daily/weekly/monthly spend.
As soon as you’ve launched your loyalty rewards programme, it’s highly recommended that you send out an e-mail to your consumers notifying them that you’ve launched. Because they currently have a passion for your brand, your existing customers will be an excellent start point to build up the membership for the customer loyalty programme. Making them aware of the value of your programme will drive sign-ups at a low cost.
Ensure your incentives programme achieves success by following these simple steps:
- Build an explainer web page which illustrates just how to make and spend points.
- Launch your programme and address all early customer feedback.
- Send out an e-mail to your consumers letting them understand you’ve released.
Step 7: Test, Learn, Optimise.
Customer loyalty programmes can help increase retention, average order size and customer referrals but they need refinement and fine tuning once they have launched to increase their performance over time. Working with a customer loyalty consultancy can help you plan the launch and implement a rigorous test, learn and optimise approach to fine tuning and accelerating the return on investment of your customer loyalty programme.
Testing your rewards programme will ensure that it’s optimised for your customers – and makes sure that there is always an incentive for them to return. Test, learn, optimise – customer loyalty programmes can be wonderfully creative and can deliver great results that really make the brand stand out in the market.
If you have launched your programme and are working with a customer loyalty consultancy, it’s important that you learn what your customers are responding well to (and do more of it!). Think of a loyalty programme like a building, you’ve laid the foundations, now you’ve got to work with the customer to build the rest of the house!