Until a few years ago, gaining customer loyalty wasn’t much of a hassle – you create an incredible product, market it, offer good customer support, and DONE. You have just got a loyal customer base.
However, technology is leading, and everything going digital has made customer retention strategy harder than ever.
Customer loyalty programs have evolved from passive retain and reward tools to a crucial component of the engagement cycle and customer experience. That’s why almost 63% of high-performing marketers have already employed such programs.
Read on to learn how loyalty programs are critical to your brand’s success and how you can turn your customers into loyal brand advocates.
Table of Contents
What is Customer Loyalty?
It’s a customer retention marketing strategy that acknowledges and offers rewards to customers who buy and engage with brands regularly.
A brand might dish out incentives, points, and even graduate customers to higher levels of loyalty. This, in turn, lures customers to buy more frequently, or ideally may become brand advocates.
Incentives include:
- Early access to new products
- Coupons.
- Rewards
- Free merchandise
Although businesses are a little cautious when giving off extras, it’s a tactic that doesn’t have to be costly.
What’s more, loyalty programs’ members spend almost 18% more than ordinary customers. Probably you are thinking about how the investment vs. the perk will play out. Every time a business increases its customer retention rate by 5%, profit will boost by almost 95%. That’s because 91% of the customers report that trust in a brand encourages them to buy more often.
Importance of Customer Loyalty Program
The primary function of the customer loyalty program is to retain customers and boost revenue. The program also increases the company’s market share by 20%.
Here’s what you need to know that why it’s imperative for brands to invest in customer loyalty programs:
- Loyalty Program helps Businesses Plan Effectively Such programs aim to work on customer retention and allow brands to predict growth in advance, thus assisting in financial planning. The marketing team uses purchase history and customer data to identify loyal customers who can be relied upon, making it easier to plan ahead of time depending upon the budget.
- Retaining an Existing Customer is Cheaper than Acquiring New Customer. According to research, getting a customer for the first time is almost five times more expensive for brands than retaining a loyal customer. Strictly put, it’s a good idea to keep persuading existing customers than to lure new customers onboard.
- Repeat Customers Spend More on Holidays. Everybody loves shopping during holidays, but repeated customers tend to spend more during vacations.
- Loyal Customer Buy Regularly. Customers are more likely to return after a positive customer experience with a brand. Furthermore, their likelihood of buying more in the future increases as they make more transactions.
- Loyal Customer Bring Higher Conversion Rate. Did you know that an already existing customer base brings more conversion rates than new customers? Yes, on average, the old customers have a conversion rate of around 60% to 70%, while of a new customer is only 5% to 20%.
- Repeat Buyers Spend More than First-Time Buyers. Existing customers have much higher AOV (average order value) than the new ones. Average Order Value is a metric that shows how much a customer on average spends each time they shop with a brand. It’s critical as the brand is boosting revenue with zero acquisition costs. Also, it’s easy to persuade existing customers to add a few extra bucks to their order than to convince the new ones.
6 Steps to Create a Customer Loyalty Program
Here’s how you can develop a winning customer loyalty program:
Step# 1 Study Your Current Customers
Following things should be the top priority while studying the customers:
- How often does this customer buy from the brand?
- How much does he buy in a year?
- What kind of products does he buy?
- How long has he been the customer?
- Can you sell other products to him?
- Does he use any other suppliers? If so, then why?
- How much profit do you make when he shop with you?
- How fast does he pay?
- What can you do to improve the business relationship?
- How much satisfied is he with your service?
Step# 2 Prepare Your Customer Loyalty Program
First and foremost, you should assess customers’ level of satisfaction via different strategies such as reading customer comments, interviews, and surveys. Then, work on identifying employees who are good at customer dealing. And, finally, target those customers who frequently buy from your brand and could be more profitable in the future.
Step# 3 Seat Goals & Measure them with CRM
Be clear from the start and set your goals accordingly. For instance, if your customer purchases 4 times a year, then try to set a goal of 4.4 per year. This will lead to a 10% increase in sales with a few other expenses. Also, you can use CRM software to manage your sales goals.
Step# 4 Define Budget
A brand should set a separate budget for customer retention and acquiring new customers. You can do so by considering the brand’s industry average. If you are aiming for growth, you need to increase the budget.
Step# 5 Decide Which Customers to Target
Brands may rate their customers as A, B, C based on the evaluation criteria that are tailored to the brand’s objectives and needs.
- Speed of payment.
- Customer loyalty.
- Customer profitability.
- The volume of purchase.
- Ability to buy more products.
Step# 6 Choose Strategies that Encourage Client Loyalty
Always pick loyalty enhancing strategies that are linked to customer’s orders as well as the quality of business relationships. For instance:
- Monthly visits from the sales representative.
- Lunch and annual visit with the sales VP (vice president).
- Personal invitation for dinner and seminar by the president.
- Guaranteed 24/7 premium support.
- Secure access to website and emergency hotline.
- More discounts upon reaching the purchase milestone.
- Sponsor an annual event.
How to Measure Customer Loyalty
As with any loyalty program you implement, there should be some metrics to measure success. Customer loyalty programs are supposed to increase retention rate as well as customer happiness, but there are tools to measure it aside from smiles.
Here are some key metrics for customer loyalty programs:
- Customer Effort Score. CES (customer effort score) measure the experience of the custom; particularly, asking customers the effort they have to put forth to resolve a problem with a brand.
- Net Promoter Score. It’s a customer satisfaction metric that measures on a scale of 1-10, a degree to which your customers recommend your brand to other people.
- Customer Retention Rate. It’s a rate that shows a customer’ association time with a specific brand. If you have a good customer loyalty program, this value will increase with a growing customer base.
Innovative Customer Loyalty Programs Examples
Here are our top 3 innovative customer loyalty programs:
DSW
DSW (or Designer Shoe Warehouse) has a long-standing point-based VIP loyalty program. Also, the customers earn rewards on a tiered system that customers can unlock as they spend more.
Moreover, the program runs without a hitch, and a part of convenience is that customers don’t have to remember loyalty cards. The company can recognize its customers by their phone number, payment information, and name.
However, automation of reward has a downside too; customers often forget about the loyalty program meaning, they would spend less now. Designer Shoe Warehouse had to do something to keep their customers engaged and remind them what they were missing on.
The company launched an email campaign in 2017 that mainly focused on personalized emails consisting of:
A picture of their association with the company, showing how long they have been the loyalty member, point statistics, and how much they have saved in the last 2-3 years.
How many points do they need to get their next $10-off?
Deals they are eligible for.
The level of personalization is what made the campaign so successful. Also, DSW’s loyalty program gave them access to customer information. The company used this data to its advantage to construct emails that are on point and hyper-personalized – something unique from other generic marketing emails.
Starbucks Rewards
Though retailers are now resorting to mobile apps to manage loyalty programs, Starbucks Rewards was the new idea when Starbucks first launched the app. It’s a star-based program in which customers have to download the app. Customers can run the program using the app – no sign-in is necessary, and no punch card to lose or forget.
Customers need to order from the app to earn loyalty stars. Moreover, unifying customer transactions this way creates a wealth of data on customer behavior and preferences.
The company can collect a goldmine of information on all things, including go-to drink orders, seasonal favorites, customer lifetime values, and more, by directing the customers towards its app, allowing the brand to offer more targeted incentives.
A loyalty app is a terrific tool for collecting data on the customer. Hence if a loyalty app is feasible for your brand – give it a shot!
Amazon Prime
Who isn’t aware of Amazon’s Prime membership program? Prime members get to enjoy unlimited free two-day shipping on millions of products, and other additional incentives, such as Prime Day Sales, for a flat annual rate.
Walmart is one of the biggest competitors to Amazon, as you can find almost all of the products here. However, Amazon’s Prime program does what it’s supposed to do; and this sets the company apart from others and persuades its customers to buy items from Amazon exclusively. What’s more, prime members spend almost four times than other Amazon customers.
Retailers operating in similar industries where prices and products are very much alike across competitors, chances are your customer loyalty program can stand out.
Consider Costco and other wholesale stores. Brands should give reason to their customer to shop with them exclusively by offering value in addition to their services and products.
Final Words
Businesses today are striving to gain customers’ trust as it’s not just about making the customers happy on the first sale; it’s about luring them to keep coming back that drives revenue and boosts sales. Over the last decade, customer loyalty programs evolved as effective revenue-driven marketing strategies to enhance customer lifetime value and improve customer retention rates.
