Why loyalty matters – A customer loyalty consultancy perspective

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Just what is a Loyalty programme, then? While the specifics of each programme might vary, the base functionality remains the very same: a loyalty programme is a marketing system instituted by a company that rewards purchasing practices, 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 that would 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.

Yet even today, there is a disconnect. Retail leaders recognise the value of customer loyalty programmes, but few are doing something about it. Lots of firms have just played with programmes that were developed years ago when customer expectations and also the competitors were a lot different. They simply don’t have the means to measure how their loyalty programmes are commercially performing.

If you are not yet using a loyalty programme in your marketing mix, or are unsure whether it’s right for your brand, the 10 reasons below should demonstrate why a loyalty programme is the way forward.

Why do you need a loyalty programme?

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 (2006) have claimed, “Loyalty exists when a person regularly patronises a particular (store or non-store) that he or she knows, likes and trusts.” In other words, the customer loyalty programme is a 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. One European research paper found that a Dutch financial services company’s loyalty programme was responsible for approximately 10% of the variation in customer retention and market share.

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 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 likely the most important.

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 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 likely 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 might or might not see success.

In reality, seeking new customers is actually the real resource burner; a February 2013 article in Forbes asserts that retaining an existing customer is 7 times cheaper than getting a new one. Therefore, even the resources you use in developing a loyalty programme will certainly most likely 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 from your existing customers.

3. They boost your reputation

Loyalty programmes have two functions: to incentivise new customers to remain after buying your services/products, and to guarantee that existing loyal customers still feel as if they are valued by your company.

Naturally, by instituting a loyalty programme, you not only boost customer appreciation of your business, 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, in turn, carries on through word-of-mouth in a cyclical nature that continues to drive business profitability and expansion.

4. Rewards encourage purchases

Both digital marketers and company owners take great pleasure and pride in running successful loyalty programmes, because they have the capability to improve customer retention for specific functions. Customers value loyalty programmes because they offer added incentives for making a purchase which they were going to make anyway, with the incentives growing linearly (or even exponentially) with larger basket sizes or depending upon the value or segment of the product purchased. As a result of this, utilising a loyalty rewards programme in your marketing mix can drive ancillary revenue and give you greater share of your customer’s wallets.

This will only happen if the rewards you use 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 it takes a well planned and executed programme to be truly effective.

Your rewards programme could attract customers to spend even more at a given time, but only if the motivation 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 saw customer loyalty as one of the easiest means to ensure this result.

6. Improving customer profitability

One of the less regularly 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. It assists them in leaving the consumers who only make purchases on reduced items and also those who predominantly purchase standard over premium products. These customers can often cost more money than they make.

With a 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 method to maintain the company’s most profitable customers without wasting money on the unprofitable ones.

7. Improving customer satisfaction

The benefits you give in your loyalty programme establishes your company as the brand of choice because you are offering more than the benefit of the product being immediately purchased.

By carrying out 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 and products, and benefits that are only for the customer’s benefit.

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 parts of a loyalty programme, for both the customers and businesses, is that, depending upon the techniques, the rewards can be given for purchases made online, in person, or both. This offers the possibility to provide rewards to a larger pool of customers.

If you notice that the majority of your sales are online, then improve your internet rewards system; on the other hand, if the majority of your sales are face to face, an in-store focussed programme would work better. There are multiple programme platforms available that can be adapted to suit your 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 deliver the rewards that are most valued. With this customer insight, you can also leverage the most popular rewards to increase sales on the most profitable products or services.

10. Once it’s set up it’s easy to keep going

In reality, 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 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 your company’s growth.

New Model Loyalty

The original model of loyalty is no longer effective for millenial customers. Points mean prizes does not win customer loyalty and businesses need to adapt to retain customers. Loyalty programmes can still drive market share, yet they must be easy to access, relevant to the industry, and also interesting to today’s digital consumer.

To be worth the investment, customer loyalty programmes need to engage the ideal customers 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 4 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. Business need an accurate method of gauging the consumer experience, which ought to be the starting factor of any kind of loyalty programme.
  • Utilise your data effectively. What separates a great loyalty programme from an excellent one is how it uses customer information. Businesses need to incorporate the data into all their business activities, not just the loyalty programme.
  • Change the rewards. Loyalty programmes have to have some consistency, but customers get bored of monotony. With the right (test, learn, optimise) strategy and personalisation, a loyalty programme can regularly introduce different and also new reward and benefit that delight consumers at a sensible cost. At the same time, evaluation will identify benefits that are well received and those that aren’t so you can continue to delight your customers with new ideas.
  • First, design the business model. Before you fret about budget, determine what programme you want to make and create the business model from there. That will enable a lot more creativity in coming up with the initial financing and loyalty benefits.

Recognising what your consumers value is essential- it’s not always about saving them the most cash. In a recent KPMG survey, fifty percent of the loyalty customers surveyed said they would do “nearly anything” to gain even more benefits in a programme.

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 percent claimed they favour surprise offers or gifts to advanced sales notifications, special privileges, time-saving chances such as rapid checkout, or various other conventional programme rewards. A programme that provides regular surprises will likely see a spike in sales and also can be less substantial in cost if done right.

Businesses could think about a collaboration to make a loyalty programme much more cost effective. Co-branded credit cards or partnering with suppliers to minimise product cost are just two among lots of collaboration alternatives.

How to Build a loyalty programme – Step by Step Guide

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 you reach your destination.

Identify metrics that are easily measurable and will allow you to benchmark your progress. Figure out how much you want to improve your return 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 discover even more of your brand.

The most effective way to involve your customers 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 business?

Reward your customers for the following actions to maximise the efficiency of your loyalty programme:

  • Establishing an account.
  • Celebrating a birthday.
  • Buying.
  • Engaging with your brand on social networks.
  • Assessing an item.

Step 3: Select how you will reward members

Selecting the rewards that you will offer is among the most essential steps, because they 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 are what actually motivates them.

You should be offering your customers a varied range of benefits to select from to increase the chance that they will see at least one of them as attractive enough to want. Place yourself in their 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 other week? 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.
  • Member only sales/discounts.
  • Percentage price cuts on all products/certain ranges.

Make your loyalty programme irresistible by providing rewards that customers cannot get elsewhere.

Step 4: Determine how much a point is worth

How much a loyalty point is worth is a 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 in between the expense of points for you and also the value of points for your consumer. The excellent scenario is to have incentives with a high viewed value that make points feel useful however have a low cost for you. This will certainly guarantee customers are driven to actually earn points, redeem benefits, and also inevitably stay loyal to your company.

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 very easy to keep in mind for members. Create a loyalty programme with its own brand name (such as Nectar and Avios) and connect it into all areas of your store to greatly increase its effectiveness.

Taking notice of these kinds of details will see that your benefits programme is the one that stands apart in your customers’ minds. Utilise these strategies to obtain 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 match your company tone of voice

Step 6: Make sure you promote the programme

Producing an explainer web page is a fantastic method to inform individuals about your programme. This standalone web page utilises visuals and also short pieces text to show exactly how customers can earn and spend factors in your benefits programme. A calculator allows people to see the rewards they could earn based on their daily/weekly/monthly spend.

As soon as you’ve launched your rewards programme, it’s highly recommended  to send out an e-mail to your consumers notifying them that you’ve launched. Because they currently have a passion in your brand, your existing customer email database is an excellent source to leverage. Making them aware of the value of your programme will drive sign-ups at a low cost.

Ensure your incentives programme achieves success by adhering to these steps:

  • Build an explainer web page that illustrates just how to make and spend points.
  • Launch your programme and address very early customer feedback.
  • Send out an e-mail to your consumers letting them understand you’ve released.

Step 7: Test, Learn, Optimise.

As much as you might want otherwise, a rewards programme is not a device that spews out free cash with a wave of a magic wand! By using a test, learn, optimise methodology, you can develop a programme that continuously develops customer loyalty.

Testing your rewards programme will ensure that it’s optimised to your customers and makes sure that there is always an incentive for them to return. Test, learn, optimise – the only thing limiting you is your imagination!

Once you have launched your programme, it’s vital that you learn what your customers are responding well to. You can improve interaction in this period by using new benefits or brand-new methods to earn points. 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!