What is a customer loyalty program?
An ideal customer loyalty program is intended to connect with the customer at an emotive level, building a relationship and promoting advocacy. A customer loyalty program is crucial for businesses to differentiate themselves in a crowded marketplace. Today businesses, particularly retailers, have entered a phase of leveled playing field where location is not the only differentiating factor. Businesses are getting pushed into increasing dynamics of low margin and high fixed costs. This situation is bound to result in a price war and strip profits from established businesses.
So what do you do?
Loyalty programs are a great way to differentiate oneself from the crowd and save businesses from the customer churn and enhance overall value offered to the customer. It is common to see loyalty programs as a tool to bring in repeat business, however businesses should seek to keep the namesake and create loyal customers & brand fanatics; not just repeat customers.
What are the benefits of customer loyalty program?
Customer Retention – Customer retention rate is an important statistic to calculate actual bottom-line customer numbers. A business with a 60% customer retention rate is losing 3-4 times as many customers a business with 80% retention rates. Customer retention also has some hidden advantages like it allows the customer and the business to understand each other better. Firms are able to analyze customer behaviors, able to bring out best offers, basket mix and savings. This allows businesses to segment their customers and satisfy them better with individual needs and preferences.
Customer Acquisition – An exciting and valuable reward for customers on loyalty programs has capability to attract new customers, but this should not be over emphasized as there are more cost effective and better methods to reach new customers. However the point made is that differentiation of business can be perceived very strongly by the potential customers with an effective loyalty program.
Customer up-segmentation – Spend thresholds for better reward brackets, like moving customers from one spend level to another, helps significantly in enhancing sales. Best Buy's "Elite" program does this effectively.
Dropping unprofitable customers - It is known to be better in terms of cost to lose bad customers than gain new ones. Customers who only buy the discounted lines and avoid premium range completely are the ones whom you might want to drop from loyalty programs for example. These customer profiles can cost more money than they generate. A well designed customer loyalty program ensures not only rewarding the better customers, but also minimizing payout to not so profitable customers. This is helpful to retain the customers from whom we generate the most profit.
Win back lost customers – The chances of converting a lost customer are greater when enrolled in a loyalty program. This can easily be enabled through the loyalty programs “call back&rdqo; the customers who have not been inactive for a period of time. The point is that we kow about a defected customer much more than a new prospect and chances of conversion of a defected customer is much higher, than a new one.
Building relationships and advocacy – The sole purpose of the loyalty program among others should be building a relationship with the customers. The customers want to be recognized, offered better value and kept in the knowledge of best offerings. A "Brand Fanatic" is the most active profit generating customer, and also helps the business in spreading “word of mouth” advocacy of the Brand.
Reduce costs on promotion and advertising – Because you have prior knowledge of your customers, the loyalty program has ability to create a highly targeted segment of customers and this helps in bringing in significant savings on promotions and advertising costs. - See more at: http://www.odonnellco.com/customer-loyalty-programs/#sthash.mIQJQBvs.dpuf Bring your best customers back to your stores, again and again
1. Stop competing on price with competitors – Today it’s easy for discerning shoppers to compare hundreds of prices in a few clicks. If they are just thinking of the products you sell instead of your store and brand, then you will find yourself in a pricing race to the bottom, where large stores like Amazon will win.
Adding a loyalty program stops you from competing on price by giving you another way to differentiate your store: you can offer an enhanced customer experience by connecting with their emotions. Let’s elaborate on that here.
Studies have shown that when a customer makes a purchase it’s highly emotional. If you sell a product that people buy through desire instead of necessity then appealing to their emotions is key. A loyalty program gives you a way to surprise and delight customers by rewarding them for something that previously went unnoticed. Every time you reward your customers for their shopping activities (sign ups, referrals, purchases etc.) you will appeal to their emotional side and start building a connection with them.
As the emotional connection builds, shoppers will see you as more than a collection of products which will strengthen their loyalty.
2. Retain existing customers– Loyal customers spend 67% more than new ones. This is a statistic that cannot be ignored, especially when the Chartered Institute of Marketing lists a variety of sources that site customer retention costs between 4 and 30 times less than customer acquisition and that a mere 5% lift in retention can increase your profits by a staggering 85%.
These figures are hugely significant, and highlight that retention is one of the most cost-effective ways of increasing your profit margin.
3. Increase Customer Lifetime Value– Customer Lifetime Value (CLV or CLTV) is the net profit attributed to the overall relationship you will maintain with a customer. It measures how valuable the customer is to you now and the projected value of all your interactions with them in the future. A loyalty program can help you calculate exactly what the CLV is for each of your customers, and help you wield those statistics into usable data for implementing solid strategies to retain your customers.
For instance, a loyalty program can provide you with behavioral data of your customers’ buying habits. We talked earlier about how making purchases is emotional, so this data is vital. Your store’s data is like a pile of bricks ready to be assembled; a loyalty program can guide you and make sense of this data on both macro and micro levels. Put simply, this means that you can monitor the steps your customers are taking before they purchase, allowing you to reward them at each step of the shopping experience so that you can increase your customer lifetime value.
4. Build personal relationships–The first step to this emotional connection and store loyalty is by showing your customers that you truly value them. We at EasyLife believe that this can be achieved by building genuine relationships with your customers – your customers are unique so treat them this way.
As we explored in the section on how to retain customers, data is vital. EasyLife will provide you with data on your customers such as order history, site activity, visits, referrals stats etc., so you can better tailor your service to their needs.
That may seem like a lot of information, but as companies typically segment their customers through only one or two categories in order to better market to them (and therefore make their customers feel invisible), we at EasyLife understand that customers are more complex than just one segmented category. Their needs can differ from day to day, month to month, from a different location or another season, or any change of personal circumstance. EasyLife will help you identify these changes, so you are able to provide a unique level of service, which will stop your customers feeling invisible and start feeling valued.
5. Create Brand Advocates–It is a mistake to think that your only valuable customers are the ones spending money, in fact, some of your most valuable customers won’t be the ones spending money but generating it. These customers are what we refer to as brand advocates, and they are the ones referring your store to their friends, family and if they are on social media, their followers. The importance of this cannot be overstated;
73% of millennia’s feel it is their responsibility to help friends and family make smart purchase decisions, and word-of-mouth is the primary factor for 20-50% of all purchasing decisions
EasyLife refer-a-friend feature, has a two-way reward system which is proven to be the most effective. For example, if your customer refers a friend one might earn points and the other a discount off their first purchase. This will work towards both customer acquisition and increasing the loyalty of your existing customers.