It may seem like customer loyalty programs are old-school (remember those smoothie sticker cards?), but there’s a reason why they’ve been around for such a long time: turns out they’re a really powerful marketing tool. How? They encourage customers to return to your business over nearby competitors, so they can be rewarded. By now, we’re all familiar with the adage “it costs a business five times more to acquire a new customer, than it does to retain an existing one”. So, seeing the value in a tool that maximises customer retention isn’t a stretch. If you haven’t considered it before, here are a few reasons why your small business should get in on the magic of loyalty marketing.
What are customer loyalty programs really?
Customer loyalty programs drive brand loyalty and repeat purchases by using rewards, in whichever form the business prefers – whether that’s a points system, prizes, exclusive perks like early access, special deals, gifts, or anything else that offers value. Originally, they took the form of paper cards, which would be marked or punched whenever a customer made a purchase. Once a certain purchasing goal was achieved, the shopper would become eligible for a reward. These days, the majority of customer loyalty cards are digital, and this evolution brings a host of new, nuanced options for how they can work for your business. Digital versions allow customers to shop either in store or online and still stay engaged with the incentive, as well as enabling more sophisticated points allocation, and integrated data tracking.
Why do they work so well?
1. Repeat customers keep coming back for more
With a rewards program, customer loyalty expands with each purchase made, because the marginal incentive to buy increases as the customer creeps ever closer to the day when they can redeem their prize. This also boosts the frequency of their patronage, by making them want to get closer to their goal faster: the more they shop with you, the more they’re likely to get in return. At the same time, it cleverly ensures that any special deal is only initiated once your business has received enough revenue from that particular consumer, to justify making the reciprocal payoff.
2. Repeat customers are an easy sell
Up to 49% of customers admit that they spend more after joining a loyalty program. They have already experienced your business in a positive light, so much so that they’re a member of your club. You’ve clearly already convinced them of the value you offer. And while you have their attention, it’s also much easier to persuade them to try other product lines – perhaps something a little more high-end or expensive, with a healthier profit margin.
3. Repeat customers spend more
Research shows that the top 10% most loyal customers at your shop spend 3 times more than the lower 90%. And, the top 1% spends 5 times more than the lower 99%. Those customers are the cream, and represent the easiest and most effective way to keep increasing revenue. Even better, this ends up becoming a self-sustaining loop: shoppers are enticed to spend more, they get rewarded for doing so, and they start the cycle again. It may take some work to set up initially, but thereafter it does it’s own thing, while you sit back and watch your sales rocket.
4. They spread the word: brand reach, exposure and recognition
Few can resist a really good deal, which is why an attractive and well thought out loyalty program is such a popular mechanism for so many businesses. Plus, if your initiative is really great, people are likely to brag to their friends about how much they’re getting out of it – so you get new customers without having to go out looking for them. And the scale of social media’s reach takes this to a whole new level: many businesses encourage their loyalty customers to share about their experiences online for better rewards, and offer an even better prize for every referral that converts into a new loyalty member.
5. Data collection is a natural side-effect
Using this behavioral lever also gives businesses immense insight into the buying patterns and preferences of their clientele, which in turn, can fuel a variety of marketing decisions around incentives, targeting, and retention strategies. This allows you to personalise the way your customers experience your business, which increases their emotional connection to your brand, and therefore their more real and resilient emotional loyalty, (feeding right back into the program that started it all). When data is used to create a personalised shopping experience, it usually translates into more sales too, because your suggestions are better tailored to each individual and more effective. Over time you will also be able to improve the program itself, by seeing which rewards fuel the most consumer activity – and get insight into why, so you can design similar sales surges in future.
6. More contacts for your mailing list
By capturing contact information on signup, you also increase your mailing list organically, which can be used for effective (and personalised) marketing efforts to enrich the efficacy of the entire program. It also means communicating is easier and more natural, helping you build an easy rapport over time. You already have an in: you have shown them a commitment to building a real relationship with them, and finding ways to make them happy, so communicating regularly and getting to know one another seems fitting.
Tip: Ensure that your Ts and Cs clearly emphasise your commitment to honouring the information privacy of participants (protecting them from spammers).
One of the greatest things about customer loyalty programs is that your business benefits, but so do your customers! Not only are you actively and tangibly rewarding them, but loyalty programs are convenient and easy to use – even more so now that they’re digital, and nobody has to cut out coupons or worry about losing their coffee card. The business saves money by boosting customer retention, collecting data, and bolstering brand exposure all in one go, while nurturing the happiest shoppers around. What’s not to love?