Justifying a Loyalty Program
Is a customer loyalty program right for your marketing strategy? Customer loyalty programs are designed to retain customers and improve the overall customer relationship — and for that they work very well. A recent Experian study shows, 75% of U.S. companies with loyalty programs generate a return on their investment. This clearly shows a benefit for most companies who spend the money on rewards programs. Here are some additional benefits of a customer loyalty program and how they can work for you.
Get More Customers and Improve Customer Retention
When new customers see a customer loyalty program they will often be more inclined to engage with the company. Even the act of exploring the customer loyalty program and finding out more information about the program benefits can build up customer trust, interest and excitement. Customers will be more likely to make an initial purchase and — critically — will be more likely to come back. As you know, 45 to 50% of direct, new, one-time purchasers don’t make a second purchase. A loyalty program, maybe something that creates a point of differentiation between you and a competitor and brings them back.
Every marketer knows that customer retention costs are far lower than customer acquisition costs. Every customer that you retain rather than having to obtain is a cost savings benefit to the business. In five years, a firm with a 70% customer retention rate will have lost two to three times as many customers as a firm with a 90% retention rate. In addition, companies with successful loyalty programs follow Pareto’s Principle and target the top 20 – 30% of customers that generate 70-80% of revenue. These are the customers you want to provide a great experience and ensure they will keep coming back. A focus on retaining your top customers will have a significant impact on your bottom line.
Build Customer Relationships and Increase Sales
A customer loyalty program makes customers feel valued. It improves the customer relationship by increasing engagement and showing that the company does care and value the customer relationship. As customers shop, they will be inclined to purchase more each time because they will want to gain their rewards and because they will find the company more trustworthy overall. In a 2015 loyalty study, 34% of customers say they would not be loyal to the brand if it weren’t for the brand’s loyalty program , and programs are seen as an extension of the brand as affirmed by the 76% of Americans who think that loyalty programs are part of their relationships with brands.
Creating a customer loyalty program also creates a level of “gamification” to the purchase process, where customers will be trying to achieve a goal through their purchases. They may also feel justified in spending more with a company because they know that they will be “getting something back.” A 2015 loyalty study by Bond reports that 64% of members agree that they’d modify what brands they purchase in order to maximize the benefits received from their loyalty program.
Keep Customers Coming Back for More
It isn’t just about increasing transaction amounts — it’s also about increasing transaction frequency. A customer loyalty program will remind customers to come back and continue purchasing so that they can pursue their rewards. In the Bain and Company report, The Value of Online Customer Loyalty, found that repeat purchasers spend more and generate larger transactions.
In our study, the longer their relationship with an online retailer, the more customers spent in a given period of time. In apparel, the average repeat customer spent 67 percent more in months 31-36 of his or her shopping relationship than in months zero to six. And in groceries, customers spent 23 percent more in months 31-36 than in months zero-to-six. Higher spending levels were due in part to more frequent shopping and in part to larger transactions.”
In addition, repeat purchasing not only builds trust (so a customer will more likely consider purchasing other products), it also provides more cross-selling opportunities. In a recent study, 49% of loyalty program members recognize they spend more with brand now vs. pre-membership.
With a loyalty program, businesses are also able to identify unprofitable customers and separate them from their more profitable customers, thereby focusing their marketing efforts on those customers that are valuable and growable.
So is a customer loyalty program the right choice? The benefits are clear. A customer loyalty program will help you acquire customers, retain customers, and sell more to your customers.
Need help developing your loyalty program? You need look no further than Customer Insight Group’s proven proprietarysystematic new loyalty program development process to help you build an optimal program that is financially viable, sustainable and achieves your business objectives.