8 Benefits of Loyalty Programs

When justifying a customer loyalty initiative there are 8 major benefits, each a competitive advantage, only a loyalty program can provide.

1. Keep the Customers You’ve Got

There’s no way around it. Customer retention and bottom-line numbers are directly related. 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. Not only does a loyalty program provide a practical reason for continuing to buy (the accumulation of points toward a reward, or higher levels of service), but it also provides customer information that allows us to meet their needs and address their desires more effectively. It’s a win-win for everyone.

2. Attract New Customers

While customer acquisition is not usually the main goal of a loyalty program, it can still be a nice benefit. Make a loyalty program that is compelling enough, and that may be reason alone for new customers to come knocking on your door. A loyalty program that is exciting and promises value right off the bat can be just what you need to attract and keep new customers.

3. Say Goodbye to Unprofitable Customers

Your mother might have told you to know when you were wasting your time in a relationship and it just wasn’t working out. It’s okay to walk away. And the same is true of your customers. It can be more profitable to lose bad customers than to gain new ones. Those “cherry pickers” who only buy your discounted lines, and nothing else, can cost you more money to service than they generate. Designing a program that rewards better customers without rewarding those discount-happy ones gives them less reason to stay.

4. I Remember You

The success rate in approaching ‘lost’ customers can be three to four times as high as it is when prospecting for new customers. For example, the rate for converting prospects might typically be 5%, while that for reactivating inactive customers might be as high as 15-20%. There are several reasons why customer win-back has a greater chance of success than acquisition; You have advantages with lost customers that you don’t have with prospects, including information about their past purchase history, where and how to reach them, and their preferred communication channel.

5. Build Relationships

It sounds so simple, this idea of building a relationship, but in practice, it’s an ongoing evolution that requires constant diligence, care, and reshaping along the way. Just as a brand begins to understand its customers through data, purchase behavior, and ongoing shopping patterns, it never fails that the customer then evolves too. Understand right away that relationship building is a constantly moving target and will require resources and dedication to make it work in the long run. Kind of sounds like how personal relationships work, eh?

6. Create Brand Advocates

We all want big fans of our brands. Those that will shout from the rooftops all the great things that we are and can do. Loyalty simply doesn’t get much better than advocacy. Advocates are so satisfied and pleased with your offering that they tell their friends and associates. And to most people, a personal recommendation is far more convincing than any amount of promotional material.

7. Remain Competitive

Tap that loyalty program of yours when the competition moves in. You should be able to identify customers who are defecting, then entice them back with new rewards, or special thank you’s for their continued loyalty.

8. Sell More of the Right Stuff

Knowing what your best customers buy frequently can be a boon to your merchandisers. Adjust your inventory to suit the more profitable customers that you already have, then watch as your entire store beings to naturally appeal to more of that same type of customer. Less profitable customer groups tend to self-select themselves out since the shelves are now less appealing to them.