A growing number of business owners are jumping on board the customer loyalty bandwagon. According to Harvard Business Review, the average business loses 50% of its customers every five years. So it’s easy to understand why business owners are implementing loyalty services.
There have also been an increasing number of people joining loyalty programs – 3.3 billion nationwide to be exact. And this is working in favor of all participating businesses. A Deloitte survey shows that companies that “take meaningful steps to build customer loyalty are 88% more profitable than their competitors without loyalty programs.”
If you also want to reap the benefits of increased customer repeat business, here are five things you need to know about customer loyalty programs:
1. The right type of loyalty program for your business.
Customer loyalty marketing is one of the fastest growing strategies among small businesses and remains a strong marketing focus for large businesses. However, there are several types of loyalty programs or strategies, and they all have varying costs.
How do you know which one is right for your business?
- All loyalty marketing strategies and programs have varying degrees of effectiveness. A paper punch card is an example of a basic but low-cost strategy. More robust loyalty programs, are more costly but also more effective, typically include a suite of marketing tools including:
- Emails, text messages and/or mobile app notification capabilities used to send promotions, offers and updates to specific groups of people based on their behavior.
Data on customer visits and purchase behavior.
The ability to customize and create engaging and relevant point levels and reward structures.
An easy way to collect and create a database of customer information through software at your point of sale. An online way for users to monitor points and rewards.
Together, these tools used together help companies communicate the right offers and messages at the right time.
With Loyalty Points, these features help small businesses increase the number of full-price visits (again by 70%), win back lost customers and build relationships with valuable customers by up to 70% in spend per visit.
These results can also be incremental. With Loyalty Points, business owners who use our program drive the average customer to visit two more times per year. That may not seem like much, especially over an entire year. However, if the average customer spends about $10 per visit, those two additional annual visits result in an extra $20 per customer. A small business owner using Loyalty Points has 1.2K loyalty program members each. $20 per 1.2K members, and that’s $24,000 in additional sales made per year due to a loyalty program.
As a business owner, you have to determine if you are willing to invest in a loyalty program with more effective long-term results, or if you prefer loyalty strategies with less impact, but at a lower cost.
2. The benefit of having a loyalty program
There are dozens of benefits to a loyalty program, but there are two advantages that owners really like:
For starters, loyalty programs bring customers into your store, more often, and increase spend per visit. By using the program to reward your most loyal customers with targeted messages and offers, customers come back again and again, and more often.
Most business experts agree that increasing customer retention is more beneficial than spending money attracting new customers. In fact, a two percent increase in customer retention has the same effect as decreasing expenses by 10 percent.
The second major benefit of a loyalty program is the collection of customer information. With a loyalty program, you can learn customer habits, preferences and needs. You can use this information to offer targeted promotions that capture a customer’s attention at the right place and time.
For example, let’s say you’ve learned that your most valuable customers come to your coffee shop every morning during the hour, and the orders are for a small coffee. Knowing this, you can try to “upsell” them, or get them to buy something else. For example, a promotion that offers “a free small coffee with the purchase of a pastry” encourages customers to visit and spend money on something new.
3. When to invest in a loyalty program
A loyalty program can be set up at any time. There are some advantages to setting up a loyalty program before starting a business. However, a grand opening creates a lot of buzz and foot traffic, which makes it the perfect opportunity to get customers to sign up.
However, many companies have set up a program after being in business for years or even decades and not succeeding.
4. How to give away merchandise and profits without losing money?
Some business owners are skeptical of giving away merchandise. If you’re just giving away free stuff, how are you making money?
By offering customers something for free, you have won a returning customer to your store. Chances are, not only will they redeem their rewards, but they’ll buy a few other things while they’re in your store.
In fact, our Loyalty Points analysis shows, businesses see a 70 percent increase in visits to their stores simply by offering rewards or promotions, however, those promotions also increase the number of additional visits with higher-priced sales at a later date by 70 percent. Sure, your initial offer includes a discount or a free item, however, it also drives spending on products or services at a full price, with no additional discount that may never have occurred otherwise.
Keep in mind; You control what you offer as a reward. Your rewards do not have to come out of your profit. For example, instead of offering loyal customers a 20% coupon, offer the coupon with a minimum purchase.
Created promotions also build trust. By rewarding loyal customers, they are more likely to become your brand advocates and will stop checking out your competition.
5. The most common reasons a loyalty program fails
You’re probably thinking that most loyalty programs don’t work because customers aren’t interested.
The biggest culprit in the failure of a loyalty program is the idea that you can “set it and forget it”. A loyalty program is only as good as the business owner who implements it.
You have to look at your metrics, create and send targeted promotions, train your employees fully, and constantly enroll new customers into the program. Now, that’s not to say that a loyalty program should take a lot of work to maintain. Loyalty programs have automation options and easy-to-read charts that make maintenance easy, but commitment is necessary for success.