Retaining customers is not an easy task, but it is much easier than acquiring new customers. In fact, the odds of acquiring new customers stand at 5-20%. The same research indicates that the odds of selling more to existing customers are significantly higher—60-70%. This is why many businesses choose to focus on customer retention. One way of increasing customer retention is by creating a customer loyalty program.
What Is a Customer Loyalty Program?
A customer loyalty program is a marketing strategy that rewards customers for engaging with your brand and encourages them to engage more. It is tailored to each customer individually, based on a customer profile. This profile ideally contains data about each customer’s interests, demographics, and past interactions with a brand.
Traditionally, loyalty programs were confined to rewarding customer purchases or providing discounts and special deals. These programs were focused solely on increasing the amount that a customer spent with a brand.
Modern loyalty programs, however, reward a range of behaviors and offer a wide array of benefits, which are not necessarily related to purchasing. For example, access to members-only content. This new style of customer loyalty programs is designed to increase customer loyalty by making their interactions with your brand a relationship rather than a transaction.
Why Is Customer Loyalty Important?
Loyalty is also important because it is easier and cheaper to retain existing customers than it is to gain new ones. By prioritizing the customers you already have, you ensure a greater return on your marketing investments than if you focused on capturing new markets or sales.
When customers are loyal to your brand they are willing to spend more. They are also more likely to become brand advocates, promoting your product through social media, and recommending peers to check out your products and services.
Traditional Customer Loyalty vs Digital-Only Approaches
Modern loyalty programs differ significantly from traditional ones. Originally, loyalty programs were used to remain in contact with customers and were used as powerful motivators to keep customers coming back.
This access to consumers was incredibly important, especially in the days before digital commerce. There was little reason a person would come to a store or contact a business other than to shop, so providing coupons and discounts was the best incentive. This why many businesses created loyalty programs. In those days, each business created its own analog loyalty card, which customers had to carry around.
Unfortunately, if the customer didn’t have the card, they often couldn’t receive the benefits. Additionally, the loyalty programs of all brands worked pretty much the same and most brands had a program, lowering the impact of rewards.
Reinventing loyalty programs
Eventually, mailed coupons and brick and mortar stores stopped being the default methods of interacting with customers. As it became more common for every potential shopper to have a smartphone and every store to have a website. New opportunities to display and reward loyalty were created.
Other driving factors for change were increasing expectations of instant satisfaction and the growing appreciation for intangible benefits. These shifts in perception demanded programs that could be accessible at any time (via digital devices) and those that rewarded more than just purchases. For example, programs that reward customers by offering customized recommendations or engage them with fun quizzes or challenges.
This new, digital-only style of program does away with physical cards and shifts focus to where customers are actually interacting, the digital world. It enables programs to differentiate more and provides more customized content and interactions to each customer according to their wants. This differentiation helps keep programs appealing and increases the level of engagement.
Types of Digital-Only Loyalty Programs
Even in a digital-only format, there are still several types of loyalty programs that brands tend to create. These types may define an entire program or may just be used for one part of a diversified program.
Points programs are the most common type of loyalty incentive, at least partially because points are the easiest to implement. In these programs, customers are rewarded with pseudo-currency (points) for interactions with a brand. These interactions could include purchases, filling out surveys, recommending friends, or engaging on social media.
While for some customers, accumulating points is itself a reward, for most, the reward comes when they can convert points into something they want. For example, a discount, access to a members-only event, or even free swag.
Successful use of points programs
Designer Shoe Warehouse (DSW) is one example of a company that has adopted a points program to entice customers. For this company, following a more traditional model of rewards purchases has been valuable because they have made points easy to use and understand.
The company manages this program with personalized reminders to customers detailing whether they have enough points for a reward, how many points are needed for the next reward, and what deals they can currently enjoy. DSW also increases the appeal of points by reminding customers how much they’ve saved with points rewards and by offering special double or triple points events.
Gaming-Based Customer Loyalty Programs
Gamification is a newer tactic that leverages non-tangible rewards to increase engagement. Many people have a natural urge to “level-up” that gamification encourages and leverages to increase engagement. For example, by creating tiers of reward levels or achievements that customers can only get if they actively participate. These programs effectively hide the work of engagement or purchasing behind a challenge or a literal game that grabs customer interest.
Successful use of gamification
Starbucks is one example of a program that uses gamification (in addition to points). Their program is based on stars, exclusive offers, and member perks, like free refills. These benefits can be earned via the normal points way, accrued through purchases, or through games that customers can play on their smartphones.
For example, one game they offered, Starland, included daily prizes, raffles, and a host of other rewards that customers could earn by “catching” stars in an augmented reality environment. This game, modeled after Pokemon Go, leveraged customer’s smartphone cameras to put them inside a real-life scavenger hunt.
Subscription programs are another type of program that has become popular. These programs involve a customer signing up for a product or service and in return provide reliable, personalized packages. Often, these programs involve a monthly box of goods delivered to your door although a program could also involve a periodic delivery of members-only content or access codes.
Successful use of subscription programs
Bean Box, a company that sells artisan coffee, is one example of a subscription program in action. This company offers customers a chance to create a custom taste profile that is then used to send curated selections of coffee each month. Customers also gain access to limited batches of special roasts, free samples of new coffees, and free shipping.
This program aims to make coffee purchasing easier for customers, by delivering it right to them each month. It also serves to ensure a longer relationship between customers and brands by encouraging customers to commit to subscriptions lasting several months at a time.
A customer loyalty program creates opportunities that encourage customers to engage with brands. However, it’s important to distinguish between traditional and digital loyalty programs. A traditional approach typically focuses on increasing sales through a points program. These programs reward customers with points they can transform into benefits.
Digital customer loyalty programs, like gamification and subscription programs, are more focused on creating lasting relationships. These programs turn the purchasing journey into a fun or interesting experience, which often lasts over a long period of time. Ideally, these programs lead to a win-win situation during which customers get a higher level of satisfaction while brands increase sales.
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