• Customer Retention and Loyalty Programs: What You Need To Know

While business growth in the way of attracting new customers is incredibly important for all businesses, it’s important not to neglect current customers. Customer retention should be an issue at the forefront of every business’s strategy, and its importance cannot be overstated. There are many effective customer retention techniques, but one particularly strategic approach is the use of a customer loyalty program.

What is a customer loyalty program, and how do you institute one? This article will give you a run-down on the basics of customer loyalty marketing and programs, how they work, and how you can use them to retain more customers and bring in greater profits.

Customer Retention and Loyalty Programs- What You Need To Know

What is a Loyalty Program?

A customer loyalty program is an incentive plan designed to build repeat business by offering participating customers rewards for their purchases, or special benefits that aren’t available to non-participating customers. Customer loyalty concepts are often enacted in the form of loyalty cards, which often resemble plastic credit cards, but can also be produced as keychain fobs, stickers, or paper punch-cards.

An ice cream shop, for example, may offer you a punch-card upon your first visit. Each time you make an ice cream purchase, you will receive a special punched hole on your card. Punch all the holes and you’re eligible for an exclusive reward, which could be free ice cream, a gift card, or anything else the ice cream shop has decided to enlist as a prize. This loyalty punch-card serves as the proverbial carrot; customers are encouraged to keep coming back for ice cream in anticipation of punching through all the holes on their card and finally receiving their prize.

Loyalty programs combine humanity’s competitive nature with the consumer’s love of receiving free-stuff. The customer is made happy by their reward, while the hosting business rakes in more profits and gains that customer’s allegiance, and even affection. These incentive programs help build customer loyalty through marketing.

Customer Loyalty Solutions

Not every business wants to hand out free rewards on a whim, regardless of the repeat business they may bring. Thankfully, customer loyalty programs come in all shapes and sizes, and not all of these programs are free. Some loyalty programs present a monetary barrier to entry. This initial start-up fee compensates the business for the time, money, and planning that the business puts into its loyalty program.

Take Starbuck’s loyalty program, My Starbucks Rewards, one of the most successful loyalty programs starbucks loyalty rewardsin the United States, for example. My Starbucks Rewards is not an entirely free program. One must first purchase a Starbucks gift card in the minimum amount of $5 in order to participate. Customers then register their card online and download the Starbucks mobile app. They can use this app to make purchases through their gift card online at www.starbucks.com, or in-store. Users may also register their credit card with the app and use it to refill their Rewards balance. Every time a user makes a purchase of a drink or product, they earn a “star.” The more stars they earn, the farther they advance and the more rewards they can collect.

The My Starbucks Rewards program gets even craftier. It offers three levels of membership: the welcome level, the green level, and the exclusive gold level. The welcome level is the starter level and includes a free birthday reward and special offers via email. The green level, which is attained once a customer has earned 5 stars within 12 months, offers all welcome level benefits but adds another privilege: free refills on brewed or iced coffee or tea. The third and final level, gold, is achieved after earning 30 stars in 12 months, and is made all the more illustrious by its unique marker: a personalized Gold Card for each customer.

The My Starbucks Rewards program is ingenious because it is multi-faceted. It is not only a loyalty program, but a purchasing program, as well. In fact, in 2014, Starbucks reported that a staggering 11% of its total sales were made through its mobile app. Starbucks managed to create a loyalty program that turned its customers into evangelists.

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Successful loyalty programs can take many forms. From quick punch cards to advanced mobile and point of sale (POS) technology, there are nearly endless options for unique customer loyalty solutions for every business.

Why is Customer Retention and Loyalty So Important?

Customer retention and loyalty has a multitude of benefits. According to a Gartner Group study, for example, 20% of a company’s existing customer base generates 80% of its profits! Just a slight increase in customer loyalty can dramatically increase your profits. Customers are not just direct sources of profit, but potential promoters, as well.

A customer’s buying journey begins long before they engage with a brand directly. A customer will often engage in research before purchasing a product, or seek out advice before visiting a store. Existing customers can endorse the value of your brand and promote it to their friends and circle of acquaintances through word-of-mouth and other means. In fact, according to an Accenture report, 31% of customers are willing to recommend providers and brands to others. This reduces marketing and advertising costs, as word-of-mouth promotion is a powerful marketing tool.

Repeat customers also offer another invaluable benefit: brand insight. Repeat customers will provide honest feedback based on experience. This feedback can be used to improve your business, increasing customer satisfaction and bringing increased revenue.

Lastly, building customer retention and loyalty through marketing will help insult your business from competitors. Loyal customers will stick to the brand they trust regardless of economic changes. Loyal customers, as long as they are kept satisfied by your service, will keep bringing money to your business, even if a trendy new brand comes to the market.

How to Build a Loyalty Program

The initial set-up of a brand loyalty program is surprisingly easy. You can set up a loyalty program for your business with relatively little time and effort.

The successful creation of your loyalty program is dependent on the completion of the following simple steps:

1. Set a goal for your customers

This is your “prize.” What will it be? A discount? A free t-shirt? Using your own product as a reward is often times easiest and is a great way to create enticement.

2. Decide how customers will progress towards the goal

Do they have to buy 10 sandwiches? Do they have to spend X amount or more? Be very selective about choosing which behavior you wish to reward.

If your product or service is something that your customer is only going to practically purchase a few times a year, consider making progress markers something else. For example, even if your customer wanted the prize you’re offering very badly, there are only so many times a year that said customer will change the oil on their car. Even if they wanted to change the oil more, it would be impractical. If you have a similarly one-off product or service, consider a program such as a refer-a-friend program instead.

3. Give customers a starting boost

If you have a punch-card system, for example, punch the first hole or first two holes as a one-time reward for joining the loyalty program. Studies have shown that giving customers a head-start on the loyalty program encourages them to participate more.

what is customer loyalty

Promoting Your Loyalty Program

Your loyalty program will be completely ineffective if your customers don’t know about it. Be sure to spread the happy news far and wide and encourage your current customers to join in on the program. There are many ways to promote your business with or without money if you can put a few minutes into planning and doing it.

Related: Marketing Without a Budget

You’ll soon be seeing results in the form of more customer satisfaction and greater profits!

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