• How to Run a Customer Loyalty Program

While attracting new customers is essential for all businesses, it’s equally as important to make sure you’re retaining existing customers. There are many effective customer retention techniques, but the one we’ll be focusing on in this post is the customer loyalty program.

How to Run 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 with your business.

Why is Customer Loyalty So Important?

Customer loyalty programs are important because they increase customer retention. But why is that so important?

1. Increased profit

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.

2. Reduced marketing costs

A customer’s buying journey begins long before they make the actual purchase. They will often engage in research before purchasing a product, either by reading reviews or seeking advice from a current customer. The more loyal customers you have, the more positive feedback that will be available to prospects and the lower your marketing and advertising costs will be. Word-of-mouth promotion is a powerful marketing tool.

4. Increased customer satisfaction

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.

5. Resilience

Lastly, building customer retention and loyalty will help insulate 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.

What is a Customer Loyalty Program?

A customer loyalty program offers participating customers rewards or special benefits for their purchases that aren’t available to non-participating customers. They are designed to incentivize repeat business, and may come in the form of loyalty cards, keychain fobs, stickers, or even paper punch cards. For customers, a loyalty program may be free to sign up or may have an entry or yearly fee. For businesses, your loyalty program may cost you nothing or might require a small investment.

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, building customer loyalty.

Free Customer Loyalty Programs

Here’s a simple example of a free loyalty program. An ice cream shop offers you a punch-card upon your first visit. Each time you make an ice cream purchase, they punch a hole in your card. Once you reach 10 punches, you’re eligible for a free ice cream cone (or perhaps a gift card or other offer).

Paid Loyalty Programs

Not every business can hand out free rewards, 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 have an initial start-up fee to compensate for the time, money, and planning that the business puts into its loyalty program.

Take Starbuck’s “My Starbucks Rewards” 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 or in-store.

Users may also register their credit card with the mobile 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 further they advance and the more rewards they collect.

Tiered Loyalty Programs

The My Starbucks Rewards program is also an example of a tiered loyalty program. 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 achieved once a customer has earned 5 stars within 12 months, offers all Welcome level benefits plus another privilege: free refills on brewed or iced coffee or tea.

The Gold level is achieved after earning 30 stars in 12 months and earns the customer a personalized Gold Card. This includes the Welcome level benefits plus monthly double-star days plus a reward every 125 stars

The My Starbucks Rewards program is ingenious because it is multi-faceted. It is not only a loyalty program, but also a purchasing program. In fact, not long after the program was instated, Starbucks reported that a staggering 11% of its total sales were made through its mobile app. Starbucks’ customer loyalty program had turned its customers into evangelists.

How to Build a Customer Loyalty Program

You can set up a loyalty program for your business with relatively little time and effort. Here are some 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 oftentimes 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.

For example, it wouldn’t make sense for an auto shop to have a punch card for oil changes, as these are only needed a few times a year. A gas gift card for every $x spent would work better.

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.

Promote Your Loyalty Program

Your loyalty program will not be effective if your customers don’t know about it. Be sure to promote it in your store and via email, social media, and your website.

Successful loyalty programs can take many forms, from quick punch cards to advanced mobile apps. Try one out today to increase both your customer satisfaction and your profits!

This post was published September 2015 and updated January 2020.

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