Retailers and other businesses sponsor loyalty programs that offer rewards, discounts, and other unique incentives to recruit and keep customers. They’re made to encourage repeat business by rewarding customers for sticking with a retailer or brand (hence the name).
The larger the benefits, the more frequently a customer patronizes the merchant—and the more they spend.
What is a Loyalty Program and How Does It Work?
Incentives for loyalty programs differ. The following are examples of typical incentives:
- Early notice of new products/early access to new products
- Early sales access
- Free products or improved services
- Free or fast shipment are examples of exceptional services.
- Discounts for members only
Customers often register their personal information with the firm and are given a unique identification, such as a number ID or membership card, to join a loyalty program, also known as a rewards program or points program. When they make a purchase, they use that identifier.
What is the Goal of a Loyalty Program?
Customers are rewarded for their continued patronage, and the issuing company receives a plethora of consumer information and data as a result of loyalty programs. While businesses can examine anonymous purchases, using a loyalty program provides more information about the kind of products that can be purchased together and whether particular incentives are more effective than others.
Loyalty programs are especially important for high-volume firms that rely on repeat revenue. Because it costs more to recruit a new consumer than it does to sell to a current one, the prospect of building a loyal following is critical to adding value. Repeat consumers can help recruit new customers at a fraction of the expense of standard marketing approaches if done correctly.
These programs can foster true brand loyalty when they are interwoven into the customer’s daily routine. Customers frequently become invested in the program, and will frequent a hotel, store, restaurant, credit card, or airline primarily for the points or prizes they’ve earned through its loyalty program.
95 percent of customers expect businesses to come up with new ways to reward them for their loyalty, indicating that simply hoping for customer loyalty will not suffice in 2021. This is why:
Loyalty programmes build an emotional connection
Loyalty programs boost customer lifetime value and promote sales. On the most fundamental level, this is accomplished through incentives. But there’s more to it than that, and the emotional bond that loyalty programs build can be much more significant.
Through repetitive behavior, a loyalty program can assist create emotional commitment. An innovative approach to the offerings given, on the other hand, can do more. Curating a variety of third-party promotions (access to restaurants, theaters, spas, and merchants) can help clients emotionally connect with your business by creating a sense of community and ‘lifestyle’.
The impact is considerably greater if you can combine this with customization.
Take NikePlus, Nike’s mobile loyalty program, as an example. Birthday prizes, member-exclusive products and content, offline event invitations, and online exercises are all available through Nike’s branded app. Nike’s initiative has been a huge success. NikePlus subscribers, according to reports, spend four times as much as non-members.
Repeat customers have a high ROI
On average, it costs five times more to gain a new customer than it does to keep an existing one. Existing customers are 50% more likely than new consumers to try a new product and spend 31% more each purchase. Although marketing activities targeted at attracting new customers are critical for growth, client retention is where the long-term value is found.
If you don’t keep your clients, you’ll have to replace them when they leave.
Customer loyalty can be rewarded through a program, which can help you avoid high churn rates and retain high-value clients. It’s also a low-cost method of increasing sales.
You can spend less time on traditional advertising and more time on creating important, long-term relationships with existing consumers if you build a relevant, engaging incentive program. It can also assist you in attracting new customers, which leads us to.
Loyalty helps you reach new customers
One of your most effective marketing tools is a loyal, satisfied customer base. Positive client word-of-mouth is critical for recruiting new consumers in the age of eCommerce and online review websites.
Personal recommendations are trusted by 83 percent of consumers more than any other form of marketing. Referrals create two times the sales of sponsored promotion, according to a McKinsey study.
You may gamify and incentivize referrals with a well-designed loyalty program, rewarding clients who refer new customers. Referred clients are more loyal, profitable, and have lower churn rates than non-referred customers, according to data.
Finally, while client acquisition has historically been costly, extending your customer base has never been more affordable provided you have the correct loyalty program and advocacy system in place.
Of course, especially in a crowded industry, your loyalty program can be a unique selling factor in and of itself. You can obtain a competitive advantage with your loyalty incentives if you are unable to bend on price or other unique characteristics.
It’s important to remember that consumers pay to use credit cards. These are products that outperform free competitors primarily through loyalty programs linked to lifestyle/emotionally stimulating messages.
“Customer loyalty = higher profits and more growth”
A great foundation for a successful customer engagement strategy might be a relevant customer loyalty program. Customers benefit from exceptional discounts and products that are personalized to their specific requirements and interests, while your company benefits from lower churn rates, more organic acquisitions, and increased profitability.