ClickCease Why Your Business Needs a Customer Loyalty Program - King Kong

Why Your Business Needs a Customer Loyalty Program

Loyalty-Program

Does your business have a customer loyalty program?

We all know how hard it is to get leads and then convert them into paying customers.

We all know how hard it is to convince your customers that your product is the best or that your services can solve all their problems.

We all know h0w difficult it is to keep and retain customers.

This is where having a customer loyalty program can come into play.

Having a customer loyalty program can not only help you to retain customers and gain customers, but it can also help turn your customers into advocates for your brand.

Having your own customers be an advocate for your brand has huge potential and can be the best form of marketing that your business can generate for your brand.

Loyalty programs can also make your customers happier and more trusting towards your brands and services. In fact, 76 percent of consumers feel that a loyalty program helps them to create a relationship with the brand, and by creating a relationship, your brand is also creating an empire of loyal followers.

Another study also found that 83 percent of consumers are more likely to do repeat business with a brand if they offer a loyalty program.

This is huge considering that it costs the average business five to ten times more to generate a new customer than it does to sell to an existing one. On top of that, research has also found that existing customers spend an average of 67 percent more than new customers.

With all of this supporting data, it is no surprise that close to 65 percent of businesses have a loyalty program however, many businesses complain that their loyalty program just doesn’t work.

According to the 2015 Colloquy Customer Loyalty Census, the average family has access to around 29 loyalty programs but only 12 of them are actually used.

This means that companies are losing money, time and effort and not seeing a return on their loyalty programs. It also shows that many businesses don’t know how to properly implement a loyalty program that will actually get customers enticed enough to use them.

So whether you are just starting out on creating a loyalty program or looking to updated your existing one, we are going to take you through everything you need to know.

The Benefits of Having a Loyalty Program Explained

We have already loosely touched on the benefits of having a loyalty program, however to really understand how loyalty programs can help you to make a solid return on your investment, let’s take a look at some of the top research and statistics surrounding customer loyalty programs:

  • 71 percent of those making $100,000 or more a year are enrolled in loyalty programs
  • 75 percent of companies with loyalty programs generate a return on investment
  • When customer retention rates increase by 5 percent, profits increase by 95 percent
  • 83 percent of customers agree that loyalty programs make them more likely to continue doing business with the company
  • 73 percent of consumers say loyalty programs should demonstrate the businesses loyalty to customers
  • 66 percent of marketing executives feel that loyalty programs should demonstrate a customers loyalty towards the business
  • 97 percent of loyalty programs are based on spending money to earn points or transactional rewards
  • 77 percent of transaction based programs fail in the first two years
  • Only 25 percent of loyalty programs reward customers for some for of engagement

From these statistics we can take away just how important it is to have a loyalty program in order to retain customers. This is because returning customers spend more and can help your business to increase profits by up to 95 percent.

Another important factor to consider here is that most loyalty programs, 77 percent to be exact, that have some sort of transactional reward fail within the first two years.

These factors demonstrate that it is not just important to have a customer loyalty program but it is also important to have a program that has more substance than just a transactional reward.

For your customer loyalty program to be successful, your business has to look passed convoluted reward systems and offer real value to your customers that they are actually going to benefit from.

Here are 7 ideas that your business can use to get started when it comes to creating the perfect loyalty program:

1. A Simple Point Based System

This is the most common way for businesses to offer customers a loyalty program because it is easy to implement and hard for customers to take advantage of.

It involves offering customers points for every dollar that they spend which can then be converted into some type of reward. This reward can include discounts, freebies, special customer services and cash back values.

This helps customers to feel rewarded every time they make a purchase and it also gives them motivation to reach a particular goal or reward level.

This works similar to the stamp card you get at your local coffee shop. As soon as you have ordered 10 cups of coffee, your 11th cup is free.

The biggest mistake that brands make with this format of customer loyalty, and why most of them fail is because businesses get caught up in offering complex reward systems and confusing terms.

For example REI, which is an American sporting goods store, offers users a membership where they can get 10% back from their total purchase, however they have to wait till a particular time period each year in order to claim their cash back. In order to receive their cash back they also have to go online, make an account and jump through all sorts of hoops to claim their rewards back.

This type of loyalty program is a headache for most consumers and does not really celebrate loyalty, especially if the customer has to wait months on end to receive their reward.

The same goes for companies that offer convoluted points systems or discounts with many strings attached or time frames attached.

Points based systems are easy, but that doesn’t mean they will necessarily be the best fit for your brand.  If your business decides that a points based loyalty system is the way to go, the trick is to keep it as simple as possible to use as little red tape as possible.

One company that uses the points system in an effective way is the US burrito chain, Boloco. They offer customers a Boloco card which is available for free when the customer purchases a burrito for the first time. Every time a customer orders a food or drink item, their card is swiped to keep track of how much money they are spending. Every time a customer spends over $50 they earn a free item.

While this strategy has worked really well for Bolco, more and more consumers are finding it bothersome to carry around reward cards. For this reason, you may want to attach their reward card to a phone number, so all they have to do is enter their phone number to receive their points.

2. Use a Tier Based System That Encourages More Purchases

Having a tier system can help to reward loyalty and can also encourage consumers to purchase more.

A tier system involves having a small reward for being part of the program and then increasing the rewards as the customer spends more. As they spend more the customer is moved up the reward ladder where they receive greater and greater benefits.

Frequent flyer points work similar to this, as the more a customer uses a particular airline, the more upgrades, discounts and benefits they will receive. There is also an incentive for customers to stick with the one airline as the more points they receive, the higher their status becomes.

This type of reward system is perfect for higher price point items, as the true rewards and benefits can sometimes take a while to accumulate.

For this reason, you also want to make sure that there is something tangible for customers the moment they join, rather than making them wait years before they spend enough to reach any significant benefits.

One example of a company that does a good job at tier based customer loyalty is Virgin Atlantic Flying Club. Rather than having customers wait till they reach “Gold” status to receive any benefits, there have different rewards available at each level, such as-

– Club Red Members earn miles on flights and get discounts on rental cars, airport parking, hotels and holiday flights.

– Club Silver Members earn 50 percent more points on flights and have access to faster check in and priority seating.

– Club Gold Members earn double the miles, have access to priority boarding and access to airport lounges where they can receive free food, drinks and even a massage.

The key with this type of loyalty program and what Virgin Atlantic is trying to achieve, is offering customers benefits at every level in order to hook them into coming back and remaining loyal. In the customers mind, they want to achieve the ‘Gold’ status so they are able to receive the amazing benefits (and that massage).

3. Charge an Upfront Fee for Benefits

This type of loyalty program works by charging consumers an additional fee or annual membership to be apart of a reward or benefit program.

Even though it may not sound like the best idea to charge customer to be in your loyalty club, it may be the right solution for your brand depending on your products and services.

One company that has created an empire out of this type of customer loyalty program is Amazon. They found that cart abandonment was causing huge issues to their profits as consumers would often abandon their cart after their realised how much shipping they would have to pay.

In fact, in 2015 one study found that cart abandonment rates across 500 of the leading brands online were just under 76 percent. This figure is huge and shows that more and more customers are getting turned off from having to pay shipping fees.

To counteract this problem, Amazon has implemented a program called Amazon Prime, which charges customers a $199 yearly fee in exchange for free two day shipping. This encourages members to use Amazon for all their purchases as they receive free shipping. Members also receive other benefits like access to Amazon’s video library and more.

By offering this membership, Amazon was able to boost their average yearly spend per person from $625 per year to $1,500 per year.

Even though this upfront fee may at first be alarming to some consumers, for those who are really interested in your brand and feel that they may use it more than once, it could make sense for them to purchase. This model also has the potential to work for B2B brands that deliver products or have return orders from businesses on a regular basis.

4. Make it Feel Like A Game

Everyone loves a good game, which is why turning your loyalty program into a game can encourage your consumers to be a part of your brand and return again and again to purchase.

To create a game that is fun and interesting for your customers to play, think about your overall demographic and what they may be interested in. For example, the online food ordering company, GrubHub ran a game like promotion for their customers called Yummy Rummy Sweepstakes.

For their game, GrubHub allowed users who used the online ordering platform at least three times to play a game in order to win free food, a GrubHub credit and other prizes. Players were instructed to choose one of four cards, and behind one of those cards they could unlock a gift or nothing. This meant that players had a 25 percent chance or a 1 in 4 chance of winning.

Casey Winters, who was part of the team behind GrubHub’s Yummy Rummy Sweepstakes in 2011 had this to say-

“You should strive to think of your program as constantly evolving to stay interesting to your users. This will make your program stay effective for longer as well as give you the flexibility to tweak elements to make it more interesting to you as the business. I have seen many companies stuck with a program they no longer think is effective, but too afraid to shelve it because of potential user backlash.”

One thing to be mindful of if your brand does decide to use the game method to create a customer loyalty program, is that it shouldn’t be too difficult for your customers to win. With some games, customers may feel as if they are being taken for a ride or that their odds of winning are impossible or not worth the hassle. For this reason, ensure your game is easy to play, doesn’t take up too much of their time and has at least a 25 percent chance of winning.

Like GrubHub’s strategy, all customers had to do was select a card for a chance to win. This was simple, had good odds of a prize and kept customers engaged and interested in coming back for more.

5. Partner With Another Company

Partnering with another company and creating a joint reward system could be the right step for your business depending on your target audience and market.

Partnered customer loyalty deals are know as coalition programs and can be an effective way to retain customers and grow your brand. This is because you have access to the customer databases of the brands that you have chosen to partner with as well.

Companies that have been successful with this strategy include FlyBuy’s which can be used in places like Target, Coles, Kmart, OPSM, National Australia Bank, Etihad Airways and more.

Every time a customer shops at one of these retailers or services, they are able to claim points which they can then redeem at those same retailers.

In the US, they have Plenti rewards which is very similar to the FlyBuy’s program and allows customers to earn points when shopping at big chain stores like Macy’s and Rite Aid, as well as online stores like Hulu.

According to Fortune Magazine, Plenti has been a great way for these brands to promote their products and services to huge number of consumers-

“For the companies, even ones like Macy’s that already have huge loyalty programs, Plenti is a way to tap into the broader customer based of its partners, save on program costs and lift sales by offering a more appealing program to customers.”

In order to create a successful joint rewards program, your brand really has to think about what other companies could be a good fit. For example, if you run a dog food company you may want to partner with a dog grooming service or a veterinary clinic.

Think about finding companies that are complimentary rather than competitive with your own brand as this could cause some issues.

Having a joint program that offers customers a wide variety of services that will fit their needs also shows that your brand cares and understands just what they are looking for.

6. Have No Loyalty Program

Could having no loyalty program be your loyalty program?

Instead of having a loyalty program, why not treat all your customers with the same amazing benefits and white glove services that your company provides?

This approach may work best for brands that sell unique products or offer a selection of more boutique products and services.

In order for this strategy to work effectively, your brand needs to offer a service like no other brand and really create a loyalty and benefits scheme around the entire purchasing process every single time.

This helps customers to stay loyal as they will enjoy doing business with your brand and know that they are getting exceptional service that they can’t receive anywhere else.

One company that has done this effectively is Apple. Even the most loyal of Apple customers don’t receive discounts, special rewards or product coupons. Apple claims that they don’t offer these benefits to anyone in order for everyone to stay equal and to offer customers rewarding benefits every time they purchase.

This means that Apple customers stay loyal because they want to and not because they are being promised any fancy bells and whistles.

Apple has also created a buying experience unlike any other technology store. Not only do they have helpful staff and displays of all their products to test and try, but they also have the Genius Bar which gives Apple buyers access to free classes, tutorials and more. In fact every customer that purchases an Apple product has access to an array of services and learning tools, which is all included free of charge.

Apple has created a huge club of loyal followers and this is partly because they offer all their customers the same benefits and price points.

Measuring the Effectiveness of Your Loyalty Program

No matter which loyalty program your business decides to go with, it is important to test it out and ensure that your customers are actually responding to it.

This will take time to really test accurately, but a few things that you may want to pay attention to include-

  • How many customers sign up to or engage with your loyalty program
  • What your customer retention rate is
  • What your negative churn rate is (the rate that customers leave your company)
  • Whether your customers are advocating your brand to friends or family
  • What the average spend is for a returning customer
  • How your customers are responding to your loyalty program on social media or in reviews
  • The associated costs or losses in regards to your loyalty program

There are of course many other factors to consider that will depend on your particular business and the type of loyalty program you are running, but these points should be a good place to start.

Offering your customers a loyalty program is a great way to demonstrate your brand’s loyalty to your customers and is also an effective way to keep your customers coming back for more.

Just remember, that no matter what loyalty program you choose, the most important thing is that you are offering your customers something that they are truly going to value.

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