5 reasons why customer loyalty programmes are so important

Customer loyalty increases profits, improves sales success and allows for sustainable growth.

A well-designed and well-executed loyalty programme can help you retain existing customers, attract new customers, reduce turnover and drive profits.

Nearly 6 in 10 UK adults believe that brands should offer loyalty programmes, and almost 60% of internet users cite ‘earning rewards’ as one of the most valued aspects of the retail shopping experience. 

The average repeat customer spends 67% more in month 31-36 than they spend in month 0-6. 95% of companies report that their loyalty members spend more annually than non-members, and almost 50% of consumers actively admit that this is true about themselves. 

Yet, only 18% of businesses focus their efforts on customer retention. 

95% of consumers want companies to find new ways to reward them for their loyalty, hoping for customer loyalty isn’t enough in 2020. Here’s why: 

 

1. Loyalty programmes build an emotional connection

Loyalty programmes drive sales and increase customer lifetime value. On the most basic level, that is done through incentives. But there is something deeper going on here, and the emotional connection that loyalty programmes foster can be even more important.  

A loyalty programme will help build emotional commitment through repeat behaviour. However, a creative approach to the offers made can do more. Curating a host of third-party promotions (access to restaurants, cinemas, spas and retailers) can create a community and ‘lifestyle’ perception that will help emotionally connect customers to your brand. If you can partner this with personalisation, the impact is even larger.   

For a great example, take NikePlus — Nike’s mobile loyalty programme. Members use Nike’s branded app to access birthday rewards, member-exclusive products and content, offline event invitations and online workouts. Nike’s programme has been wildly successful. It’s reported that NikePlus members spend four times more than non-member shoppers. 

 

2. Repeat customers have a high ROI

It costs five times as much, on average, to acquire a new customer than to retain an existing one. Existing customers are 50% more likely to try a new product and spend 31% more per purchase than new customers. Although marketing efforts aimed at reaching potential customers are essential for growth, retaining customers is where the long-term value resides. If you don’t retain customers, you will just replace customers as they churn.  

Incentivising customer loyalty via a programme can help you avoid high churn rates and hold onto high-value customers. It’s also a cost-effective approach to driving sales. Building a relevant, engaging reward programme means you can designate fewer resources to traditional advertising efforts and spend more time building valuable, long-term relationships with existing customers. It can also help you get new customers in the first place, which brings us to…

 

3. Loyalty helps you reach new customers

Loyal, satisfied customers are one of your most powerful marketing tools. In the age of eCommerce and online review websites, positive customer word-of-mouth is essential to attracting new customers. In fact, 83% of consumers place more trust in personal recommendations than any other form of marketing. A McKinsey study showed that referrals generate two times the sales of paid advertising. 

With a well-designed loyalty programme, you can gamify and incentivise referrals, rewarding customers who invite new shoppers. There’s strong evidence to suggest that referred customers are more loyal, more profitable and have lower churn rates than non-referred customers. Ultimately, although customer acquisition has historically been expensive, if you have the right loyalty programme and advocacy system in place, expanding your customer base has never been cheaper. 

Of course, your loyalty programme can also be a unique selling point in and of itself, especially in a saturated marketplace. If you are unable to budge on price or other differentiating factors, you can gain a competitive advantage with your loyalty offerings. Remember, people actually pay to use credit cards. These are products that beat-out free competition more or less solely based on loyalty programmes tied to lifestyle/emotionally triggering messaging.  

 

4. Loyalty programmes deliver customer insights 

Loyalty programmes should be designed to offer maximum benefit to your customers, but also to your brand. Digitising your reward programme means you can view real-time data about how your customers engage with your programme and your brand as a whole. Access to this information enables you to develop innovative and effective strategies for improving your loyalty programme, but also your brand on the whole. 

Rewards programmes actually double as a form of market research. Digital functions allow you to experiment with various incentives, identify the rewards that appeal to specific types of customers and pinpoint the rewards that don’t receive as much engagement. Rewards programmes also personalise your view of customer buying habits. You can attribute specific sales to specific people — helping you build detailed customer profiles and understand nuances within your own target market that might otherwise fly beneath the radar. You can then feed this data back into both your loyalty programme and strategic brand decisions to better connect with customers on an individual level.  

A very interesting example of how creating personalised attributions for buying patterns can impact strategic decision-making is CLV — customer lifetime value. Armed with robust CLV calculations, you might consider under-pricing your competitors in order to increase market dominance, or develop a new product line that will appeal to particular customer segments, regardless of whether or not that particular product/service will be profitable.

 

5. It’s never been easier to build a customer loyalty programme that works

If your goal is to build a system using anything more advanced than physical loyalty cards, getting started can be daunting. While 69% of programmes still offer physical cards, 70% of loyalty programme members currently access their rewards using an app. If you want the attention of modern shoppers (and access to many of the benefits listed in this article), a technologically enabled loyalty solution is going to be a requirement. 

Fortunately, a lack of tech expertise shouldn’t stop you from achieving your loyalty programme goals. The growing importance and sophistication of loyalty programmes has been accompanied by a growth in loyalty marketing specialists. These agencies offer turnkey and bespoke solutions, creating customised and branded programmes and apps, optimising backend analytics, helping you make the right strategic decisions. Loyalty specialists can help you expand your rewards offerings beyond just your brand, and develop and deploy a loyalty programme that will bring you stronger ROI. Ultimately, giving your customers what they want starts with forming the right partnerships.

The right loyalty marketing partnerships will not only make it easier to deploy a system, you will gain access to the technology and expertise required to deliver creative solutions. For example, 75% of customers are more likely to buy from brands that make recommendations based on purchase history or address customers by name.

Geolocated targeting is another very interesting and effective tool that a solid technical foundation for your programme will let you deliver. As many as 72% of users act upon a digital call-to-action when they pass near a physical storefront. By using geofencing and wifi proximity, your loyalty app can call upon a wide range of third-party partners to provide push notifications to loyalty members — creating an engaging and valued experience. 

Maybe most importantly, the right loyalty partner will help you curate the right mix of promotional partners — developing a relevant portfolio of loyalty offerings to delight your customers and create that much needed emotional connection. 

 

The bottom line: customer loyalty = higher profits and more growth

A relevant customer loyalty programme can be a solid foundation for a successful customer engagement strategy. Customers enjoy fantastic discounts and offerings tailored to their needs and preferences, and your brand enjoys lower churn rates, more organic acquisitions and higher profitability.

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