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Customer Loyalty Programs. Everyone has heard about them, and for good reason -it can make or break a brand. But developing trust and loyalty with a customer can be a monumental task, but this guide provides the tools and knowledge required to make it easy.
Customer loyalty matters for every business, big or small — and not just online shopping.
Let’s take a look at some facts and figures.
- It costs a company about 5-25X more to acquire a new customer than keeping an existing one.
- Existing customers will end up spending 67% more than new customers.
- 82% of US adults say they’re loyal to brands.
And that’s not all. Take a look at this image.
In short, building a customer loyalty program will up your e-commerce game. But the question is, how do you create one?
We’ll answer this question in detail throughout this guide on customer loyalty. As you read it, visualize yourself implementing the steps we outline. That way, you’ll be more prepared to implement them in real life.
What is Customer Loyalty?
Customer loyalty refers to a customer’s willingness to buy from or work with a brand time and again. It’s the result of positive customer experience and the value of the products or services the customer gets from the transaction.
That said, customer loyalty is much more than giving a one-step checkout experience to buyers. There are many nuances that we’ll discuss further. But before we get to them, let’s explore the importance of customer loyalty.
Why is Customer Loyalty so Important?
These graphics say it all! The crux of customer loyalty is to attract and retain happy customers who buy your products and drive revenue.
Loyal customers convert and spend more with your brand and end up telling their friends and colleagues, too. This helps drive free referrals.
Word-of-mouth marketing is more effective at attracting new customers than advertising and branded content. These referred customers, in turn, become loyal customers that are likely to spend more than average.
| INTERESTING FACTSIn the US, 40% of online shopping revenue comes from repeat customers, who are typically only 8% of a site’s visitors. |
We inhabit a world where there are hundreds of different options for virtually any product or service of our liking. Wouldn’t you agree? Then why do we keep going back to a handful of brands? It’s because we trust and love some brands so much that the value we get from being their customer outweighs the potential benefit of a lower price or a different product from another brand.
Now,
- What are the actual tips and tricks to use when building your very own loyalty program?
- How do you convert happy, satisfied customers into loyal brand evangelists?
- How can you make the best use of positive Yelp reviews, glowing tweets, and Instagram mentions to propel your brand’s growth?
We’ve answered these three questions collectively for you in the form of nine actionable ideas. You can start using them right away. After going through the list, you’ll also get to know three of the best loyalty programs.
7 Actionable Ideas for Building Your Customer Loyalty Programs
1. Use a Simple Point-Based System
This is the most commonly followed loyalty program principle. Frequent customers will earn points, which translate into some type of reward. Whether it’s a discount, a freebie, online cashback, or special customer treatment, customers have to earn a certain amount of points to redeem their reward.
However, many companies falter when using this method because they make the relationship between points and rewards too confusing.
An example of a confusing point-based system:
Seventeen points equal one dollar, and twenty dollars earn 60% off your next purchase in April.
An example of a clear point-based system:
50 points = $1. Redeem your reward after collecting $5.
Using familiar mathematical and currency symbols makes it easy to relate to the system at a deeper level. Also, like our second example, conversions should be simple and intuitive.
This system works best for businesses that encourage frequent, short-term purchases.
This gamification principle can dramatically improve your customer loyalty!
2. Partner with another company to provide an all-inclusive offer
Strategic partnerships for customer loyalty can prove effective in retaining customers and growing your brand awareness. These partnerships are also known as coalition programs.
How do you zero in on a company for a partnership? You can decide this by fully understanding your customers’ everyday lives and their purchase processes.
Let’s understand this through an example. Consider that you own a dog food company. You might partner with a pet grooming facility or veterinary office to offer co-branded deals. Such deals would be mutually beneficial for your company and your customer.
When you provide your customers with value that’s relevant to them and is also different than what your company alone can offer them, you’re showing them your care for their needs. Plus, you can grow your network to reach your partners’ customers, too.
3. Reward Initial Loyalty and Encourage More Purchases Using a Tiered System
If you’re running an online retail brand, you need to strike a balance between attainable and desirable rewards when designing loyalty programs. You can do this by implementing a tiered system that rewards initial loyalty and encourages further purchases.
Present small rewards or cashback as a base offering for subscribing to the program. At CheckoutSaver, we do that by providing a $5 bonus to new members. Encourage repeat customers by subsequently increasing the value of their rewards as they move up the loyalty ladder.
Here is a snapshot of a three-tier loyalty program.
Image credit: Marketing Insider Group
From a business perspective, tiered programs work well for high commitment, higher price-point businesses like hotels, airlines, or insurance companies.
By the way, do you know why customers love to be a part of such loyalty programs?
Let us decode it for you.
Tiered Loyalty Programs Use Behavioral Science
Tiers help you set up a loyalty program ladder – and the rules that customers should follow to receive rewards and benefits. But famous loyalty programs also give these customers a “status” that makes them stand out and feel more acknowledged and invested in the brand.
In addition, such programs also provide a goal for members to achieve, and therefore an incentive to keep them interested in the loyalty program longer.
When comparing loyalty programs to Maslow’s Hierarchy of Needs, tiers can satisfy the upper three categories.
Think about video games you play, where you collect treasures to unlock a higher level. Once you reach it, more awesome rewards are unlocked for you that weren’t available before. Ultimately, you get addicted to this gameplay loop, because it lets you experience a series of incremental achievements that feel very satisfying.
4. Play Loyalty-Based Games
Build on this idea by turning your loyalty program into a game where returning customers can play and win points. You can give these points a name of your own. This will further solidify your brand’s image.
A good gaming-cum-loyalty strategy should be similar to the one shown in this image.
Image credit: GameZBoost
However, here is a word of caution. In contests or sweepstakes, you may give customers the feeling that your company is jerking them around to win their business without providing rewards. To avoid this, make sure customers win frequently. The odds of winning should not be less than 25%, and the purchase requirements to play should be reasonable.
Also, consult your company’s legal department before you make such games public.
5. Charge an Upfront Fee for VIP Benefits
Loyalty programs should break down barriers between customers and your business. So why are we telling you to charge them a fee? Are we serious?
Sometimes, a one-time (or annual) fee that lets customers bypass common purchase barriers is quite beneficial for both a business and its customers. You can customize a fee-based loyalty program to address the issues customers face during checkout.
According to a study of 500 leading global brands, cart abandonment rates touched 75.6% across retail, travel, and fashion. This abandonment is often caused after tax and shipping prices have been applied to the price of an item. Amazon found a way to combat this issue by charging an upfront fee for its loyalty program, Prime.
6. Structure non-monetary Program Related to Your Customers’ Values
Loyalty programs are not always about money. They’re also about understanding your customers’ values and sense of worth. Shared values have a huge impact on a customer if he or she is loyal to a brand. In fact, CeB surveyed consumers on customer loyalty and discovered that customers were loyal “not to companies, but to beliefs.”
Depending on your industry, your customers may find value in non-monetary or discounted rewards. For instance, CheckoutSaver offers its users “One-Time Coupons” that they won’t find anywhere else. Users can also sell unused coupons. This helps them save money and also earn a few dollars.
Similarly, businesses should find new ways to provide amazing value to the customer and grab that unique opportunity to connect with their audience.
7. Build a Great Community For Your Customers
Customers are more likely to trust their peers than to trust a business. Whether it’s social media, customer review sites, or forums, the slightest slip up can be recorded and uploaded for the world to see. But you can create a positive image for your brand by establishing a community that encourages customer-to-customer interactions.
Self-service support resources are good. If you have a knowledgebase, you can create a community forum. Such forums encourage customers to communicate with each other on various topics, such as troubleshooting the product or retelling service experiences. Even if they leave negative feedback, it gives you valuable information about where your products are going wrong and what matters to your customers.
As your community grows in size, you may formalize it to keep things organized. A consistent system ensures fairness and keeps customers satisfied over time.
These are the ideas that work best for building a sustainable and profitable loyalty program.
Top Customer Loyalty Programs in The World
We’ll discuss these programs in this section:
- Amazon Prime
- American Express Plenti
- Sephora Beauty INSIDER & VIB
Let’s begin.
Amazon Prime
Amazon Prime users get free, two-day shipping on millions of products with no minimum purchase, and many other benefits.
Why have we included it first on the list? Because Amazon provides enough value to make shoppers feel like it’s benefitting them. Industry analysts estimate Amazon loses $1-2 billion per year on Prime. But the company covers it in increased transaction frequency.
| PRIME FACTS According to a report from Consumer Intelligence Research Partners, Prime members spend an average of $1,500 per year on Amazon.com as compared to $625 per year spent by non-Prime members. |
American Express Plenti Program
American Express has a huge partner base with many companies. The company’s Plenti program was launched in May 2015 and lets consumers pool their rewards from various retailers like AT&T, Macy’s, Rite Aid, Hulu, Enterprise Rent-A-Car, and more.
Plenti members can earn points for shopping at these partner sites and redeeming their points by linking their existing store loyalty card to their Plenti account.
Flexibility is the USP here as customers can earn and redeem rewards at a variety of retailers. Plenti helps American Express tap into the broader customer base of its partners, save on program costs, and boost sales by offering a more appealing program to customers.
Sephora Beauty INSIDER & VIB Programs
Sephora, a leading cosmetics brand, is an example of a company following the points-based loyalty program. This is how it works –
- Customers swipe their stylish Beauty Insider card during every purchase, and the card tracks the amount of money spent.
- Every dollar spent is equal to one Beauty Insider point.
- Shoppers can redeem points during checkout.
Sephora offers VIB and VIB Rouge programs for its more loyal customers. It offers customers more rewards after spending enough money at Sephora to reach a certain threshold. Thereafter, it scales up the rewards depending on how much the customer spends. This acts as an incentive for customers who can save money by shopping more and again earning new points.
Final Thoughts, and Good Luck Building Your Customer Loyalty Programs
Once you have successfully launched your customer loyalty programs, measure its effectiveness. This can be done by analyzing various parameters, such as:
- Customer retention rate
- Negative churn
- Net Promoter Score (NPS)
- Customer Effort Score
Loyalty programs won’t achieve success overnight, so you have to be patient and let them build. Follow a systematic plan, and you will surely reap the rewards of your time, effort, and investment.
Good luck!