Every small business has considered a customer loyalty program at one point or another, but very few ever develop a comprehensive plan that’s sustainable and profitable. If you want to create a program that incentivizes customers and keeps them coming back for more, you need to spend some time hashing out ideas with each department in your company. In order for it to be successful, everyone must be involved.
Value of Customer Loyalty Programs
For every business, there are two major focal points when it comes to customers. There’s the need to attract customers, as well as the need to retain existing customers. While the former is certainly the first thing to think about, the latter is arguably even more important in the long run.
According to research, businesses spend 5-10 times more to acquire a customer than they do to earn a purchase from an existing customer. On top of that, current customers spend on average 67 percent more than new customers. In other words, you need to keep your existing customers happy if you want to enjoy maximum profitability.
This is where customer loyalty programs come into play. As the name suggests, the purpose of these programs is to establish loyalty amongst customers. These programs are designed to encourage repeat purchases and longevity.
6 Tips and Suggestions for Effective Programs
According to a 2015 study on customer loyalty, the average American household is a member of a whopping 29 different loyalty programs. However, they are only active in roughly 12 of them. This means the majority of customer loyalty programs aren’t doing enough to keep customers engaged. They’re essentially a waste of time, money, and effort.
If you want your customer loyalty program to be effective, then you need to spend time carefully developing it. This means doing the following:
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Establish Clear Goals
You need clear goals from the start. If you’re creating a customer loyalty program simply for the purpose of having one, you aren’t going to be very effective. You need company-specific goals that allow you to structure a program in a way that’s beneficial to both your customers and your bottom line. Hash these goals out sooner rather than later.
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Use a Simple Point System
When customer loyalty programs go wrong, there’s almost always an issue with the point system. Businesses will try to get too cute or complex with how points are computed, which confuses everyone involved. Ultimately, if no one understands how the system works, nobody is going to use it.
The best rule of thumb is to clearly outline how points are earned and redeemed. For an example of how this looks in practice, check out this program from Wholesale Marine. They have a section that outlines the rules clearly. One point is awarded for every dollar and points are redeemed at checkout. It’s that simple.
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Develop Cross-Functional Teams
In many instances, customer loyalty programs fail because they don’t understand the customer. Instead of making your customer loyalty program a customer service initiative, get everyone involved by developing cross-functional teams.
Your customer loyalty program should be developed using influences from marketing, advertising, sales, customer service, accounting, and every department in between. This will ensure all aspects are accounted for.
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Position the Program as Elite
While it won’t work for every business or industry, developing a program with an upfront fee can be an effective way to drive demand and enhance the perception of quality. For example, Amazon’s Prime program costs $99 per year but is still highly sought after. The reason is that the price tag brings with it a sense of exclusivity.
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Focus on Communication
One of the keys to an effective customer loyalty program is strong communication. You should send out regular emails, mailings, and messages to ensure customers are actively thinking about the program and using their points to make repeat purchases.
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Have a System for Measuring Efficacy
Launching a program is important, but so is monitoring the effectiveness after implementation. After all, the last thing you want to do is waste your effort on maintaining and growing a program that doesn’t work.
The key to measuring effectiveness is using the right analytics. Some of the ones you’ll want to focus on include customer retention rate, negative churn, average number of repeat purchases, and loyalty program activity.
Put the Customer First
When developing customer loyalty programs, there are two opposing forces seemingly working against each other. You want to satisfy the customer, but also positively impact profitability. While there are ways to satisfy both customers and profitability, you ultimately want to put the customer first.
You have to trust that – in the long run – loyalty will repay upfront expenses. This means you must focus on the customer first and then discuss immediate profitability. If you do it the other way around, you’ll end up having just another underleveraged program that customers don’t actively use.
