A customer loyalty program is a strategy where businesses reward customers for brand engagement and repeat purchases. The tactic is gaining popularity among businesses all over the globe. As per an Accenture study, more than 90 percent of companies in the U.S. have some form of loyalty program in place. MarketsandMarkets projects the size of the worldwide loyalty program management market to reach $15.5 billion by 2025 from $7.6 billion in 2020.
Businesses that have well-planned customer loyalty programs enjoy the following benefits.
Retain Loyal Customers
Loyalty programs result in a cycle where businesses reward loyal customers and reinforce their loyalty. A strong and well-planned loyalty program management appeals to the emotional side of existing customers, retains them, and creates brand evangelists. As acquiring a new customer is five times more expensive than retaining an existing customer, it makes more sense to invest in a good loyalty program. According to a Forbes report, loyal customers spend 67 percent more on average compared to new customers.
Increase Sales and Revenue
Do loyalty programs enhance sales and revenue? Of course, they do! A good loyalty program incentivizes shopping and encourages customers to buy more to get more rewards. Paid loyalty programs are more effective compared to free programs. As per a McKinsey survey, the former members are 60 percent more likely to spend more after subscribing. The latter increases the chance by only 30 percent. When customers buy more, try new products or services, and refer their family and friends, it increases sales and brings more revenue to a company.
Attract New Customers
Besides retaining existing customers, strong loyalty programs attract new customers and encourage them to buy more. It’s no secret that coupons, deals, and special rewards have played a major role in bringing new customers and retaining them. As per a Wirecard study, 45 percent of customers made at least one purchase from a brand due to incentive, and 75 percent of them are likely to repurchase after receiving the incentive. Asking a new customer to sign up for a loyalty program keeps them in the sales funnel and lets them know about other offers and deals.
Enhance Profits
A good loyalty program ensures that a steady amount of revenue flows into the business. When more customers buy from a business, it increases sales. As sales and revenue increase, so do the profits. Also, a greater customer retention rate results in higher profits. As per a Harvard Business Review report, increasing customer retention rate just by five percent enhances profits by up to 95 percent.
Reduce Costs
Loyalty programs have proven to be more effective than many advertising campaigns. Businesses can reduce advertising costs by planning and creating attractive loyalty programs. As discussed above, loyalty programs also retain more customers and bring down customer acquisition costs to a large extent.
Boost Brand Reputation
What do Amazon Prime, Starbucks, Sephora, and DSW have in common? They are renowned for their innovative and excellent customer loyalty programs. High-quality customer loyalty programs play a key role in enhancing a business’s brand reputation. The customers that are part of such loyalty programs become brand ambassadors themselves and refer their family and friends to purchase from their favorite brand(s).
Exceptional Shopping Experience
Well-crafted loyalty programs give enhanced personal shopping experiences, making customers loyal to a brand. As per a Bond survey, 32 percent of respondents stated that a good loyalty program provided them with a better brand experience. Good loyalty programs provide great value to companies and enhance brand familiarity and good sales.
Gain Competitive Advantage
According to an HBR study, companies with strong loyalty programs (loyalty leaders) increase revenue nearly two and a half times faster than other businesses in their industries. As per Bond, members of high-performing programs are 77 percent more inclined to select the business over competitors. Businesses with effective loyalty programs no longer compete on price and stay ahead of the competition.
Reduce Slow Time
Many businesses go through a slow time. It’s the time in which they witness a slump in their sales and profits. A good loyalty program can increase sales and reduce the slow time. Businesses can give more rewards in a slow time and have an expiry date so that customers can go to the website or store within a specific period.
How to Create an Effective Loyalty Program
Are you considering creating a strong customer loyalty program? Look no further. Here are some steps to create an effective loyalty program.
Research Existing Customers
Before creating a loyalty program, research and find out crucial information on current customers. Know how much an average customer spends per year, what types of products they purchase, how fast they pay, and how often they buy. Also, find out how satisfied they are with your brand and if you can sell them other complementary products.
Craft an Effective Program
After getting the crucial information about your existing customers, craft a program targeting the frequent buyers as well as those who are likely to engage more. Focus on providing exceptional customer service and have your team prepared for that. Make sure your employees know what the customers expect from you and that they are well equipped to meet customers’ expectations. Select effective techniques that will encourage customer loyalty.
Fix a Budget
After designing an effective program and selecting effective tactics to boost customer loyalty, set a budget that will enable you to go ahead with your plans and sustain them. Setting one budget for attracting new customers and another to retain existing customers is a good idea. Find out the average cost of loyalty programs in your industry and decide a budget accordingly.
Build Trust with Customers
Apart from offering a robust loyalty program, building trust with customers with meaningful interaction and engagement is crucial. Make sure to deliver added value that can delight the existing customers and entice new prospects. Try to exceed their expectations and deliver an unmatched experience.
Share Positive Experiences
No matter how awesome your customer loyalty program is, people won’t know until they see and hear what others think and feel about it. Request the existing customers to write their experiences with your offerings. After receiving positive customer experiences and feedback, spread the word and let people know about them. Collect reviews and testimonials and use multichannel communication to share the messages and appreciation.
Summing Up
Customer loyalty programs have many benefits, and every brand should have at least one program in place. They enable businesses to retain customers, attract new customers, boost sales and profits, give exceptional customer experience, and much more.
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