The True Power of Loyalty Programs

The True Power of Loyalty Programs

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Despite being the key to a successful business, not enough time and energy is spent on cultivating loyal customers. According to the White House Office of Consumer Affairs, loyal customers are worth 10 times as much as their first purchase over their lifetime doing business with you. And it’s not just their purchasing power that serves your bottom line – loyal customers multiply your clientele through a constant stream of recommendations.

To keep consumers coming back, you have to focus on creating a positive customer experience. Service, pricing, recognition, personalization, appreciation and consistency are all elements of customer experience that deserve equal attention. However, today we’re looking at recognition and appreciation; or, to be more precise, customer loyalty programs.

When executed correctly, customer loyalty programs express your gratitude for your patrons’ continued business and acknowledge their part in your company’s continued success. They can also increase your profits considerably. Here’s how:

The Numbers

There’s no way to get around it – putting a customer loyalty program into action comes with certain costs. And since 77 percent of transaction-based loyalty programs actually fail in the first two years, you may be asking yourself why bother implementing one in the first place. Well, let’s count the reasons together:

  • 87 percent of consumers want a customer loyalty program. [Talech]
  • 74 percent of Baby Boomers, 58 percent of Gen X and 41 percent of Millennials claim they would be encouraged to spend with a brand that has a loyalty program [ICLP]
  • More than 45 percent of consumers say the opportunity to earn rewards is a primary driver for purchasing from a brand. [Maritz]
  • 86 percent of members agree loyalty programs are definitely worth the effort. [Bond]

I don’t belong to many loyalty programs. I have a couple of coffee shop punch cards, and a Target Red Card, but they’re not what comes to mind when loyalty programs come up in conversation. No, when I’m asked to recommend a successful, properly managed loyalty program, I put forward Ulta’s “Ultamate Rewards” program. I’ve been a member of said program since 2010, and my devotion to the brand is so deep that I seldom consider shopping for beauty products elsewhere.

Ulta’s reward program is a transactional-based points system. Each dollar spent results in one point, and once you reach $450 spent in a calendar year, you receive platinum status, which allows you to earn points quicker. These points translate into money off of purchases, and can be saved or spent as desired. Points programs often alter the way consumers make their purchases. For instance:

  • 66 percent of consumers modify amounts they spend to maximize points. [Bond]
  • 70 percent of consumers modify when and where they purchase from in order to maximize points. [Bond]
  • 58 percent buy from the stores and brands whose loyalty programs they belong to at least once a month. [DailyBreak Media]

Many of the products I purchase at Ulta could be picked up on my weekly grocery shopping trip. However, I go out of my way to swing by their store instead in order to earn points. I shop at Ulta 2-3 times a month, and while it’s not entirely as a consequence of their loyalty program, it does take the lion’s share of the reasoning.

Loyalty programs affect customer behavior in other ways as well.

  • 34 percent of customers say they would not be loyal to the brand if it weren’t for the brand’s loyalty program. [Bond]
  • 75 percent of consumers say loyalty programs are part of their relationship with brands. [Bond]
  • 83 percent of members agree that loyalty programs make them more likely to continue doing business with certain companies. [Bond]
  • 68 percent of women, and 53 percent of men, said that getting rewards from a brand makes them stay longer, and not switch to competitors. [Cherry London]

Ulta’s loyalty program is a huge part of my relationship with the brand. Through the points I’ve earned, I’ve received a number of free products, discounts and special offers. And since theirs is the most rewarding loyalty program, I’m not even slightly tempted to switch to their competitor, Sephora.

If you’re wondering how a well-run loyalty program benefits the business, consider the following statistics:

  • The average repeat customer spent 67 percent more in months 31-36 of their shopping relationship than in months 0-6. [Bain]
  • 73 percent of people are more likely to recommend brands with good loyalty programs. [Bond]
  • 75 percent of U.S. companies with loyalty programs generate a return on investment. [Experian]

Six years ago, on my first trip to Ulta, I spent $20 in order to get a free gift that was being offered. So far this year, I’ve spent about 10 percent of my income. I recommend Ulta to every friend, family member and random person on the street who compliments my lipstick. Accompanying friends on their first visit is one of my favorite pastimes – and I always make sure they sign up for the rewards program.

Simple Ways to Implement a Loyalty Program

Now that we’ve looked at the why, let’s look at the how. Not every business can afford something as large as Ulta’s rewards, but there are many ways to approach the customer loyalty program that won’t bankrupt you.

  • Freebies: Offer something free that’s related to what your customer is already buying. The old standard of “buy x amount of product, get x free,” is both appreciated by the consumer and affordable for your business. You can use the long-established punch card or leverage your POS system for a digital approach. No matter how you choose to do it, tally up their visits and give something back. Once your customers have invested time and money to earn a reward, they’re more likely to continue coming back.
  • Discounts: Offer discounts to encourage customers to come back. Coupons good for a future visit, or special offers printed on their receipt are a great way to thank them for their current business – and invite them to return.
  • Gifts for Referrals: If your customers are kind enough to refer others to you, reward them for doing so. Offer a free product or major discount to any customer whose referral does business with you. If you can afford to, offer something to both your current customer and the referral as this is a great way to cultivate loyalty from both of them.
  • Email Promotions: Encourage customers to sign up for your email list by offering an on-the-spot discount. Once you have their email address:
    • Send coupons and special offers at least once a month
    • Send birthday offers
    • Give advance notice of sales and information on new products
    • Offer opportunities only available to loyal customers.
    • Keep track of what your customers have purchased so you can send personalized special opportunities.

A well-managed loyalty program is one of the best tools for success – but remember that it’s only one part of a great customer experience. At its heart, a loyalty program is about appreciation and recognition. Go above and beyond that program. Always show customers that you’re grateful for their business, and be sure to train your staff to do the same. Most importantly, never take your customers for granted. Without them, you have no business.

Liz Greene is a writer, marketing professional and full blown pop culture geek from the beautiful City of Trees, Boise, ID. When not stalking the aisles of her local Ulta, she can be found shoveling down sushi while discussing the merits of the latest Game of Thrones fan theories. You can follow her on Twitter @LizVGreene, or check out her latest post on Three Broke Bunnies.

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