How to Grow Loyalty with Rewards Program
In this article, you will learn about how to use loyalty programs for growing loyalty with customers by giving you 1) a short introduction to loyalty and rewards programs, 2) tips how you can increase your customer’s loyalty by using reward programs, and 3) a short conclusion.
INTRODUCTION TO CUSTOMER LOYALTY PROGRAMS
A loyalty program is a rewards program that is offered by a business to their customers. Loyalty programs serve two purposes: to provide customers with a reward for being loyal to a brand and to provide valuable customer information to the issuing business. Loyalty programs are valuable to both businesses and customers because businesses are able to procure a fuller and more informative evaluation of the kinds of products customers purchase and which products are often purchased together. In this way, businesses can serve their customers better by offering incentives that customers are interested in.
There are several different types of loyalty programs, and most businesses choose one to participate in. One of the most common loyalty programs for retailers is a points-based program. A points-based program will award customers points for engaging with the company. Often times, customers are awarded loyalty points for their purchases. This is a simple service but the downside for customers is that many programs do not offer rewards in the short term. Businesses like airlines and hotels often offer a different kind of program called tiered programs. By offering a tiered loyalty program, they can separate their most loyal clients from the more casual users. Tiered loyalty programs often have few benefits for those in the lowest tiers, but the rewards can be very lucrative for the most loyal customers. These types of programs cost a lot of money for both the customer and the business. The final major loyalty program is a coalition or partnership program. These programs work on an open system where customers can earn rewards points by shopping with participating businesses. While customers delight in this kind of open system, it is not advantageous for most businesses because it does not stress loyalty like other programs do.
A loyalty program should benefit both the customer and the business but in many cases the loyalty program begins to cost the business more money than it is worth. Businesses should use loyalty programs to increase customer loyalty and retain regular customers because by retaining just 5% of their customers, businesses can increase their profits by nearly 100%. According to a report by Manta, repeat customers spend as much as 67 percent more on purchases than new customers do. Large and small businesses can use loyalty programs to increase their customer retention rates and grow their profits by targeting their customer group, creating programs their customers are interested in and utilizing the valuable feedback that a good rewards program can provide them.
HOW TO INCREASE CUSTOMER LOYALTY WITH REWARDS PROGRAMS
Loyalty programs are a great way for both small and large businesses to increase their customer loyalty and improve their customer retention. By creating a focus on a target group and providing them services they are interested in, businesses can avoid the pitfalls that plague many loyalty programs in the market today.
Step 1: Identify the customer group you want to focus on as well as their preferences
Identifying a target market is one of the most important tools in business, and this includes loyalty programs. Segmenting customers into defined groups helps businesses to make sense of data and make more informed decisions regarding their customers. By segmenting customers, businesses can easily identify their most profitable customers as well as focus on customers who are most likely to engage with the business. Loyalty programs do not benefit from casting a wide net and by identifying a target audience, businesses can use their resources wisely. This does not mean that a business should only focus on its most profitable customer base, but it does allow businesses to adjust their marketing for specific groups. To most effectively market to their customers, businesses should work with a manageable number of segments rather than trying to meet the needs of several customer groups with one target.
Once customers have been broken up into manageable groups according to their behaviors, businesses can identify the types of behavior that they want to encourage through their loyalty program. To begin, businesses must identify the behaviors that are most important to them. Some businesses may want to reward the big spenders while others may way to reward the frequent visitors, and they should recognize the difference between the two. For example, Delta Airlines recently changed its Skymiles program to reflect the amount of money spent on each ticket purchase so that customers who routinely buy expensive tickets can earn the similar rewards as those who regularly take long-haul flights. By prioritizing the kind of behavior they want to encourage, businesses can reach out to their customer bases more easily and reward them fairly for their loyalty.
Step 2: Increase interest to your loyalty program from these customers
Keep it simple
The best thing that a business can do to run an effective loyalty program for their customers is to keep it simple. Running an easy to use rewards program at launch provides many benefits for the program and the business. Loyalty programs should begin with simple spending rules.
The most effective loyalty programs do not include a long list of rules and restrictions for the rewards program. Customers that read the rules will often find them confusing or too exclusive, and they will lose their initial excitement over the possibility of rewards. Starting out simple also allows businesses to make changes that have been suggested by customer feedback. Instead of launching complicated rewards programs, businesses should consider implementing the ideas for the rewards programs slowly and over time. This will show the customers that the loyalty program is evolving and taking on new functions that may benefit them.
Create a service that works alongside others
As the loyalty program evolves, some businesses choose to form partnerships or coalitions with others to cast a wider net for their customers. They do this because research and customer surveys show that many consumers crave the flexibility that affiliate programs offer. Partnership programs also create excitement for customers as they are able to earn rewards through normally mundane tasks such as paying the electricity bills or filling their cars with petrol. When businesses run these partnership programs correctly, they are able to exhilarate customers without endangering customer loyalty. There are many benefits to running a service that works alongside other businesses. The first is that the program is more likely to be often used because the rewards ID, card or token is more likely to be carried in the customers wallet or purse, and it serves as a regular reminder of the business. A second benefit is that the customer database is usually larger and includes the data of many different target markets. With a broader availability for data collection, businesses will experience higher penetration rates as well as a more detailed analysis of customer trends and data.
The coalition loyalty program is most commonly found in the travel industry. Airlines have become infamous for offering rewards to customers who spend money through their affiliate programs on their websites. By offering these services, airlines drive more traffic to their websites, and they learn more about consumer shopping and travel habits. Several airlines also offer partnerships with hotels. This is an excellent example of a partnership program because consumers who are regularly flying usually require hotel rooms. Since airlines and hotels are natural allies rather than a competing partner, they can work in tandem to provide greater rewards to loyal customers. In 2013, Delta Airlines and Starwood Hotels introduced their innovative Crossover Rewards program where customers could earn 1 Starpoint for every dollar spend on Delta fligths and customers earn 1 mile for every dollar spent at 1,100 Starwood hotels. Customers who had earned top-tier rankings with either company also gained additional benefits, with SPG Platinum members enjoying the elite benefits on Delta flights and Platinum Medallion members at Delta earning access to elite perks at Startwood hotels.
Offer cash rewards and incentives
It may seem easier for both big and small business to offer products as rewards to customers who are loyal to their business. But consumer analysis may show that the business’s customers are interested in a wide variety of things. Businesses like supermarkets often offer these cash rewards for customers to spend in store so that they can purchase the items that they want or need. Offering cash rewards and incentives offers customers the freedom of choice while still driving them back to the business that they earned rewards from.
Sainsbury’s is a UK supermarket and retailer that runs one of the most popular rewards systems in the UK. The format is simple: customers can earn 1 Nectar point for every £1 spent in a store, online or on fuel. Sainsbury’s also features events where shoppers can earn double points on their purchases or where their points are worth more in cash or vouchers. Typically, 500 Nectar points are worth £2.50 in vouchers that can be used in store or online. These cash rewards allow customers to spend their vouchers in anyway they see fit including fuel. It is the fuel benefits that drive many customers to the Nectar card program.
Offer valuable rewards
To run a loyalty program, rewards should be given out strategically. While it may seem easy to offer rewards that come from excess stock, businesses should think outside the box and offer customers rewards that are worth working for. It is important to remember that loyalty programs do not just give free products away, customers are earning them through spending money and time on the company.
Offering valuable rewards is an opportunity to offer personal rewards. By owning a database of consumer data that has been well segmented, it is easy to see what matters to each group. By offering relevant rewards to customers, they will feel that the program offers a more personal service, and they are more likely to continue to use the loyalty program after they have earned their first reward. Marks and Spencer, a European retailer, offers a loyalty program that rewards its customers through a variety of ways. While most loyalty customers are offered vouchers in the post each quarter, the biggest spenders are invited to the store for exclusive events involving personal shoppers, manicurists, fashion shows and free products. These events drive customers to the store and offer customers a personal service. Because Marks and Spencer is a full-service retailer, loyal customers are also offered preferred rates on travel money, and this has been one of the leading contributors to the popularity of the program.
Promote your loyalty program
The best way to promote a business or service is through word of mouth and today, word spreads faster than ever through social media. Implementing a social media strategy has become critical for the success of a loyalty program. In addition to significantly increasing organic word of mouth mentions, businesses can reward customers for mentioning them by attaching a currency value to online interactions. Marriott recently piloted a program where they gave away 5 points to customers who mentioned one of their branches or used a prescribed hashtag in a Tweet. Using this program, dedicated travelers could earn 100 points each day by mentioning Marriott online.
To use social media effectively, sharing should be made easy. To start, make it easy for customers to reach the business through social media and be certain to respond. Lead conversations that are important to customers through social media but also share funny and relevant content to encourage interactions. Finally, do not forget to ask the customers to share on social media. Businesses who do not ask, do not receive, and customers should be encouraged to share as soon as their order has been placed.
Step 3: Gain customer insights and feedback, as well as improve your loyalty program to grow your customer base even faster
Use the Opportunity to Gain Customer Insight
Businesses should never waste opportunities to learn about their customers, and a loyalty program will often lead customers to answer questions more honestly as they believe that the answers will benefit them. A customer loyalty program is a treasure trove of data that can be analyzed and used to improve a business overall. This data can tell business more about the motivations of its customers, especially its top customers. Since 20% of customers often generate 80% of the sales, this new interaction can provide a new way to communicate with customers. A loyalty rewards program will help a business conduct research that does not feel intrusive. There can also be space for customers to be rewarded for their feedback to be reminded that their feedback is valuable.
Track the performance of your customer loyalty program
Like any part of a business, it is crucial to track accurately the performance of a loyalty program. There are several ways that you can track how successful your program is and the method chosen should reflect the stated goals and intentions of the program. To begin, a business can track the customer retention rate. Customer retention is the underlying goal of most loyalty programs and by running an A/B test, businesses can see if their loyalty program members are more active than non-members.
Businesses can also calculate their negative churn. This is a measurement of people who purchase additional services such as upgrades from the business. The growth of the negative churn can help offset the natural loss of customers from the business. This metric is very informative particularly in tiered loyalty programs.
The net promoter score is a metric that measures how satisfied your customers are by your service. It can be calculated by subtracting the number of people who would not recommend your business from the number of people who would recommend your business. This measurement is an ideal way to measure the progress of your loyalty program.
A final metric that may be useful to your business is the customer effort score. This metric measures the actual experience of a customer by asking the customer how much effort they invested in solving a problem with the company. When tracking customers, it is just as important to track the unhappy ones as the happy ones because 48% of customers who had a bad experience with a company told at least 10 people.
A customer loyalty program can help your business retain customers and provide valuable insight into the motivations and habits of your customers. By taking advantage of the opportunities provided by the access to customer data through these programs, businesses can both learn about their customers and work to orient their loyalty programs to retain top customers. By providing valuable rewards in exchange for valuable information, businesses can reach out and touch customers like never before.