Having a portfolio of clients linked to the brand is very beneficial for the organization. This portfolio, on average, tends to spend 31% more compared to new clients.
So how do you encourage new customers to sign up? The answer is obvious: through a great service or product and an excellent experience.
A good practice is to create a customer loyalty program. Customer loyalty programs are relatively easy and inexpensive to implement (or can be), and when done right, they work.
What is a customer loyalty program?
A loyalty program seeks to create additional opportunities to continue buying the product or service. The organization promotes those extra sales by offering rewards to repeat customers.
According to the Marketing Science Institute, American companies spend $1.2 billion on loyalty models each year, while each American household subscribes to an average of 14 different programs. A Forrester study says that 72 percent of American adults are part of at least one program.
Forrester also found that members of loyalty programs tend to spend more than nonmembers. Over a three-month period, the study found that members spent $183,50 compared to nonmembers spending $41,20.
Customer training programs are not a new idea. Coffee shops, supermarkets, and other small businesses have been using coupon-based programs for years in an attempt to get people to come back. Airline mileage or similar programs have always been popular.
However, as technology has advanced, it has become increasingly easier for small businesses of all kinds to manage increasingly complex customer loyalty programs. Mobile applications provide simplicity for the client when it comes to tracking the benefits they obtain.
Keys to a Loyalty Program
Communicating the possibility of enrollment in a loyalty program does not attract customers by itself. The organization must offer an excellent product or service. The program offered is just an additional extra.
Also, this action, the program, does not have to work for any company. The product or service must produce regular purchases. While it might be a great idea for coffee shops, airlines, supermarkets, or hair salons, it's likely to work less well for companies that sell big appliances, for example.
It also doesn't have to be necessary to link clients. For example, Google does not offer a loyalty program, however, its search engine is used several times a day thanks to excellent service. A loyalty program does not change the quality or the perception of quality of a service or product.
Before starting…
When an organization proposes the creation of a customer loyalty program, it has to take into account a series of key points that will mark its development and launch.
- The reward model. In addition to being an attractive reward, you have to analyze the cost of its profitability.
- Brand positioning. High-end brands are more likely to succeed with a tiered program that offers VIP benefits than a points program that offers free gifts or discounts.
- The product or service. Businesses with a limited catalog that customers buy frequently, such as coffee shops or beauty salons, may find success with coupon-based customer rewards programs. Those that sell a wider range of products, such as clothing stores, will do better with a point system.
- How to implement the program. It depends on the business and the type of program. A manual system? Through an app? In addition, a dedicated software platform is usually required for program management.
- How to integrate the client. It can be a one-time initial discount, a free trial of the program, or just making sure the program is known.
- The type of program selected.
In addition to these issues, there are two other accounting aspects with an impact on the profits of the organization to take into account that notably affect the financial aspect.
- Technical price of the incentive. Regardless of how the rewards are named, or what type they are, in accounting terms, a provision must be made in the event of an audit. A customer who accumulates rewards has certain rights that the company must provide at the time the customer obtains them. In this way, the accounting obligations of the company can be foreseen and the impact on the income statement minimized.
- Completion of the loyalty program. The economic obligations with the clients, the reputational impact, the credibility of the company and other aspects must be considered when launching the linking plan, having a high degree of definition the dismantling of said plan with the minimum impact on the brand.
Types of loyalty programs
There are many different types of loyalty programs. Different types are shown below with current or past real application examples.
points program
Points programs are usually quite simple from the customer's point of view. Every time you spend money on a purchase, you earn points. Later, the customer can spend these points on new purchases or use them to apply to third parties agreed with the organization.
The prerequisites for this type of program are a way to know who is spending money and a way to store points. For physical retailers, this is usually done through a card or app. It's even easier for online businesses as users must log in every time they make a purchase and points can be stored automatically.
Advantages
- Easy to implement. They can get quite complex when combined with other offerings.
- They can be used with various types of rewards, from a simple refund to specific products.
- You can track points using an app, a card, or through logins to an e-commerce site.
Use cases
- Nectar awards points to customers at a variety of outlets in the UK. These points can be used for discounts at a variety of stores or redeemed for coupons. They have agreements with various merchants where to apply the points, as well as flexibility in the way you spend the points.
- TAI-certified H&M gives customers one point for every dollar they spend. When a user gets 200 points, he receives a reward of 5 dollars. The program works both in-store and online and offers some additional benefits as well.
stamps
With stamp programs, customers get a stamp every time they make a purchase. When they have a certain amount of stamps, they get a preset product or benefit. These programs can be run literally using a stamp and card, or over the internet using digital stamp capture tools.
These loyalty programs are easy to run and can be good for businesses that sell a high volume of items at low prices.
Advantages
- Stamp programs are probably the easiest type of program to run. In its most basic form, it only requires a brand card and a stamp.
- They have a very specific benefit that, in many cases, the customer knows previously.
Use cases
- Subway had a stamp program that it still maintains in some parts of the world, where customers collect a stamp every time they buy a sandwich. Once a customer got eight stamps, he could get a free sandwich.
- Hotels.com offers customers a stamp for each night they book through its website. Ten stamps can be redeemed for a free night at a hotel.
payment schedule
In a paid program, customers pay money up front to gain access to a benefit. Usually this will be something that, despite the initial cost, will end up saving the consumer money in the long run.
Advantages
- The company receives money in advance.
- For a person to pay to join the program means that they are very likely to be a high value customer.
Use cases
- Credit card fees are a typical example. Users pay an annual fee for the benefit offered by the card.
- Amazon Prime members pay more than $100 a year to get access to free shipping, as well as numerous multimedia benefits.
staggered or tiered
With tiered programs, customers move to different levels based on the number of points they accumulate. Each level has more exclusive benefits. A common example of this type of system is airline flight schedules.
Step programs can be run in conjunction with point programs. This can help keep the interest of people who, despite being repeat buyers, are unlikely to earn the points needed to move up to a higher level.
Advantages
- The levels give the product a feeling of exclusivity.
- They can be combined with gamification strategies to encourage the user to go to the next level.
Use cases
- Many airlines and hotel chains run a tiered program where users gain access to benefits the more they spend.
- El Adidas Creators Club gives members exclusive access to events, the ability to purchase limited edition merchandise before the general public, and many other rewards based on tier level.
coupon programs
Coupon programs are much less binding than other customer reward programs, but can nonetheless be used to gain repeat sales from existing customers.
Instead of accumulating points every time they make a purchase, customers agree to have the company send them regular offers. Although points are not accumulated, customers are encouraged to continue shopping through the use of coupons.
Advantages
- Coupon programs are easy to run; no need to keep track of points or stamps.
- There is flexibility on when the company offers sales, discounts and on which products.
Use cases
- Members of the Domino's Family Program may choose to receive information about special offers.
- People who sign up to become Adidas members receive a 15 percent discount on their first purchase and access to discounts and offers.
Alternative programs
Many organizations choose to combine multiple loyalty programs simultaneously. For example, combining a points program with a rewards program while encouraging customers by offering regular coupons through your app.
The only drawback is that the more that is offered, the more complex it can be for both the company and the customer.
There are also other types of programs that, while not specifically loyalty programs, reward customers for showing loyalty to the company. These include referral programs that give customers rewards for encouraging others to buy the product, or charity programs that encourage people to buy to help others.
Advantages
- Companies can choose a differential way of retaining customers that suits their business objectives.
- It can be good for companies that want to offer rewards outside the scope of standard market programs.
Use cases
- The loyalty program Starbucks it's a combination of points and a coupon-based program, with lots of added extras.
- TransferWise has a referral program that gives cash to customers who successfully encourage new users to use the service.
Measure the effectiveness of the program
Measuring the effectiveness of the loyalty program can mark whether it is worth continuing with the program or whether you need to make adjustments to it. Knowing the metrics to take into account, in addition to those of the business, help to know the success that is pursued with this type of action.
Participation rate
Your participation rate calculation provides the percentage of customers who sign up for the program. This implies whether the show is encouraging people to be repeat customers.
To calculate the rate, simply divide the number of clients in the program by the total number of clients. The resulting result is the participation rate.
According to Smile, the average rate of participation in a loyalty program is 23 percent. If the engagement rate is significantly lower, you could point to a number of improvements including:
- The reward it offers is not attractive enough.
- The system is confusing.
- It is difficult to enroll in the program.
- Customers don't know about the loyalty program.
To find out which of the problems is the main one, you can run A/B tests for each of the above statements. For example, keeping the entire process unchanged, the program registration form is placed more prominently on the web to test whether it is an awareness issue.
Alternatively, the reward can be changed to see if the problem is that customers do not find what is being offered attractive enough.
redemption rate
The number of people who redeem the offer can indicate the success of the program. If a high percentage of people who sign up for the program ultimately redeem an offer, this suggests that loyal customers are being generated.
On the other hand, if your offer has a low repayment rate, it could indicate problems within the scheme that need to be addressed. Maybe make it easier for people to accumulate points or improve the reward to make it more attractive.
Alternatively, you can offer smaller rewards that customers can redeem with fewer points.
Conclusions
There are loyalty programs adaptable to any type of client and organization. Their level of complexity can be as required by the market or desired to be more or less directed.
The most important thing is that the loyalty program is that customers find it attractive and that it adapts to business objectives. If the company finds that balance, the program will be beneficial in the short term.
In the next entry you can see various examples of these loyalty programs
