How to Use Customer Loyalty Programs to Increase Sales in 2017

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Are you ready to increase your sales?

According to a research study by CrowdTwist, 74% of men and 77% of women are likely to buy from a brand that has a loyalty program, while 74% of women and 67% of men will refer a friend (or a family member) to a loyalty program that they have recently participated in.

In another survey conducted by Technology Advice back in 2014, 82% of the customers are more likely to buy from a store with a loyalty program as compared to 18% who do not care much about loyalty programs.

loyalty-programs

If you are struggling to meet the annual sales objective of your business, you have your answer. There is no better way than a customer loyalty program to increase sales and get things working for the sales department.

On the surface, the numbers look inspiring but creating, managing, and using a customer loyalty program to increase sales is a challenge like no other.

The following guide will help in understanding the basics of a loyalty program, reasons to have one, what value it adds, and how to fix an under-performing loyalty program.

So let’s get started.

What’s a customer loyalty program?

On the surface, a customer loyalty program is a reward program offered by the brand to the existing customers who are frequent buyers. Customers get exclusive access to new products, they get reward points for purchasing, or they get special discounts.

You must have seen those loyalty cards, reward cards, and club cards that are issued to only a few customers by any given brand. These cards show that the customer belongs to a loyalty program.

Deep down, a customer loyalty program is the bread and butter of the brands. This is how they make money from existing customers. Brands know that it costs them five times more to acquire a new customer as compared to convincing an existing customer. As much as 41% of the revenue comes from the 8% of the customers.

US revenue distribution

It is far easier to sell something to an existing customer than acquiring a new customer. A customer loyalty program enables businesses to achieve this very task.

It is all about strengthening the relationship with existing customers, persuading them for repeat purchases, and offering them rewards in return.

A customer loyalty program offers win-win outcome to both the brand and the customer.

The customers save money, receive exclusive rewards, earn reward points, and get other monetary and non-monetary benefits.

The benefits for brands for running a loyalty program includes customer retention and satisfaction, access to customer data and insights, increase in market share, and increase in revenue and sales.

Perhaps the best benefit for brands is an increase in sales and profits.

increase in sales and profit

7 reasons for creating a customer loyalty program

A customer loyalty program offers much more than a mere increase in sales and revenue. Of course, this is why businesses exist but this is not the only reason why your brand should have a customer loyalty program.

Here are seven reasons for creating a loyalty program for your business right now:

1).   Increase in sales

Steve Olenski says:

Your rewards program could entice customers to purchase more at a given time, but only if the incentives you give out are worth it.”

The number one reason why businesses should have a customer loyalty program is that it is sure to increase sales – if executed the right way.

The research by Access Development offers some insightful numbers. More than 84% of customers say that they will buy from an online store if it has a loyalty program while another 70% are of the view that a loyalty program plays a role in their relationship with the brand.

It was also reported that a customer loyalty has the potential to increase the market share of a business by 20%.

In another retail study by Center for Retail Management, Northwestern University, it was shown that only 15% of the customers are loyal to a brand but these customers generate as much as 55 to 70% of total sales.

The Rock and Ash is one of the many brands that have achieved success with a loyalty program. With its loyalty program, it has successfully managed to increase sales up to 30%.

revenue-from-repeat-customers

2).  It boosts growth

Is stagnant growth rate the biggest challenge your business is facing?

A well-planned customer loyalty program is the best rescue agent. Loyalty programs have proven to increase business growth over and over again in all the industries and in all the geographical regions.

Having a loyalty program helps in retaining existing customers, acquire new customers, it helps in segmenting the customers and in filtering them out, it increases the average customer lifetime value, it helps in targeting the best customers, it helps with pricing strategy, and it helps in improving the product line.

This eventually leads to business growth.

Here are a few interesting statistics from the National Retail Federation’s top 100 retailers 2014 table.

The retailers without a loyalty program generated $496 billion in revenue with an average revenue of $9.9 billion.

While the retailers with a loyalty program generated $1 trillion in revenue in the same period with an average $20 billion revenue.

This shows that the retailers having a loyalty program generated revenue three times the revenue of the retailers without a loyalty program.

These numbers do not include the retail giant Wal-Mart. The revenue for loyalty program retailers jumps to $1.3 trillion and average revenue jumps to $26.7 billion if Wal-Mart is included.

These numbers show how powerful a loyalty program can be for your business.

The two primary things such a program will do for your business is that it will help in retaining the old customers and at the same time, it will help attract new customers. When a business gains new customers, it grows. Period.

3).  Increased brand awareness and reputation

You want people (and your customers) to say good things about your brand? Create a loyalty program to reward the customers who are with you.

When you reward your existing customers, they will bring more people, talk about you, and will eventually become your brand ambassadors.

Over 26% of the customers use terms like trust and consistency as crucial factors of brand loyalty. Forrester reported that 66% of the banks in the US see brand advocacy and an increase in purchase frequency are the two possible outcomes of customer loyalty programs.

The rule is simple, people trust what others are saying about your product or business. This is why your existing customers can easily bring tens and thousands of new customers easily as compared to your marketing team doing all the hard work.

Keep your existing customers happy and they will do the job of bringing new customers and will become active brand advocates.

4).   Acquire valuable customer data

How do you create personalized products for your customers? How do you make sure that you are not frustrating your customers by sending irrelevant offers?

There is one answer – data.

How do you collect that data? There are two ways:

  • Increase the budget of R&D department and go crazy with market research.
  • Build a customer loyalty program and track buying patterns of your best customers.

Though data collection is not the primary purpose of a loyalty program but careful analysis of the data will reveal patterns and trends that will shape the future of your business, products, and sales.

This data acquisition is natural. It is a by-product of any loyalty program. You don’t have to do anything special to collect the data such as, what type of products customers are buying, which two products always go in the in the bundle, which type of reward system works best for your business, etc.

Customers are always willing to share their information with a brand as long as there is a loyalty program. Over 76% of customers do not wish to share their data and personal information with a business unless it has a valid loyalty program.

A report by Accenture shows that 60% of businesses have used customer data from their loyalty programs to improve digital channels.

The (only) challenge is data analysis and making use of all the information.

5).   More satisfied happy customers

If there is one thing that a customer loyalty program does best, it is customer satisfaction.

The whole point is keeping your customers happy and engaged. Fifty-five percent of marketers say that improving customer engagement is their top priority. While there are several other ways to do it, a loyalty program does it best.

customer engagement

Needless to say, customers that are happy and are satisfied will result in an increase in revenue. There is a correlation between customer satisfaction and revenue.

Some 69% of Millennials belong to at least one loyalty program and 70% of them are satisfied and happy with the program. A happy customer is more likely give good reviews of your brand.

Mark Johnson from a leading research consulting firm says:

Customer loyalty is no longer just about points, discounts, miles and rewards; it is about the way processes, technologies, ideas, and interactions engage individuals with the brand. The only way to achieve loyalty is through deeper engagement.”

Businesses should check on and off to see if their customers are really happy with their reward program. The best way to do it is to conduct a survey. There are four quick ways to conduct a survey and ask your customers if they are happy with the program.

If your loyalty program is not making your customers happy, it needs to be fixed and it should be fixed as soon as possible (more on this coming ahead).

6).   Affordable to start

There are several types of costs associated with creating a customer loyalty program such as the cost of arrangements, technical expenses, cost of rewards, and program management cost.

While most of the businesses perceive it to be very expensive, Steve Olenski doesn’t think so. He says:

Depending on the scope of your rewards program, the slight expenses you incur by instituting a loyalty rewards program may be overshadowed by the additional business generated as a result.”

Even if it costs you thousands of dollars a month, it is still worth it because your engaged and loyal customers will keep paying you for years to come.

But starting a loyalty program is quite cheap. You can create a full-fledged program with Belly in as low as $129 a month.

Here’s a comparison of spending money on a customer loyalty program with social media marketing, creative development, and blogging.

Still, cannot afford it?

Either spend money on attracting new customers or develop a system to reward your existing customers. In all, provide a great customer experience. Because as long as your customers are happy, they’ll spend more.

brands make customers happy

7).   Reduction in marketing cost

Over 32% of the marketers reported that referrals and recommendations from loyal customers are the best benefits of customer retention whereas 16% reported that reduction in the marketing cost is the best benefit that they drive from their existing customers with a loyalty program.

When your existing customers become your marketing agents, your marketing budget will reduce automatically. There is no science here.

It’s a fact that people trust friends more than the brands. When your existing customers refer new people and when they become your customers, they are more likely to become your brand’s best customers and the next loyal customers.

customers-trust-friends

When a referred customer is 25% more profitable than other non-referred customers, there is no point in investing more money on marketing than on customer loyalty program.

Customer loyalty programs that add value

Not every customer loyalty program delivers value. Some of them don’t deliver any value to the customers while others don’t work for the business.

Around 62% customers say that they will not be loyal to a business if it doesn’t offer them a good enough loyalty program.

In another report, 56% of customers reported that they will not participate in a loyalty program if it doesn’t provide them with relevant offers, while 54% said that they will stop using a reward program if points are too hard to earn.

Make sure your business is not among these 77% businesses.

To ensure your loyalty program is right on track and you are not wasting your resources, below is a list of some of the best ideas for creating customer loyalty programs that add real value and will be least likely to fail.

1.   Keep it simple

Keep your reward system simple and easy-to-understand.

Keep the point system super-simple. Points must be easy to earn, redeem, and should offer something valuable to the customers.

Refrain from offering useless and unrelated discounts and products to the customers.

The customer loyalty program by Spirit Airlines was reported to be making the customers angry because it was complex. The points weren’t easy to earn and once earned, it was hard to use them. For example:

To receive miles, the name on the ticket must match exactly as the name on the mileage account.”

A reward system with too many complications and strict rules will not work instead it can harm your business.

Botolo’s card is a perfect example of a simple customer loyalty program. They offer a simple reward system.

On spending $50, customers earn a free item. This free item could be any special freebie or a tiny free product. It doesn’t matter. The reward system is clean, transparent, and has no special rules.

This is the kind of things that work and customers expect.

2.   Tiered reward system

A tiered reward program works best for most of the businesses since it makes it easy for the businesses to keep a balance between rewards. These tiered loyalty programs are best at keeping the customers hooked to the system and at the same time, they have something to achieve.

Ahava has a clear and comparable tiered reward system that works exceptionally well for them. As customers move up the tier, they get access to more rewards and more discount.

ahava.com

This type of tiered reward program has the power to keep customers engaged for a prolonged duration since they try to reach the top to avail the best discount and freebies.

3.   Automatic redemption

Why not automatically redeem the points instead of waiting for the customers to redeem their earned points? The automatic redemption reward program is very common and is used by a lot of brands such as British Food Depot.

At British Food Depot, these guys have kept the reward system clear and crisp. Customers get rewards for buying from the online store and the points are redeemed automatically.

Five points are earned by the customers on spending $5 and these points are credited automatically to the customer’s account.

The customer loyalty program should be designed in a way so that your customers do not have to keep track of their spending, points earned, and other details. Automating the entire system and the redemption system will make your customers happy.

4.   Charge a nominal fee

Yes, you read it right. You should charge an upfront fee to your customers to offer them a special or an exclusive benefit. This seems a bogus idea but this type of reward system is being used by some of the top brands like Costco and Amazon.

Costco is perhaps the first brand that has implemented this customer loyalty program successfully with massive success. Amazon followed with its Amazon Prime.

Costco has a tiered loyalty program that targets frequent buyers. They charge $100 a year (now revised to $110 a year) to their Executive Members and in return offer them with exclusive discounts and rewards on purchases. A straight 2% discount is offered to all the Executive Members.

This paid tiered customer loyalty program did exceptionally well. More than 90% of the sales are generated from the existing customers. There are more than 81 million paying customers.

Costco is performing better than Walmart and several other stores, and this success it attributed to its paid customer loyalty program.

Amazon Prime charges $99 per year to its customers and in return offers them with exclusive benefits that are not available to other customers. Some of these benefits include free same day delivery, free two-day shipping, unlimited music streaming, 25% discount with prepayments, and many others.

The customers who pay the monthly fee for Prime doesn’t get access to 25% discount on prepayments. This is how Amazon Prime is using tiered loyalty program to entice the customers to opt for the highest plan. Not to forget, there is a free 30-days trial too.

So customers have different rewards to choose from.

Amazon Prime customers spend around $1500 per year while non-Prime customers spend $625 a year on Amazon.

This type of special paid offers to frequent buyers result in an increase in sales and revenue.

5.   Coalition loyalty program

In most of the cases, a coalition program can turn the tables. Joining hands with another brand to create a killer customer loyalty program will do a great job of retaining customers.

This type of loyalty program delivers the most value to your customers since you offer them products of a partnering firm which your brand cannot offer them with. Your customers will enjoy the benefits and offers from two brands.

Some of the leading brands that use coalition loyalty program include Travel Club, Air Miles Canada, Nectar, and several others. The household penetration of these programs is simply amazing.

How to fix an under-performing customer loyalty program

An average customer is signed up to 29 loyalty programs but participates in only 12 programs a year. Since the competition is tough and there are several options to choose from, a lot of loyalty programs fail while others underperform.

Richard Madden, chief strategy officer of Kitcatt Nohr, says:

It’s so easy for customers to be disloyal these days. Probably even as recently as five or ten years ago there was much more friction in the market, holding customers and stopping them moving between brands quite so easily. Now you have price comparison websites, and a very active customer culture of comparing reviews and sharing reviews with each other. And you also have emerging technologies like [mobile shopping and scanning app] RedLaser and its successors, which obviously make point-of-purchase comparison possible. So it’s a battle between the technology that’s enabling disloyalty and the technology that’s enabling loyalty.”

Customer loyalty programs do under perform. No program is an exception. Fixing an under-performing program is challenging.

Before you can decide to fix, it is crucial to ensure whether your loyalty program is really no performing. There are two commonly used metrics to measure the performance of a loyalty program.

  1. Breakage rate
  2. Redemption rate

Understanding of these metrics will show how your loyalty program is performing.

i).   Breakage rate: Breakage refers to the redemption points that are issued but unused. Any unused service, in general, is known as breakage.

There could be several reasons a customer not using the points, for example, customer does not have the time to use the points.

The formula to calculate breakage of your loyalty program is simple. Divide the total unspent points by the total number of issued points. Convert the result in percentage.

If breakage rate is higher than 25%, it is an indication that your loyalty program is not performing well and must be tweaked.

ii).   Redemption rate: Redemption rate refers to the number of used points. It should not be less than 20%. The higher redemption rate means your customers are using the points which shows the loyalty program is working.

To calculate redemption rate, divide the total number of used points by the total number of earned points.

Convert the resulting figure into a percentage. Of course, you expect it to be close to 100%. Anything less than 20% means the loyalty program needs to be fixed.

Steps to fix an under-performing loyalty program

Once you are sure that the customer loyalty program is not doing well, you need to take necessary steps to fix it. There is no quick fix so do not expect things to get on track immediately. Don’t panic. It will take time.

i).  Collect data and get feedback: Perhaps the best-known technique to fix a failing customer loyalty program by collecting information from the customers.

Getting feedback from customers will give you real insights as to what’s going wrong and what are the loopholes.

At the same time, it will also show your customers that you really care about them.

There are two main sources of collecting relevant information about the customer loyalty program.

  • Internal data
  • Customer surveys

Let’s get started with the internal data that you have. Convert the data into meaningful graphs and charts. Ask your analytics team simple questions.

Why a specific offer has performed two times better than the other offer? Are there any specific days of the week when the redemption rate increases? What are the points consumption patterns?

More than 60% of the businesses capture customer feedback from social networks and comments. Monitoring customer queries, analyzing feedback on social networks, and online comments will reveal more patterns.

This data alone will reveal a lot of useful numbers and insights.

In the second phase, collect data from customers. Ask direct, relevant, and specific questions from your customers.

A few sample questions include:

  • How can we improve the customer loyalty program?
  • What is the worst thing about the program?
  • What is the single best feature of the loyalty program?

ii).  Improve customer experience: Think your customer loyalty program is perfect, think again.

There is always room for improvement especially in terms of customer experience. For an underperforming loyalty program, you can reinvent the program by improving the customer experience.

In the US, 56% customers will sign up with a loyalty program if it has a mobile app. Another 60% mobile users reported that they will happily switch the brand just to use a coupon. Mobile wallets are among the top four ways customers plan to get notified about offers and coupons.

Is your customer loyalty program available to the customers on mobile and is accessible from multiple devices throughout the day?

If not, this could be one reason why it is not doing well.

Provide your customers with the ability to monitor and redeem their points from the mobile device. Better create a mobile app since this is what your customers demand.

iii).   Use social media: Social networks are the best friends of your business provided you use them to their fullest capacity. Over 80% of customers use social networks to search for a brand’s loyalty program once they are in-store while another 47% will write a review on the social network.

This calls for a rigorous social media marketing strategy to promote your brand’s loyalty program and to find the loopholes. Engage with your customers on the social networks, follow hashtags, see what your loyal customers do not like about the program, etc.

Assign a few persons the task of connecting and engaging with the customers on social networks to get insights about the loyalty program. This can provide useful information and some of the biggest loopholes.

Conclusion

Not all the customer loyalty programs perform equally well. Most of them will eventually fail. Make sure it’s not yours.

The ideas, tips, recommendations, and techniques discussed in this article are sure to keep your loyalty program up and running for years without failing.

Haley Reynolds is the founder of SaaS Brand. He consults with Fortune 500 SaaS Companies to increase their online visibility through SEO. Get in touch with him by clicking the "contact us" button in the menu.
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