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The Keys to Building a Strong Customer Loyalty Program

January 24, 2020

In this article you will learn:

Since Black Friday, the headlines have reported stagnant U.S. retail sales. And the future doesn’t look much better. Predictions say the market will barely grow 2% annually over the next two to three years.

Malls are becoming a relic, and brick and mortar stores are seeing less traffic generally, as more consumers shop online. This deceleration of the retail market is putting even more pressure on brands as they seek to increase sales and build customer loyalty in a traditionally low-growth sector, while developing a strategy to capitalize on both showroom and eCommerce opportunities.

Why Customer Loyalty Is Important?

One of the most important differences between successful brands and those that languish is their focus on the customer. Consider that 40% of an eCommerce store’s revenue is created by only 8% – the most loyal – of its customers. Those brands that consistently deliver an excellent customer experience across every channel can expect to thrive. And a key component to their success is a customer loyalty program that drives increased engagement and results in a greater lifetime value (LTV), all built around personalization.

Benefits of Customer Loyalty Programs

The stats don’t lie when it comes to the importance of customer loyalty programs. Almost two-thirds of retailers say their loyalty or rewards programs provide the best way to connect with their customers. In a variety of surveys, consumers shared how customer loyalty programs impacted their purchasing decisions:

  • 83% said they are more likely to continue doing business with certain brands as a result of loyalty programs
  • 76% said loyalty programs are part of their relationship with brands
  • 50% said they changed their behavior to reach a higher tier within a loyalty program

With customer loyalty programs, you can increase LTV by engaging and interacting with customers throughout their journey and providing them more reasons to continue purchasing from your store. Loyal customers are valuable to brands – up to 10x more than their first purchase – since the probability of selling to an existing customer is 60% to 70%, compared to just 5% to 20% for new prospects. Additionally, existing customers are 50% more likely to try new products – and will spend 31% more – than new customers. All totaled, a loyal customer yields real results: Studies show that just a 5% increase in customer loyalty can increase the average profit per customer by 25% to 100%.

These types of customer loyalty programs examples are evident at grocery stores, which offer points for every dollar you spend. These points then translate into rewards – such as a free turkey right before Thanksgiving, or significant discounts on gas – which encourage a customer to keep coming back to earn more points and collect more rewards.

You also are able to collect valuable individual customer data through loyalty programs. With the right approach, this data can yield a variety of insights – from purchasing patterns to product/service preferences to the drivers or incentives that encourage customers to change their behaviors. Then, you can take this information to more effectively fine tune offers that appeal to each individual customer. Such 1:1 personalization is not possible without continued insights into customers likes, dislikes, and knowing exactly what is needed for them to take the actions you prefer.

Individual customer data also can be used to motivate new customer behaviors. Let’s say a customer typically only comes into your coffee shop for a latte in the mornings. To motivate new behavior, you send offers for a discount on food items to accompany his regular purchase, upselling by encouraging him to try a muffin or a new breakfast sandwich. Alternatively, you can offer more points in the loyalty program for visiting at different times – maybe during happy hour, or taking advantage of two-for-one offers midday.

3 Elements of an Effective Loyalty Program

Simply offering a customer loyalty program that provides basic discounts to everyone or the chance to earn points is not enough to make the profit and engagement needles move. Some of the best programs incorporate three critical elements:

  1. Using rewards to reinforce the core loop of the business – Positive reinforcement as part of the loyalty program incents the actions brands want to encourage, such as making purchases, increasing visit frequency or amplifying marketing messages.

  2. Rewards that are meaningful and valuable to the consumer – Some loyalty programs collect customer data but don’t offer benefits that customers take advantage of. Think of any stores where you scan your member card, but you receive only random coupons for products you rarely, if ever, buy. Or restaurants that offer points for dining at their locations, but you may be unaware you’re amassing them, or how to cash them in later. By providing rewards that personally appeal to your customers, you’ll increase their loyalty and encourage them to shop more frequently.

  3. Benefits that increase the more you spend – This seems obvious – customers are likely to spend more if they get more in return. Some companies like United Airlines and Sephora excel at this. United’s Mileage Plus loyalty program gives more benefit the more you spend, you unlock more at every tier and your reward earning accelerates. Similarly, Sephora encourages loyalty members to earn rewards and get invited to exclusive VIP sales and promotions online and in-store.

Step up from good to great.

Once you have these three elements in place, you can really drive positive impact for your customers and your business. Today, it’s table stakes for the best customer loyalty programs to leverage data and the program elements along with advanced machine learning and automation to make them truly personal. They tailor offers and experiences for each individual customer, with rewards that are valuable, and most importantly relevant, and use these personal offers to engage customers, motivate new behaviors and drive value for customers and for the business.

To learn more about the growing importance of personalization, and how to do true 1:1 personalization right, download our recent white paper, “Why Personalization Isn’t Always Personal.”

Learn more about the Formation hyper-personalization platform

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