A customer loyalty program is a marketing strategy that rewards customers for purchasing from or interacting with a brand. In the past, these programs were based solely on buying habits but now, these programs often extend to second-hand marketing and other loyalty behaviors, like referrals, brand highlighting in social media, and subscription to newsletters.
In this article, you will learn about the benefits of customer loyalty programs, including tips for successful implementations.
Benefits of a Customer Loyalty Program
There are numerous benefits you can gain from implementing a customer loyalty program. Below are some of the most valuable.
Increase customer retention
Customer loyalty programs can help you promote engagement with your customers. Engagement is often a direct reflection of customer commitment to a brand and a good indicator of future purchases.
In modern markets, the engagement and the overall connection that customers feel with your brand are at the root of many purchase decisions. Customer loyalty programs help keep engagement alive beyond the transaction and can provide an interface for shared interests and values. The more your customers connect with you, the longer they are likely to remain customers.
Collect valuable data
Loyalty programs and the personal profiles they contain are a valuable source of data. These programs enable you to track user interactions, collect demographic information, and even access third-party information through social sharing. With this data, you can create personalized experiences for your customers, implement referral programs, enhance customer relationships, and run targeted marketing campaigns.
Raise customer lifetime value
Customer Lifetime Value (CLV) is the worth of the relationship you have with a customer, measured in net profit. CLV measures a customer’s current value and predicts the value of any future interactions. Loyalty programs can help you more reliably calculate the value to your customers. These programs also provide a platform to which you can apply any valuable insights you have gained.
For example, loyalty programs enable you to track customer behavior throughout the purchase process. Via a loyalty program, you can apply the information you know about the customer to the various steps in the process, increasing the chance of purchase and raising the CLV.
Create brand advocates
It’s tempting to think that only those making purchases from you are customers. However, some of your best customers are actually just sending other customers your way through brand advocacy. These referrals are commonly made in person, via blogs, or through social media. Such customers, or “influencers”, are essentially free and “authentic” marketeers.
Loyalty programs can help you reward these customers and encourage continued brand advocacy behavior. These programs can also encourage smaller scale advocacy behavior in your average customers. For example, refer-a-friend programs can provide two-way rewards, such as a discount or free shipping. This rewards the loyalty of your initial customer and gains you an additional customer.
Show consumer appreciation
From a customer perspective, loyalty programs demonstrate how appreciated a customer relationship is. When customers feel appreciated, they value a brand more and often feel a stronger connection to your company. This can be leveraged if things go wrong with a purchase or customer support is lacking in some way; giving you a chance for a “do-over”.
Improve communication
Loyalty programs make it easier to communicate with your customers. These programs can provide a direct line to customer emails or even phone numbers, helping ensure that you can reach customers when you need to. This open communication enables you to more easily announce new products, sales, or even product recalls.
5 Tips for Creating a Winning Customer Loyalty Program
If you do not already have a customer loyalty program, now is the time to consider implementing one. If you do, perhaps there are ways you can improve on the program to make it more effective. Either way, the following tips can help you ensure your loyalty program is a success.
1. Reward a variety of behaviors
You should use your loyalty program to reward more than just customer purchases. For example, when customers subscribe to blog posts, share social media posts, interact with mobile apps, or watch product videos. Although not purchases, these behaviors reflect direct engagement and should be rewarded to encourage future activity.
You can see an example of this in HubSpot's customer advocacy program, HubStars. HubStars rewards customers with points for performing weekly actions, such as reading and commenting on blog posts. This program grants more points for higher-effort actions and enables customers to redeem points for rewards.
2. Structure non-monetary rewards around your customers' values
Customers are increasingly interested in brands that reflect and advocate the same values as the customer. This is evidenced by the research findings that two-thirds of customers are even willing to spend more on brands that speak up about political and social values the customer holds.
For example, TOMS shoes runs a variety of campaigns aimed at matching customer values. This company started by pledging to donate a pair of shoes to a child in need for each purchase made. Finding this was a successful strategy, they now also offer products highlighting other causes, including access to clean water, maternal healthcare, and animal welfare.
3. Provide multiple opportunities to enroll
A loyalty program is only useful if customers join so you need to make sure joining is easy. You also need to ensure that the benefits of joining are clear. For example, you can include links next to each item in your store showing potential points earned for purchases.
Frequently offering enrollment opportunities and bonuses is a popular strategy. Airlines in particular often use this strategy as flights are landing. Passengers are offered the opportunity to apply for credit cards tied to air miles with a larger bonus if they sign up before the flight lands.
4. Use gamification
Gamification is a strategy that uses customers’ competitive drives to encourage engagement and purchases. It obscures the actual context of the behavior, turning it into an inherently rewarding activity.
A good example of gamification is Treehouse, an app that teaches coding and development skills. Within the app, users earn points and badges for achievements that they can then display on social media. This benefits the customer by acknowledging their accomplishments and provides free marketing for the company.
5. Leverage partnerships
Partnerships can be used to increase the value of loyalty programs by providing rewards from two vendors at once. It also enables you to share customer markets with complementary brands, providing access to an already collected customer pool.
For example, T-Mobile previously ran an offer in which a Netflix subscription was included if a customer purchased two or more phone lines. This encouraged customers to purchase based on their desire for an alternate product.
Conclusion
As customer needs and expectations change, organizations have to adapt. Good customer experience builds customer loyalty. An effective loyalty program is part of good customer service and can go a long way towards making your customers feel valued.
You can reach a wide range of customers by segmenting programs and rewards a wide variety of behaviors. Be careful not to spam your customers. There’s a balance that must be maintained so as not to aggravate recipients. The end goal is to make your target audience happy, and keep them coming for more.