A loyalty program can boost customer retention and increase brand awareness. However, implementing a successful loyalty program requires careful planning and execution. To ensure that the program is effective, it must be based on the needs of your customers.
A popular type of loyalty program is the points-based program. This type rewards customers with points that they can redeem for free products or discounts.
Retention Rate
The success of a loyalty program hinges on its ability to drive repurchases. In a retail context, this means increasing basket value and purchase frequency. Dedicated loyalty programs often offer incentives for these behaviors, such as tiers of rewards that increase with purchase history or basket size.
Another benefit of loyalty programs is that they can capture valuable information on customers and their preferences. This enables retailers to cross-sell or up-sell their products to these customers. For example, they can offer extended warranties on the products purchased or recommend accessories that complement the items.
However, many of the benefits of loyalty programs are difficult to quantify. This is because of the way they are measured and incentivized. For example, when a credit card company offers $50 cash back for switching to its card, it creates a segment of chronic switchers who can easily take advantage of the promotion. The resulting customer retention rates may not be as high as hoped for.
Word of Mouth
Many loyalty programs generate word of mouth through their rewards and discounts, and some have specific campaigns that push this metric. Coca-Cola’s “Share a Coke” campaign is one of the most famous examples, but other retailers use more subtle tactics to encourage brand advocacy. For example, Flaviar’s “thank you for your order!” emails often include a quick incentive to sign up for their email list.
Other brands have specialized loyalty offerings that are tailored to individual customers’ purchasing behavior and preferences. For instance, Sephora’s Beauty Insider program allows customers to create a profile that gives them personalized product suggestions and invitations to exclusive events.
These individualized experiences can have powerful impacts on customer relationships, and they’re also cost-effective. Customer retention rates and Customer Lifetime Value (CLV) increase as a result of loyalty programs that cultivate positive sentiment around your brand, slowly converting one-off buyers into loyal consumers.
Conversion Rate
Some loyalty programs may get off to a bad start by attracting members who only join to take advantage of an attractive first-purchase discount or deal. To avoid this, marketers can develop onboarding and activation campaigns that focus on education and value to encourage quality purchases.
This metric is a key measure of the effectiveness of your initial rewards strategy, and it can help identify churn. It’s important to monitor this closely and ensure that your program offers a good incentive for repeat participation.
If you see that your issuance ratio is not stable, it might be a sign that your marketing strategies are not working, or that you need to invest in better customer engagement tools. To reduce the risk of missing a problem, consider reviewing loyalty metrics on a weekly or daily basis. This is especially important when you’re running high-impact promotions or sales activities. Fortunately, there are many tools to make this task easier.
Referrals
Many businesses rely on referral programs to acquire new customers. But loyalty programs have the added benefit of helping brands build a community of advocates. Past research has shown that consumers trust the word of mouth (WOM) of their friends and family more than any other type of advertising.
A well-designed loyalty program can help you increase the number of repeat customers and boost your customer’s average order value. A loyalty discount of just 5% can make a big difference to profits.
To attract loyal customers, you must understand what their expectations are. For example, if they are primarily interested in social media buzz or product reviews, your loyalty program should reward them for those behaviors. You can also use a tiered program to encourage premium customers to shop with you more often, for instance by offering them exclusive discounts on products. Starbucks uses this tactic with its “challenges” to motivate customers, and Sephora rewards its loyalty members with sample sizes of new beauty products.