How and Why Loyalty Marketing Really Works
As we head into the holiday season, it's crucial to equip your business with the right tools to capture the influx of holiday shoppers. By implementing effective strategies now, you can keep customers coming back year-round!
Is This the Year of Loyalty Marketing?
Something's changing — a powerful movement where businesses of all sizes are shifting focus. Instead of prioritizing acquisition and burning through new customers, savvy entrepreneurs are engaging with current customers, improving the customer experience, and successfully increasing repeat business. How? By making loyalty marketing a focal point.
This has become a big year for loyalty marketing developments. A major credit card company recently introduced America's first "coalition" loyalty program with the launch and heavy promotion of a multi-retailer rewards initiative. Participants include leading retailers like major department stores, pharmacies, telecom providers, and gas stations. In recent months, even fast food giants and casual-dining chains have jumped on board, adopting loyalty programs for the very first time.
Tech giants are also getting in on the action. At a recent developer conference, a leading smartphone manufacturer announced support for loyalty cards in its mobile payment product, partnering with merchants known for their strong loyalty programs like popular coffee chains, bakeries, and department stores.
Additionally, industry research has revealed that some small business categories, like restaurants, are more focused on keeping current customers versus acquiring new ones.
What's driving this movement towards customer retention and away from acquisition? Clearly, businesses of all sizes believe loyalty marketing programs work and are worth building, but why? Let's shed some light on how and why loyalty marketing really works:
Implementing "Smart Loyalty" versus "Basic Loyalty"
There are common misconceptions about loyalty marketing, such as the idea that it's just about giving away rewards and discounts, which cuts into profit margins. Another misconception is that giving away rewards and points via a basic punch card program is enough to get a return from loyalty marketing. These misconceptions result in the practice of "basic" loyalty marketing strategies.
While loyalty marketing begins with points and rewards to build your database, this is only scratching the surface for what a robust customer retention marketing strategy can deliver.
"Smart" loyalty marketing means gathering information about your customers, building relationships, and communicating the right messages to the right customers at the right times. It's about the ability to personalize experiences both in and out of the store.
Driving Additional Revenue
So how exactly do "smart" loyalty strategies drive revenue? When implemented well, they do the following:
Increase visit frequency
Increase spend per visit
Increase win-backs from "lost" customers
Let's dive deeper into each of these points:
1. Increase Visit Frequency
Imagine your regular customers come into your store twice per week. Increasing visit frequency involves getting them to increase their visits to three times per week. How can you do this? The power of an attractive points and rewards structure, as well as what we call frequency compression.
Attain Frequency Compression
Frequency compression is the phenomenon where customers come in more frequently because they're close to gaining a reward. Take frequent flyer programs for example. People are often semi-close to achieving an elusive "status" level on an airline they fly with regularly. The closer they get to that status, the more often they make choices like flying with that particular airline, even if it's slightly more expensive than another.
This holiday season, consider implementing a special rewards program that encourages customers to visit more often. For example, "Visit 5 times before December 25th and receive a special holiday bonus reward!"
How do you drive frequency compression for your customers? You want a points and rewards system, and your members should always know how close they are to attaining their next reward. You also want to encourage visits during times when people aren't anywhere near their next reward. This in turn moves people even closer to that reward, which increases visits. You do this through consistent communication and individual promotions.
A robust rewards program should get regular customers back in the door 20% more often. Since regulars drive 80% of your revenue, the impact of a 20 percent lift in visit frequency could be quite substantial, especially during the busy holiday shopping season.
2. Increase Spend Per Visit
Let's say you're a boutique gift shop and typically get about $50 per transaction. How do you increase each transaction to at least $55 per visit? By implementing "smart" loyalty marketing strategies, such as rewarding customers with points based on dollars spent.
Let's go back to the airline miles example. Since travelers know spending money on their preferred airline gives them points towards free tickets and benefits like being able to board earlier, they're often willing to spend slightly more for their tickets with that specific airline. Can you increase your prices slightly after you implement an attractive rewards program? It's possible if your rewards program is set up properly.
For the holidays, consider offering bonus points for purchases over a certain amount. This encourages customers to add that extra stocking stuffer or upgrade to a more premium gift option.
Typically, we see spend per visit increase by 10 to 25% after implementing a simple and attractive rewards program based on spend or items purchased.
3. Increase Win-backs from Lost Customers
Smart loyalty marketing strategies also drive revenue by winning back lost, inactive customers.
In general, more than 50% of customers don't return to a business after the first visit. Also, for each month that passes after a customer's first visit, the probability of that customer coming back generally declines—sometimes by up to 50 percent. Why does this happen? Because customers usually have a plethora of other places to go. Even if they had a great experience with your business, as time passes, their memory of it fades.
How do you win back lost customers? Consistent communication, and "win-back" campaigns, which keep your business top of mind.
This starts by building up your loyalty program membership database, collecting members' contact info at the point of sign up, and staying in touch with them often. Then, you implement "smart" loyalty marketing strategies, such as segmenting your membership database based on last visit date, and sending targeted (preferably automated) messages and promotions. These "win-back" campaigns are key to gaining back lost customers.
For the holiday season, create a special "We miss you!" campaign for customers who haven't visited in a while. Offer them an exclusive holiday discount or a free gift with purchase to entice them back into your store.
If certain customers haven't been back in 30, 60, 90 days, send them various promotions, remind them of your existence, tell them you value their business, and reward them for coming back.
Businesses using these strategies have seen 10% of lost customers return by sending targeted messages, and those who consistently communicate through top-notch promotions sometimes see up to a 70% lift in store visits.
Turning Transactions into Relationships
Successful loyalty marketing also involves building relationships with your customers. This is becoming increasingly possible with the proliferation of customer loyalty technology.
Relationships happen through shared history. The more you get customers to come back (through your loyalty marketing efforts), the more history you have together, the more you can really get to know people as individuals and treat them as such. As this happens more frequently, the hope is that eventually businesses and their surrounding communities become more vibrant and truly thrive – The biggest return from loyalty marketing.
This holiday season, focus on creating memorable experiences for your customers. Whether it's a festive in-store event, personalized holiday greetings, or exclusive member-only offers, these touches will help build lasting relationships that extend far beyond the holiday rush.
By implementing these smart loyalty strategies now, you'll not only capture more holiday business but also set the foundation for year-round customer engagement and growth. Remember, the relationships you build during this busy season can turn into loyal, repeat customers who support your business all year long.
