Customer Loyalty Programs – Your Key to Growing Your Business

by Katie Sawyer, 9 minutes read
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Customer Loyalty Programs – Your Key to Growing Your Business

A key aspect of business growth is building a solid base of satisfied customers who continue to choose your products and services while recommending your company to others. A customer loyalty program is a way of increasing your customer’s engagement with your company as well as growing your profits.

What is a customer loyalty program?

Businesses who use customer loyalty programs aim to encourage repeat business by incentivizing customers to keep coming back to buy more of their favorite products or to try some new items, by offering perks. These incentives include:

Benefits of a customer loyalty program

Customer Loyalty Programs - Your Key To Growing Your Business

Given the high level of competition that most companies face, loyalty programs are a viable option for businesses that aim to grow.

Here are some benefits businesses with customer loyalty programs can take advantage of:

  • Increase your revenue

Implementing a loyalty program can help to increase your bottom line. Providing rewards to customers helps you develop trust, which could result in a willingness to spend more with your business. It is easier and more cost effective to retain existing customers than to find new ones. Therefore, it makes sense to focus on implementing strategies to keep your existing customers satisfied.

  • Enhance your company’s reputation

The following are two basic functions of your customer loyalty program:

  1. Encouraging your existing customers to keep coming back after buying your goods or services.
  2. Assuring your existing customers that you value their business.

When you establish a customer loyalty program, your customers will feel appreciated and in turn, are more likely to be loyal to your business. This loyalty is displayed when your satisfied customers share their positive experience with friends and family. Happy customers take part in word of mouth marketing, which is seen as more reliable than paid advertising.

  • Easy management

Customer Loyalty Programs - Your Key to Growing Your Business

Establishing the loyalty program requires a great deal of effort in the beginning. This work generally involves researching customer preferences and determining the best strategy to suit your company’s needs. However, once your program is up and running, it can become self-sustaining if you utilize the right technology.

  • Access useful marketing data

Your loyalty program automatically provides you with marketing data about your customers’ buying habits. This insight will help you tailor your products or services to meet your customer’s needs. Utilizing the data will also help you experiment with different types of loyalty incentives to find which offers work best.

Before you decide on the best customer loyalty program, here are some tips to help you boost the likelihood of success:

  • Share innovative products with current customers first

Customer Loyalty Programs - Your Key to Growing Your Business

Some companies focus on providing deals to first-time customers while neglecting the needs of existing customers. You can use your loyalty programs to change this status quo. If you are a business that provides innovates products or services, why not give your current customers a sneak peak at your new offering. You could invite your customers to a launch event. This will make them feel special because it lets them know that you value their business.

  • Make your customer loyalty program mobile

According to a Brand Loyalty study in collaboration with Visa, customers will be more attached to a customer loyalty program if it provides a mobile aspect. This study found that 57% of various loyalty program members are more likely to participate in those with a mobile app. Additionally, 49% of members did not know if their program provides a mobile participation option. Therefore, you should make it clear to customers that your loyalty program is mobile-friendly

  • Utilize gaming

Many employers use gamification to train their employees and to increase engagement and retention. The same principles of gamification can also apply to customers. Appealing to your customers’ sense of fun can be an asset for your company loyalty program. The object of any game you use should be to solidify your brand and associate your company with feeling happy.

Here are some tips for using games for customer loyalty:

  1. Ensure that the odds of winning are no lower than 25%.
  2. Check with the appropriate attorneys to make sure that all legal aspects are covered.
  • Think beyond the common types of benefits

Customer Loyalty Programs - Your Key to Growing Your Business

According to an article in the Harvard Business Review, the customer experience in relation to resolving issues is a key part of customer retention. The article states that customers can become frustrated when they have to contact a company several times to resolve a problem. They may also become annoyed with being transferred to different representatives and needing to repeat themselves.

In light of these findings, you could establish a program dedicated to making sure that your customer service employees and other company representatives who interact with your customers, strive to resolve customer complaints quickly and efficiently as possible. Training your employees in different techniques, like active listening, can help to resolve problems satisfactorily.

Different types of loyalty programs

The increase of smartphones and technology mean the loyalty programs are becoming more sophisticated. This technology has changed customer expectations as they want to benefit from repeatedly using a particular business.

  • Points-based system

The points-based system of customer loyalty programs is the most prevalent and involves customers getting more rewards when they spend more money. The basic idea is that your customers continue to buy products from you to earn special privileges, like free items or discounts. The points-based customer loyalty program should be kept simple in order to avoid frustrating your customers.

  • Value-based system

Customer Loyalty Programs - Your Key to Growing Your Business

Your original business plan should contain a buyer persona for your goods and services. Use this information to determine what your customers’ value. Offering a customer loyalty program that is aligned to your customer’s values will increase the chances of sign-ups because they are connected to your company, in relation to something that has a deep meaning to them.

  • Tiered programs to promote more purchases

You may want to offer tiered levels of customer loyalty incentives. You can start by offering very basic rewards for initial purchases from your company. Then increase the loyalty level when more money is spent.

  • Partner with a related company

This strategy requires that your company analyzes the type of partnerships your customers’ value. For example, if you operate a coffee shop, a suitable partnership idea may be a discount on a local spa for a relaxing drink after a beauty treatment. A partner customer loyalty program helps you strengthen relationships with different businesses. This is a useful strategy for small businesses that operate in the same area.

  • Spend program

Customer Loyalty Programs - Your Key to Growing Your Business

This is one of the simplest customer loyalty programs to implement. Your customers will receive credits dependent on the amount that is spent. For example, if you own a restaurant, you can implement a spend program that offers a free milkshake with every $10 that is spent.

  • An influencer program

Most people use some type of social media that include Facebook, LinkedIn, Instagram, etc. Similar to using social media influencers, this involves asking your customers with a large number of followers to advertise your goods or services in return for perks. This type of program will involve inviting only a select group of customers that you trust. Additionally, your customers need to indicate that they are getting compensated for the promotion.

Best loyalty programs

  • The points system model

Many food retailers offer store cards that the cashier swipes at the checkout stand. Every time the card gets swiped, customers collect points toward monetary or percentage discounts on purchases. For example, Kroger, offers fuel points at affiliated gas stations so that customers get a specified amount off their gas price, depending on how many points they have collected over a month.

Customer Loyalty Programs - Your Key to Growing Your Business

  • The gamification model

The Swarm app, which was developed by Foursquare (a promotional app for businesses), is gaining popularity as a check-in app that allows its users to check in with friends at various business locations. These check-ins are then recorded in users’ “lifelogs” as an indication of their personal experiences. Swarm has a customer loyalty program called Swarm Perks.

When Swarm users check in at certain businesses, they are eligible to receive discounts. These discounts may be 20% off an item. Additionally, Swarm Perks provides its users with sweepstakes opportunities on a weekly basis. This involves entering a draw every time users check-in at a participating business. The sweepstakes entries offer the chance to win high-value prizes, such as shopping sprees or vacation trips.

  • Philanthropic customer draws

A shoe company, TOMS, began by emphasizing its commitment to improving people’s lives. The company promised that for every item customers bought, it would help someone in need. TOMS advertised that it would provide a needy child with a pair of shoes, for every pair a customer purchased.

The charity-based customer loyalty program TOMS administers has grown to support other programs, such as ensuring maternal health care and clean water access. The company has also used purchases of its theme-based product, elephant-dotted TOMS, to contribute to the Wildlife Conservation Society.

  • Mobile phone discounts

The popular fast Mexican food establishment Costa Vida has a mobile app, available through the App Store or Google Play. Customers can use the app to scan their purchase receipts and accumulate monetary rewards toward future food purchases.

How to determine the effectiveness of your customer loyalty program

Customer Loyalty Programs - Your Key to Growing Your Business

Growing your business is the main goal of implementing a customer loyalty program.

Here are some standard metrics when analyzing the success of your customer loyalty program:

  • Customer retention

This metric keeps track of how many times customers keep returning to your business. To determine this information, you should use data from your customer loyalty software to work out the amount of repeat business.

One suggestion is comparing the number of return customers that have joined your customer loyalty program with those who have not joined.

Net promoter score (NPS)

Customer Loyalty Programs - Your Key to Growing Your Business

This is a trademarked metric based on analyzing a business’s level of customer satisfaction. The survey asks customers to use a scale of 1-10 to rate how willing they would be to recommend a particular business to others.

The NPS measurement method calculates results by adding the number of customers expressing dissatisfaction with a company and subtracting the result from the total of customers who have expressed satisfaction. This process can help you regularly analyze your level of customer loyalty.

  • Redemption rate

Customer Loyalty Programs - Your Key to Growing Your Business

Another way to analyze the effectiveness of your customer loyalty program is the redemption rate. The redemption rate is the number of coupons your customers have redeemed divided by the number of coupons you have issued. A high redemption rate shows that your customers are engaging with you. It can be tempting to regard low redemption rates as an advantage for your company. This is because the fewer customers who redeem their coupons, the more savings you could make. However, the point of customer loyalty programs is to increase engagement with your business. Therefore, a higher redemption rate means that your customers are coming back to your business and probably spending more.

Customer loyalty programs have many benefits in terms of encouraging repeat business. Another aspect of customer retention is providing a high level of customer service, which includes being fully-staffed at all times.

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