Before building a customer loyalty program, analyze your customer base to understand their purchasing habits. This will give you the necessary information to design a program just for them.
- What do your customers expect from your business?
- How can you give it to them?
- What type of customer loyalty program will fulfill those needs?
- Will a point program work or will a tier program be better?
Repeat Customers Spend More
It’s a proven fact that repeat customers spend more than new customers. As a business owner, you want to retain your customer base, especially those loyal customers.
According to INC magazine, repeat customers spend 67% more than new customers. INC also reminds that it will cost a company 5 to 10 times more to acquire new customers than to retain existing ones. This means companies are wise to place marketing dollars in retaining repeat customers.
Competition for Active Participants
In 2015, LoyaltyOne’s loyalty marketing research provider Colloquy released its biennial report on US customer rewards programs. The report stated that “American households hold memberships in 29 loyalty programs”. However, out of those memberships people are only active in 12. This data places companies in a tight competition.
One of the best ways to retain customers is with an effective loyalty program. Armed with your customer database analysis, you can assess the various customer loyalty program models.
Customer Loyalty Program with Customer Value
A customer loyalty program should hold real value for your customers. Make sure that the program you select answers the questions of what it can do for your customers.
Keep in mind:
- Loyalty programs should reward repeat customers with tangibles.
- Popular rewards include, discount coupons, free merchandise, BOGO, VIP sales, special promotional codes and early bird discounts.
Two Popular Customer Loyalty Programs
There are two popular loyalty programs, the point system and the tier system.
The point system is often a favorite choice that appeals to customers focused on short-term value. These are the customers that visit your website, attend your events or store to make regular and frequent purchases.
If you host painting classes or cooking classes and also sell supplies, the point system loyalty program could be a good match for your customer base. The system is fairly straightforward and rewards repeat customers.
It works by:
- Customers earn points through registration fees, transactions, purchases and event bookings.
- Customers accumulate points until a specific number of points is reached and the customers can redeem them.
Redeem Points for Tangibles
Once you decide to go with a points system, you need to set the parameters for how the points will be redeemed. What tangible items can customers receive?
Points are redeemed for various items, such as:
- Percentage off purchase or dollar amount discounts on next purchase of supplies or event.
- Discount for attending a set number of classes.
- Special event admission.
- Discount for early bird registration for events paid for in advance.
- A freebie (product or value downloadable).
Business experts advise keeping the loyalty program simple and easy to understand. It you don’t have ongoing classes or events, this type of program may not work for your business model since it requires frequent purchases in order to accumulate points.
If you have a longer time-frame between events, a tier system may be a better option for your loyalty program.
A tier system may prove a better option for your company if your goal is to reward a first time buyer in the hope of developing future sales. This system is most effective for events that have larger fees, such as a conference. This loyalty program can be used to encourage repeated attendance to annual, bi-annual, quarterly or similar events.
Some examples include:
- Start with small rewards for the program base, such a coupons or discount codes.
- Increase reward values as customer increases purchasing habits, BOGOs, friend referral rewards when friend makes first purchase at a stated value.
- Automatically move the customer up within the loyalty program as customer’s purchases continue to increase.
- Top tier rewards include, special event-related activity or limited number of attendees for VIP only event.
Furthermore, a tier system that continues to increase in value with each tier level is easier for customers that don’t make regular purchases like point system customers. In contrast, a tier program offers incentive for repeat customers that is a no-brainer since it automatically moves the customer up through the tier program.
The tier program is a better choice in you aren’t holding weekly or monthly events. With a point system, your customers might forget they’re even members of a point-system loyalty program and never redeem their points. This would make your loyalty program ineffective, valueless to customers and a waste of marketing bucks.
A tier reward program is appreciated by customers too busy to calculate and redeem points, much less recall they are participating in a loyalty program.
This form of program takes the burden off customers to keep up with rewards points and program details. Events that have longer repeat times, such as quarterly, bi-annual or annual are excellent candidates for a tier system loyalty program.
Accessible to Mobile Devices and Computers
Email Campaigns Marketing communications consultant Caron Beesley, writing for the US Small Business Administration had some thoughts on accessibility. She reminds small businesses that mobile technology holds the key to loyalty program promotions. It’s vital that your loyalty program be accessible to computers and mobile devices since many customers may not have a smart phone.
Email Campaigns to Market Loyalty Programs
Beesley states loyalty programs can also be used to gather demographic information about your customer base that can be transformed into revenue.
She points to an Experian CheetahMail that reports when businesses use email campaigns to target loyalty program members, the campaigns are very successful. These campaigns generate “higher open rates, transaction levels and revenue.” Emails that are simple invitation to prospects to join the company’s loyalty programs “outperform regular email blasts”.
The customer loyalty program should reward repeat customers with real value and ensure customer retention as well as increased sales.