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The Flevy Blog covers Business Strategies, Business Theories, & Business Stories.
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Editor's Note: Take a look at our featured best practice, Net Promoter Score (NPS) (47-slide PowerPoint presentation). This presentation covers the Net-Promoter-Score (NPS) and 10 Deployment Best Practices to ensure a successful implementation. The Net Promoter Score is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix Systems. It was [read more]
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Whilst most of us have signed up to a loyalty scheme at one point or another, you may be wondering how valuable they actually are for businesses and whether you should create one.
A well-designed loyalty program can help you build customer loyalty, deepen engagement and attract new customers. According to research, consumers account for more than 3 billion memberships in loyalty programs, so there is an appetite out there for such schemes.
With only 13% of consumers being considered to be “complete loyalists” (i.e. they don’t shop around), a good loyalty program can help draw customers in and keep even the most fickle customers coming back.
A good loyalty scheme should entice customers back time and time again, so the reward for being loyal should be something worth having. Reward schemes that offer freebies, money off or coupons are often enough to draw customers in and keep them spending.
With almost 15% of businesses in the UK at risk of permanently closing their doors, it’s never been more important to think about customer loyalty.
Less price competition
Often when you’re competing for customers online, consumers will look for the cheapest products. Unfortunately, with the rise of giants such as Amazon, you’ll be unlikely to be able to properly compete with their price point.
Instead, by having a loyalty scheme, customers may be more likely to purchase from you. Not only may they be able to receive coupons and discounts through accruing points, but loyalty programs also connect with your customers’ emotions and collect valuable data. This means you can offer a more personal customer experience.
On top of this, according to research by LoyaltyLion, 81% of emotionally invested consumers will be more likely to spend more and tell someone they know about your business.
Increased customer retention
Did you know that loyal customers spend 67% more than new ones?
Therefore, the purpose of a loyalty scheme isn’t just to keep your customers coming back at regular intervals. Not only will they frequent your store more often, but they are likely to spend more when they do so.
This coupled with the fact that acquiring customers costs five times more than retaining existing ones means that you may be missing a trick by not implementing a loyalty scheme.
Increased customer lifetime value
Customer lifetime value is the profit attributed to the overall relationship with the customer. In short, it tracks how valuable the customer.
With a loyalty scheme, the customer lifetime value rises to 79% within 3 months, so it’s not to be missed.
If you’re looking into a loyalty scheme, there are three main types of scheme.
Points-based reward systems (as the name suggests), enable customers to accrue points which can be redeemable against products or services. These are easy to set up and lend themselves perfectly to retail.
An “always on” reward scheme gives customers access to exclusive discounts that can be redeemed anytime by being a customer. For example, O2 Priority Moments is classed as an always on reward scheme. This type of scheme lends itself well to telco and finance brands as a cost-effective way to reduce churn.
For those businesses that want their loyalty scheme to work harder, a combination of the two may just be a winning combination. While costly to set up, they can generate great ROI if done right.
Keeping customers coming back should be high on any business’s agenda. From lower acquisition costs, to increased customer lifetime values and bigger profit margins – it’s no surprise that a killer customer loyalty scheme is part of many brands marketing plan.
To keep customers spending, you’ll need to plan for data and customization. By harnessing and collecting valuable data about your customers, you can personalize the experience and keep happy customers coming back.
You can download in-depth presentations on Customer Retention and 100s of management topics from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.
For even more best practices available on Flevy, have a look at our top 100 lists:
These best practices are of the same as those leveraged by top-tier management consulting firms, like McKinsey, BCG, Bain, and Accenture. Improve the growth and efficiency of your organization by utilizing these best practice frameworks, templates, and tools. Most were developed by seasoned executives and consultants with over 20+ years of experience.
