A loyalty program (or customer loyalty program) is a formalized process for businesses or brands to incentivize ongoing patronage from their customer base. It is part of a marketing strategy centered around rewarding customers for repeat business with a company. In essence, the more a customer shops, the more (or the better) rewards they can earn. This is a win-win for businesses and customers alike. Businesses can increase their revenue through consistent and higher-value purchases while customers themselves benefit from discounts, desirable rewards, and other perks. Beyond the transactional boosts that customer loyalty programs provide, they also add value and respect to the customer experience.
Rewards programs may operate differently to address the unique customer base of each business, the level of investment a company wants to make, or the standard expectations of a given industry. What remains consistent is that loyalty programs will reward customers for their ongoing patronage. It is up to the company to determine how the loyalty program will be structured. They will need to determine what incentives can be offered to their customers, how the customer can progress toward the goal, and how the progress will be tracked and acknowledged by the business.
For example, it is common for businesses to offer one point for every dollar spent by consumers on their products. After that point amount reaches a certain threshold, the points can be redeemed for a reward such as in-store credit or a free item.
The benefits of an effective customer loyalty program go well beyond repeat business (although that is a significant benefit). In actuality, the ripple effect of a successful customer loyalty program can extend throughout an organization, enhancing their marketing, advertising, customer retention, customer acquisition, and even their company values and culture. Here are some specific benefits that can be achieved through the use of a loyalty program:
Customer loyalty programs usually (but not always) have little to no cost for the consumer, and offer the opportunity to earn incentives as they continue to shop with a business. This “all upside” scenario makes a rewards program compelling and accessible, while giving customers the opportunity to save money, earn items, perks, or experiences just for shopping.
That is not the full story, however. Customers enjoy being part of customer loyalty programs for a variety of reasons. Some consumers may want to feel like a priority, as demonstrated by a Wunderman study that concluded that 79% of consumers only buy from brands that prove they care about earning their business. Other customers want to feel special and benefit from exclusive perks. Some consumers may like the gamification aspect of the rewards program process, constantly having goals or objectives to work towards.
Within most customer loyalty programs there are several types of rewards that businesses frequently offer. Typically these offers are able to be claimed after the customer reaches a specific threshold of money spent or points earned with a given business. Common rewards include:
Good customer loyalty programs start with a business that has excellent products or services to begin with. Without that, developing customer affinity through loyalty rewards is exceedingly difficult. But assuming that a business is deserving of repeat customers, loyalty programs can be an incredibly effective tool in promoting continued engagement and repeat purchases. When comparing two similar businesses, 75% of consumers say that they prefer companies that offer rewards. Loyalty programs increase sales and revenue as well. Along with the increased customer retention (and in-turn purchases) that it can provide, the Harvard Business Review suggests that loyalty leaders grow revenues roughly 2.5 times as fast as comparable businesses in their industry.
When running a customer loyalty program, it is important to always have a pulse on its performance. By determining a program’s strengths, weaknesses, and trends over time, a business can make adjustments to refine and improve the program as they go along. But what metrics should be considered to determine its overall effectiveness? Some valuable data to monitor includes:
Customer loyalty programs can serve as an integral tool for companies to increase customer retention, revenue, and satisfaction and can help foster growth of the customer base. It is a marketing resource and customer engagement system that can change the way that brands do business. Loyalty programs deepen the brand and consumer relationship through various points of contact and ensure that the customer feels valued for their continued patronage.