How to build a successful loyalty program

| Reading time: 4 min.

A good loyalty program work wonders for a brand. For a business to flourish, you will need to both acquire new customers and retain the ones you have.

Research has shown that acquisition can cost between 5 and 10 times as much as retention. Additionally, the cost of bringing a new customer up to the same level of profitability as an existing one can be up to 16x more.

And like any relationship, customer retention takes work. This is where a loyalty program come in. Among other activities, a nicely executed loyalty program can improve your plan to retain customers, and win brand new ones, yield insights and increase wallet share. A poorly executed one, on the other hand, can waste your time and resources and tarnish your brand image.

Loyalty program

Loyalty programs are structured marketing procedures designed by merchants to encourage customers to continue to shop at or use the services of business associated with each program. This kind of programs exist covering most forms of commerce, each one having varying features and rewards-schemes

In the United States, several major supermarket and fish market chains, and the major pharmacy chains require the cards in order for customers to receive the advertised loyalty price. They include Kroger and Safeway (both of which each through both its own name and its related regional chains), Target, Best Buy, Sears (also used by Kmart), County Market, Hallmark, Office Max, Kohl’s, Toys “R” Us (Also used by Babies “R” Us), JCPenney, IKEA, Menards, Winn-Dixie, Hy-Vee, Ingles, Giant Eagle, Tops, Price Chopper, ShopRite, Wegmans, Stop&Shop and sister chains Giant-Carlisle, and Giant-Landover, Regal Entertainment Group, AMC Theaters, Circle K, Rita Aid, Walgreens, and CVS/pharmacy.

A lot of retailers make it possible for accumulation of fuel discounts. Some have tie-ins with airline frequent-flyer programs, as well as some agree to donate a percentage of sales to a designated charity.

Particularly, Wal-Mart does not have a loyalty card plan though anyone who purchases a gift can generally get a three-cent discount per gallon of gas at the fuel stations situated on Wal-Mart premises (only in the 23 states with those Wal-Mart fuel stations).

Do rewards really create loyalty?

Customer rewards have been revealed in the business press and cheap promotional devices, short term fads, giving something for nothing. Yet they have been around for more than a decade, even more companies, not fewer, are jumping on the bandwagon. From airlines offering frequent flyer deals to telecommunications companies, lowering their fees to get more volume, organizations are spending huge amounts of money developing and implementing rewards programs.

Company interest is justified. The theory is sound. Rewards can and do build customers loyalty and most companies appreciate how valuable that loyalty can be. As Frederick F. Reich held and W. Earl Sesser, Jr., documented in “Quality Comer to Services” (HRB September-October the year 1990), a company’s most loyal customers are also its most rewarding. With each several years of a relationship, customers become less costly to serve. Over time, as the loyalty life cycle plays out, loyal customers event become business builders: buying more, paying premium prices, and bringing in new customers through referrals.

In practice, nevertheless, rewards programs are widely misunderstood and often misapplied. With regards to design and implementation a lot of companies treat rewards as short-term promotional giveaways or specials of each thirty day period. Approached that way, rewards can create some value by motivating new or existing customers to try a product or service. But until they are designed to build loyalty, they are going to return at best a small fraction of their potential value.

A loyalty program can accelerate the loyalty life cycle, ensuring first-or second-year customers to behave like a company’s most profitable tenth-year customers – but only if it really is planned and implemented as part of a larger loyalty-management strategy. An organization must find ways to share value with customers in proportion to the value the customers loyalty creates for the company. The goal must be to develop a system through which customers are continuously educated about the rewards of loyalty and encouraged to earn them. Achieving sustainable loyalty, measured, measured in many years, requires a strategic sustainable approach.

The Rules of Rewards

Some of the most effective samples of building customer loyalty through value sharing are available in traditional small businesses. For several years, successful neighborhood merchants and restaurateurs have understood intuitively the broader strategic purpose behind an efficient rewards program. Such businesspeople always make it a habit to get to know their best customers turns them into faithful customers; and those faithful customers become even more profitable with time.

But as companies rise in size and complexity, their capability to detect which of their customers are the most beneficial falls precipitously. High turnover of sales and customer service employees exacerbates the problem. Personalized customer relationships and the accompanying keen judgement on value sharing disappear.

Large organizations striving for increased market share, scale, and efficiency try to compensate for the loss of personal relationships by using database marketing or sophisticated market research techniques to target valuable customers. For all those investments to pay off, nevertheless, organizations must also bear in mind the following principles of effective value sharing.

In marketing generally and in retailing more specifically, a loyalty card, rewards card, points car, advantage card, or blub card is a plastic or paper card, visually like a credit card, debit card or digital card that identifies the card holder as a participant in a loyalty program.

Contact us to find out more about how we can help you design your Rewards Program and make int successful.

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