In recent years, we have seen
customized loyalty programs steadily grow in popularity, as a large number of
major brands rolled out their own programs to establish better, closer
relationships with their customers. The most important question any marketer or
business owner can ask is “Do loyalty programs really pay off?” The answer is
“YES! They do.” This article will tell you why every business, small and large
should have a loyalty program.
The Rise of Loyalty Programs
We can trace back the rise of
loyalty programs to the 1970s. European researchers studying
business-to-business marketing discovered
that closer customer relationships led to greater profits, better customer
retention rates, and higher customer satisfaction, among many other things.
A lot of time has passed since
then, and we now know exactly why customized loyalty programs are so effective.
Sid Probstein from CRM Media explains
that it costs 5x more to acquire a new customer than it does to keep the
current one. And to bring a new customer to the same level of profitability as
an existing one, the company must spend 16x
more money.
That’s because the 80/20 law works with no exceptions. According
to this law well known by many marketers, 80 percent of revenue comes from only
20 percent of customers. We know the law works because of research done at the Kellogg School of Management at
Northwestern University, which states that “Up to 15 percent of a business’s
most loyal customers account for 55-70 percent of its total sales.”
Furthermore, only 1 percent of a retail website’s users generate as much as 40
percent of its total revenue, states Chloe Rigby in her article for Internet
Retailing.
As Elite
Daily found, the millennial generation is even more devoted to their favorite
brands than any other generation. 50 percent of millennials are saying they are either extremely or quite loyal to their
favorite brands. The majority of U.S. marketers are well aware of this trend,
and they intend to allocate more of their budgets to customer loyalty programs in 2016.
Give Your Customers What They Already Want
According to a press release from
Transera,
a cloud-based call center solutions
service, “Loyalty
program membership increased by 27 percent from 2012-2014.” This
corresponds to roughly 2.6 billion loyalty program memberships in the
United States alone.
Why are loyalty programs becoming
increasingly more popular? Because customers love them. When asked and found that 87 percent of shoppers said they want loyalty programs, and 68 percent of
millennials went on to say they would never be loyal to a brand unless it had a
good loyalty program. Given these facts, it’s easy to
see why the implementation of a customized loyalty program is an excellent
strategy for any small business that wants to compete with the big companies and
firmly establish their place in the market.
The Added Value of Customized Loyalty Programs
“More than 50 percent of shoppers
say they would pay a higher price for the customer experiences they value
most, and 77 percent would be more loyal to stores that provide their personal
top three customer experiences,” explains an article from Synchrony
Financial. Of course, an increase in revenue is always welcomed with open
arms, but revenue itself hardly ever tells the full story.
In the case of customized loyalty programs, the added value comes also
from the insights loyalty programs generate. According to a story in the Wall
Street Journal, consumer data and
other intangible assets could be worth more than $8 trillion. A good example is
the Kroger Co., which “was estimated to have sold $100 million worth of data in
2014 to Procter & Gamble Co., Nestlé
and other suppliers,” as stated in the report. Are customers willing to share
their personal information? Yes, in fact, “67% of US adults would be willing to
give companies access to basic
personal information in exchange for better products and services.”
For any business considering a
loyalty program, the question becomes how much information do you want or
need. The more information you ask for,
the less likely a customer will want to join your program. Asking for an email
address with just a first name or just a mobile phone number has proven to
increase the number of active participants in a loyalty program.
Perhaps even more importantly for
small, local businesses, loyalty programs give customers an incentive to
recommend your business to friends by word of mouth and on social media sites. This
can be essential for a success of a small business that doesn’t have the same
marketing budget as some of the largest companies.
Conclusion
At NorthShore Loyalty, we offer a
mobile style punch card to connect with customers through their phone and bring
them back during your slower times of the week to drive more sales when you
need them. You can sign
up for a risk-free demo or visit our website, learn more about
our services, and listen to what our clients have to say about our ability to
make their business grow.
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