February 20th, 2019
Retail is a popular industry for implementing a customer loyalty program. What business owner wouldn't want paying customers to continue to come back for more and more?
You have heard it plenty of times, it is a lot less in cost to keep a customer than to acquire a new one. And you are probably wondering if a loyalty program could be a good fit for your retail business.
Thanks to the many different types of loyalty programs you could offer, there is one I am sure that is right for you. But there is so much more to know than the different types of customer loyalty programs.
In this post we will not only cover that, but look at the end-goals of running a rewards campaign, the benefits and reasons customers join, how you can measure the success and ROI, tips to build one, and a few stats to get you motivated to start your very own loyalty program.
Before we dive into those subheadings, lets briefly go over a few basics:
- Loyalty Program Definition
- Types of Retail Loyalty Programs and
- Retail Loyalty Program Examples
Loyalty Program Definition
Customer loyalty programs are long-term marketing strategies structured to motivate the repeat business of customers or clients via reward incentives from a particular business.
Because loyalty programs offer a variety of types, many industries can launch one. In retail, there are specific types of loyalty programs that are generally seen more than others. Let's touch on them a little.
Types of Retail Loyalty Programs
Points: Points programs are most likely the most popular type of loyalty program a business can launch. Depending on the size, a customer earns points for each purchase they make at your business.
Sometimes, the points only are rewarded for certain items made within the purchase, instead of every single item.
The points continue to add up, until a threshold is met, and the customer than, can redeem the points for an reward. The reward offered is often a discount taken off a future purchase, although as a business owner, you can choose any award that will drive success to the program.
Tiered: Tiered loyalty programs not only encourages repeat purchases, but they place an emphasis on higher value purchases as well. As a result, the rewards and benefits offered through a tiered loyalty system are of more value as well.
Customers enter the system on the lowest tier, where a basic award is offered. In order to receive the different benefits and rewards you offer, the customer must increase their visit or purchase frequency or amount.
Partner: Partner loyalty programs are also referred to as coalition programs, and are offered by multiple businesses, but the data is shared in one customer database.
In this system a customer could earn rewards faster if they shop at all the participating businesses. The business could also benefit from having a bigger brand reach.
Cost of the program, including the marketing associated with the program, rewards and sponsor's are shared among the participants.
Paid: Paid loyalty programs are often referred to as the premium membership club. Here, customers pay upfront, usually annually, to receive any benefits the business may offer.
Offering this type of loyalty program creates a higher barrier to entry, leaving you with more profitable customers in the program. These customers provide an higher average purchase order, and higher order frequency.
For further reading:
Retail Loyalty Program Examples
Retail Customer Loyalty Programs- All You Need To Know
Retail Loyalty Program Goals
As a retail store owner, your are constantly tying your marketing initiatives to goals. There are certain goals you should look to get out of your loyalty program as well.
- Customer Retention
- Collection of data
- Increased spending from one customer
Customer Retention: When you increase customer retention, you manufacture bigger profits! And there only needs to be an small increase in customer retention at that.
That's why it's a great goal in connecting customer retention and loyalty programs. In time, those customers you retain will become promoters and advocates of your business as well.
That word-of-mouth marketing vastly reduces marketing and advertising cost.
Another benefit that comes with customer retention is your ability to improve the overall customer experience someone has when engaging with your business. This is done through the honest feedback a repeat customer provides.
Rounding out why customer retention is a great goal to have with a loyalty program, is the trust it builds inside the customer.
That trust keeps customers loyal to your brand, leaving a gap between you and your competitors when it comes to where they choose to spend their money.
Collection of data: Collecting data from loyalty programs helps brick-and-motor stores, from curating and personalizing communication, delivering better engagement, to increasing sales.
To get the most of this data you need to:
- Ensure the program is valuable enough to prevent lots of customers dropping off the program.
- Collect easy to understand data that every decision maker can use and make sense of.
- Make the data you collect tie to your overall SMART goals.
Increased spending from one customer: The third goal of a loyalty program is to get the customers to purchase more in a single transaction.
A study done by Smile.io shows that loyalty rewards programs affect average order values in a positive way.
The study showed that in over 2,000 rewards programs and 50,000,000 plus customers, brands saw an average order increase of 13,71% from program members over non program members. Some brands reached up to a 75% increase!
Benefits of a Loyalty Program in Retail
There are a number of benefits running a loyalty program will have on your retail business. The 3 biggest are:
- Customer Referrals
- Customer Satisfaction
- Repeat Customers
Customer Referrals: Customer referrals will come naturally when you have an effective loyalty program. Some businesses take it a step further and offer rewards for referrals.
The choice is really up to you. If you do choose to reward customers for referrals, the most effective awards are:
- Giving both the person who referred and the new customer a discount
- Giving the person who referred the new customer points toward a future purchase
- Giving the person who referred the new customer free products
Customer Satisfaction: The impact of loyalty programs on customer satisfaction can be seen in a number of ways.
But there are two main factors in increasing customer satisfaction through a loyalty program you must be executing. First, make sure the program is easy to understand.
Avoid cases where the customer may have to use a calculator to determine how many points they should have accumulated on a purchase.
Second, make the program easy to use. Having them mail in rebates, or go through extra steps to redeem rewards is dissatisfying at the least.
Repeat Customers: I touched on this already above in the goals section of this post. Your ability to retain customers is not to be underestimated. It's how businesses grow.
If your attracting new customers to replace customers who have left, your going nowhere.
Why Customers Join Retail Loyalty Programs
While it may seem that rewards is the prime motivation behind a customer joining a loyalty program, it's actually second.
Saving money is the primary reason customers participate in loyalty programs, as a study by Technology Advice concluded. Earning VIP status was third.
Photo via Technology Advice
Measuring the ROI of Retail Loyalty Programs
In measuring a loyalty programs ROI, an increase in purchase frequency and customer lifetime value should be seen.
But to truly get an understanding, you should compare these numbers as "members vs non-members" of the loyalty program. In addition keep an eye on other key performance indicators such as:
- new memberships
- active vs inactive accounts
- reactivated accounts
Post Funnel mentions that these numbers help determining the Net Member Base Growth, which is important. They also mentions keeping an eye on the churn rate, especially from new members.
Tips to Building a Great Retail Loyalty Program
Since loyalty programs are created to promote customer engagement, here are 4 tips to building a great loyalty program.
- Find the right loyalty program for your business by doing research, and keep it simple.
- Give loyal customers a sneak peek at new products before they hit the shelves.
- Award them with additional products that meet their interest
- Keep customer service at an all time high! Even offer priority support.
Retail Loyalty Program Stats
We were able to provide for you some loyalty program statistics from Annex Cloud, that you will find helpful in deciding weather or not to start a program.
- 87% of shoppers reported that they want brands to have loyalty programs.
- 54% of consumers say they would consider doing more business with a company for loyalty rewards
- 46% said that they have already increased the amount of business with a company because it offered loyalty rewards.
Customer loyalty programs for retailers offer long term repeat business of customers or clients.
You can offer different types, which can set you apart from your competitors, or cater to your customers overall experience. Those programs include points, tiered, partner, or paid systems.
Some businesses combine the types to give the customers the ultimate experience.
As customer retention, collection of data, and increased spending from one customer are end goals of a loyalty program, customer referrals, customer satisfaction, and repeat customers are a few benefits you'll receive along the way.
You will want to measure the ROI of your loyalty program, looking at a comparison of "members vs non-members." Use your loyalty program to promote engagement, not only sales, and it will be effective.
Lastly, remember that shoppers love brands that have loyalty programs, and many would buy more from a business that offered one. Loyalty rewards has helped retailers big and small capture increased sales from customers, now it's your turn.