When Loyalty is Right For You
Loyalty: it’s a term that has a lot of buzz. Every company wants loyalty from customers, and many believe loyalty programs are the way to go. Customers then complain that they are part of too many programs — but are they part of the good ones? Before we talk about how, let’s discuss why or if you should have a loyalty program, with a specific focus on the B2C segment.
Why You Need a Loyalty Program
There are a number of reasons why you may want to invest in a loyalty program. Here are the top five:
1. Market saturation:
With frequent customers but little differentiation in your product (coffee shops, a grocery chain, etc.), a loyalty program may be necessary. Think of Starbucks’ success with its loyalty program. Their consumers are loyal just to get that additional star or to pay using their mobile app; a key innovation in loyalty.
2. Competition:
Whether because of price, service, product quality or selection, customers have thought about leaving you for the competition. So all things being equal, you should devise a plan to create loyalty amongst customers on the edge of churning.
3. Increase top line:
Some loyalty programs incentivize customers enough that they either buy more frequently or buy more (i.e. items per transaction). Sephora and Pharmaprix’s Optimum loyalty programs come to mind, where in order to get free gifts or greater discounts sooner, consumers will add more items to their cart (whether virtually or in store) that they may not even need!
4. Need for data:
Loyalty programs are a great way to obtain data. They exchange the chance of incentives for a better understanding of their customers – what they shop for, when they shop, etc. If you’re struggling with this feat, a loyalty program may be the best way to fix that.
5. Attract new customers:
Loyalty programs are often used to acquire new customers, usually with a large incentive at sign-up. We all know that attracting new customers can be difficult and costly. But positioning a hefty incentive in front of a customer for purchasing from your brand or switching brands can be a huge windfall of savings in marketing acquisition campaigns. Think of RBC and their Avion program, where you get thousands of points just for signing up to their credit card.
Marketing Loves Loyalty
Data is the main reason marketers love loyalty programs. Knowing the history of your customers, or clusters of them, can help you understand what they like, don’t like, when they like it, as well as historical buying patterns, their inclination to buy next, what promotions work or are ineffective, and which regions of the country or specific stores and/or channels are more profitable amongst loyalty customers.
Imagine setting up dashboards for:
- Average spend per visit for loyalty members vs non-members
- Total items per transaction for loyalty members vs non-members
- Total member sales vs non-member sales
- Member point activity
Loyalty programs allow you to focus on the right customer segment for your business, to build more accurate customer personas and save you from wasting marketing budget on the wrong people. Take Starbucks again – a coffee shop where technology is a focus. Notice how many Apple products there are when you’re visiting one of their many locations, depicting an understanding for a customer that is willing to pay more for what they love.
Which Loyalty Program is Right for You?
- Create an internal program (either built internally or with a partner like Paystone)
- Latch on to a coalition loyalty program
It depends what you want for your business. If you choose option 1, there is definitely a lot of up front work that may take some time to pay off. But the good news is, you own that first-party data from your customers. You can dive deep into their habits and demographics, and change the program as you see fit. Some internal loyalty programs that you have surely been a part of may include: Starbucks, Guess, Fruits and Passions, and Sephora, to name a few.
For other companies, it makes sense to choose option 2, using programs that are already built with a huge customer base. Aeroplan, SPC, and Air Miles are some famous examples. Here’s the one limitation in using a coalition loyalty platform; they don’t give you customer-centric data. They may give you demographic data that can be useful (like your target market is male, aged 45 and over, and likes coffee over tea), but they won’t tell you that Betty shopped online 14 times using PayPal, shopped in store 5 times, and bought 97 items in the last year, not to mention having her mobile number on file for text offers.
Crack the Customer Lifetime Value Formula
The Holy Grail for any brand is to understand their customer lifetime value (CLV). There are many formulas out there to figure this out but if you don’t have the data to do it, then the models you build are based more on assumptions rather than facts.
Loyalty programs help you collect actionable data to understand your customers’ buying patterns, frequency periods, churn rate, etc., – and are therefore a smart way to set you up for future success.
There are numerous ways marketing teams collect data, and launching a loyalty program is one of the most effective ways. Planning is essential in making sure that the data you collect tells the story you want to tell.
Guest Contributor: Johnny Russo, Director, E-Commerce and Digital Marketing at BENTLEY