According to a recent Boston Retail Partners report, customer loyalty is becoming a bigger focal point for retailers and is now a top priority for nearly half. It is easy to understand the appeal of a loyalty program, because on average, current customers spend 67% more than new customers. Thus, many marketers view loyalty programs as a way to capture and grow customer relationships.
However, even with the upside and potential of loyalty programs, most initiatives fall flat.
For starters, there is often a misconception of what loyalty actually is. Many brands fall victim to using discounts and offers to drive loyalty and often these brands end up rewarding customers for existing behavior opposed to encouraging them to change their behavior.
Point-based loyalty programs are often very guilty of this. For example, if I am an active customer at Scola’s Sandwich Shop, going on average twice a week, and Scola’s has a point system where for every 10 sandwiches, you get one free. In this scenario, I am getting a free sandwich once a month. The free sandwich is simply rewarding my existing behavior and ultimately, eats into Scola’s margin.
Let’s look at point-based loyalty programs from another angle: If a new sandwich shop opens up and I am now only eating at Scola’s once or twice a month, I’m such an infrequent customer that the reward from the point system does not incentivize me to change my behavior.
While this is just one example, points-based loyalty programs are one-size fits all and fall into the trap of most loyalty programs by not recognizing that customers are different from one another.
However, there are a few do’s that Scola’s (and other QSR’s and retailers) can take to create a loyalty program that is directed at fostering engagement and changing customers’ existing behavior.
1. DO segment and differentiate between customers. Customers are not created equally and brands should develop strategies that are specifically designed for each segment. By knowing the behaviors of each segment, brands can have offers that are relevant for each segment.
2. DO use loyalty initiatives as an output of lifecycle marketing. You do not need to discount your business to drive loyalty. Rather, loyalty and offers should be used as a function of a holistic lifecycle marketing campaign. For instance, if a brand recognizes that a high-value customer has the potential to lapse, engaging with them at the right point along their lifecycle, with the right message (HEY, WE MISS YOU EMAIL + OFFER) reduces the risk of that customer lapsing.
3. DO use offers to get customers to take a new action. Customers are more valuable when they take an action that is different from that of their initial purchase. By having a clear understanding of customer behavior, brands can identify when the optimal time is to deliver an offer that gets customers to change their behavior. For example, if you know a customer has the potential to be a high-value customer, but they have only bought from a single product category, by offering an incentive (30% OFF A NEW PRODUCT CATEGORY!) helps to drive that customer cross-category and change their behavior.
Many marketers mistake loyalty programs for a stand-alone, siloed effort. However, when loyalty programs are integrated into existing lifecycle marketing programs and target customer needs at the individual level, they foster long-term profitable brand-customer relationships.