Customer Loyalty Programs and How to Make Them Successful

What is a customer loyalty program?

The customer loyalty programs ensure your customers remain your customers for the long term. They are a result of positive customer experience and rewards customers who purchase or engage with the brand again and again.

A customer loyalty program can prove to be a great way to up-sell or cross-sell products and services. However, it also takes a lot of consistent effort and patience to run a loyalty program successfully. But businesses understand the advantages of running a customer loyalty program and have reaped its benefits. It takes far more resources to acquire a new customer than to retain an existing customer. Although customers might be very happy with your services, the moment they receive a better offer they will not think twice before switching their choice.

Benefits of a customer loyalty program

According to Bain & Company, a 5% increase in customer retention leads to a 25% increase in profit. It’s because of this huge increase in business that many companies build customer loyalty programs. Below are some of the reasons businesses choose to create and run a customer loyalty program.

  • Cost-effective

There’s a lot of money involved in finding a new contact, turning a cold lead into hot, nurturing a lead or converting a lead into sales. Filtering leads through the marketing and sales funnel also takes time, a few months in many cases. Gaining new customers through existing ones is far more cost-effective as compared to investing in getting new customers.

  • Easy

The customer loyalty program aims at retaining existing customers. You already have a communication channel open with them and so just have to leverage it further. Good conversations help better understand their requirements and explain how your business suits them. Getting deals from people who already have had a positive experience is a lot easier than from those who haven’t had any interaction with you.

  • Strengthens brand

When customers stick to your brand, it strengthens your brand. They will have more emails from you and are likely to develop a bond with your brand. With time, their trust in your brand might make it difficult for them to leave your services and move to other brands. The more they remain with your business, the more they are likely to talk about your brand with others.

  • Referral marketing

Whether it’s about getting a new customer or an employee, referrals always work. People trust their connections and hence are more likely to purchase known brands. The customers who enjoy loyalty benefits will refer their friends and colleagues to try the same. If their referees also join, then they get additional benefits. Thus, without spending much, you generate word-of-mouth publicity.

How to build successful programs?

  1. Make sure the customer interactions are meaningful

The customer loyalty program is an interaction between your customers and brand. Make sure it adds to the positive image of your business. Your customers have chosen to be part of the loyalty program because they appreciate your services and plan to continue being your customers. Hence, any further communication from your end should only add value. Help them with their queries or see if they are deriving maximum value from your products and services.

According to a research study carried out by Microsoft, 60% of customers stopped doing business with a brand after having a bad experience. So, if they don’t have a good experience, you’ll risk losing them to your competitors. This can be a challenging task over time, especially in situations where account representatives change. In such cases,  customer relationship management tools can keep a track of all the calls and emails sent to them, and the notes and actions taken by them.

  1. Highlight the benefits of the customer loyalty program

Nobody would want to join any program if they don’t get reasonable benefits out of it. You can remind customers of the benefits of the program such as bonus points or cash discounts. Send them a regular email educating on how they can win more rewards and what are the various ways to use them.

  1. Reward members of the customer loyalty program.

Emotional experiences have a long-lasting effect on the human brain as compared to plain transactional interactions. When you reward your customers, they create an emotional connection with your brand. They are more likely to share their stories with others and recommend your business to them.

  1. Share customer success stories.

Positivity breeds positivity. Share stories of happy customers and how they benefited from your business. You can also request customers to share how they enjoyed the rewards they received while being part of the program. This will keep the spirits of other program members high and make them want to continue with the program.

Signs of successful customer loyalty programs

Specialized customer loyalty platforms offer a great way to manage the customer experience after purchase. This software can help businesses keep track of vital metrics such as churn, response rates, and retention rates. This allows them to judge how loyalty programs are performing, and to learn how customers feel about the company overall.

  • Customer Retention Rate (CRR)

This indicates how long customers stay with you. If your loyalty program has been successful, you should see a gradually increasing number of retained customers. If not, then you need to retrospect on what’s not working and how can you improve on it.

  • Net Promoter Score (NPS)

NPS measures customer loyalty and an indicator of customer experience. This can be measured by running a customer satisfaction survey and calculating the score based on responses. If the range of score is from 8-10, customers are considered to be promoters i.e. they are more likely to refer your business to others. A 6-7 score implies customers are passives and will remain neutral when it comes to referring you. Any score less than 5 would mean customers are detractors and not happy. If their voice is not heard, they might leave you. A good customer loyalty program should improve the experience of passives and detractors and eventually convert them into promoters.