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The Whys and Hows of Customer Loyalty Programs

Customer loyalty programs have long been a popular marketing strategy among small and big companies, and for many good reasons.

The obvious reason, however, is it works — hands down. In fact, there’s an overwhelming amount of available research that validates how effective customer loyalty programs are.

But what exactly is a customer loyalty program? In a nutshell, it is a marketing system implemented by a business rewarding the purchasing behavior of consumers, which, in effect, increases their loyalty to the brand.

A customer loyalty program may offer customer incentives such as discounts, freebies, store credit, among many others.

Here are the top reasons why incorporating a customer loyalty program in your marketing efforts is one of the best things you can do for your business.

The Whys of Customer Loyalty Programs

Why #1: Fosters customer loyalty

The benefits a business can gain from increased customer loyalty can’t be emphasized enough. To bring home the point, a Bain & Company study discovered that a 5% increase in customer loyalty increases a business’s average profit per customer by 25% to 95%. That’s huge.

And what better way to inspire loyalty in your customers than by offering additional value through a generous and comprehensive customer loyalty program?

Everybody knows that customers love getting discounts and free stuff. If you offer freebies and incentives in copious amounts, they are likely to get back for more.

Why #2: Loyalty programs are cost-effective

According to another study by Bain & Company, keeping customers is seven times less expensive than acquiring a new one.

What we can draw from such a finding is this: loyal customers are more likely to make purchases than new ones.

If you’re smart, you’re going to use this purchasing behavior to your advantage. What you need to do is give existing customers more reasons to keep buying your products and services.

Why #3: Increases sales

If your customer loyalty program offers rewards that reflect the wants and needs of your customers, it’s only a matter of time before your sales go through the roof.

Are you familiar with stamp cards (or loyalty cards)? If yes, then chances are you understand the psychology behind the purchasing behavior of repeat customers.

Starbucks, for instance, stated that their loyalty program was instrumental in boosting their profit by 26% in 2013. Considering that Starbucks is still providing customers with loyalty cards, it’s pretty obvious they’re still using the same strategy.

Other than getting more perks and freebies, customers also crave the sense of accomplishment they get every time they move up the ladder of the incentive program you set in place for them.

Why #4: Boosts word-of-mouth marketing

When customers are happy with your products and services, they can potentially become your brand’s best ambassadors.

As the old adage goes, word-of-mouth is the most powerful form of marketing, even more so in the age of social media.

Throw in a competitive customer loyalty program into the bargain and the chances of customers recommending your brand to their friends and family will increase tenfold.

For example, if someone boasts about receiving a $150 Amazon gift card through his email, there’s a good chance that her book-loving friends would at least ask how he was able to receive one.

The Hows of Customer Loyalty Programs

There are many types of customer loyalty programs, and choosing the one that produces the best results can depend on two things:

  1. The products and services your brand is offering.
  2. The purchasing behavior of your customers.

But how exactly do you create an effective customer loyalty program? We’ve gathered some of the best options that have been proven to work.

How #1: Simple points system

This is by far the most common customer loyalty program out there. A big part of the reason why it’s so popular is that customers find it easy to manage and understand.

The premise here is simple: customer earns X amount of reward points for purchasing a product or service.

 

By buying more, they get to accumulate more points, giving them the option to redeem rewards (a discount or a freebie) based on a rewards system a business has implemented.

How #2: Referral programs

Referral programs work by rewarding an existing customer with a predetermined benefit for every friend they refer who signs up for your brand.

The predetermined benefit can be anything from a discount offer on selected products to a free gift, or a free raffle entry.

 

Referral programs are effective because they provide because it prompts your existing customers to take a proactive approach to getting the word out about your brand.

How #3: Non-monetary programs structured around customer’s values

A survey made by CeB discovered that customers are loyal “not to companies, but to beliefs.”

This only goes to show that the purchasing habits of customers are also partly influenced by higher ideals to help others.

eBay’s Sell it Forward program, for example, allows customers to sell their used or brand new products for free via EBay’s service where every unsold item gets donated to charity.

Thanks to this eBay’s highly successful program, customers who care about the community are more likely to use their services.

How #4: Contests

Consumers are competitive by nature, and you can use that to your advantage by incorporating contests into your customer loyalty program.

One popular way of doing this is through photo contests where customers are asked to post photos on Instagram along with the caption explaining why they love a particular brand.

Not only do contests improve customer loyalty, but they also increase your brand’s visibility in social media.

 

Final Word

There’s no denying the profound impact customer loyalty programs have had on businesses in the last decade or so.

This marketing strategy can significantly increase your ROI because it nurtures and maintains the best source of your business’s income: your loyal customers.

Author’s bio

Jimmy is the Digital Marketing Manager of EBCallCenter.com. He has contributed to Yahoo, SearchEnginePeople, SEMRush, and Business.com. He runs GuildofBloggers.com.

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