Should Your Brand Feature a Loyalty Program?

by | Aug 7, 2013 | Best Practices, Blog, Blog Archive, Distributed Marketing | 0 comments

Loyal customers are a gift that keeps on giving.

Loyal customers are a gift that keeps on giving.

At a very basic level, most companies realize the importance of keeping their customer base happy and inclined to continue purchasing from them when there is a perceived need. Certain product categories are more well suited to formalized loyalty and incentive programs than others. For example, fast moving consumer goods (FMCG) product categories can be well suited to such loyalty programs. Even large, intangible goods purchases have loyalty programs. Airlines have rewards for flight frequency and are closely associated with reward programs.

Marketing Profs recently published results of a FiveStars analysis on customer loyalty. The FiveStars study is primarily retail oriented, as FiveStars’ business model, from the card end user point of view, is centered around a loyalty card that is an all in one solution, as opposed to a person holding multiple rewards cards for multiple businesses. With that said, the results of this survey likely have greater applicability in the retail/FMCG space, but certain findings have universal applicability.

The FiveStars data revealed the following information:

  • Loyal customers (those who visited a particular store 10+ times in a month) made up 20% of a business’s customers and that 20% of people were responsible for 80% of revenue and 72% of store visits.
  • VIP and loyalty program members are 70% more likely to spread the word about your business.
  • The probability of making an additional sale or upselling to loyal customers is 60-70%.
  • Loyal customers spend 10 times more than new ones.
  • Actual sales from promotions sent to a target market of potential brand new customers is less than 1%.

Another statistic from the MarketingProfs article indicated that 63% of marketers consider customer acquisition to be the most important advertising goal. With some of these statistics in mind, it may seem natural to conclude that the best spent efforts for brands would be in the customer retention area. Customer retention is a great focus to have for brands that have established themselves over time. New brands do not have that luxury, so there would need to be a greater focus in the early stages upon customer acquisition but that should not preclude the development of a good retention plan so that the early customers acquired can grow with the brand over time.

From a marketing efficiency standpoint, efforts would be best spent on keeping that loyal segment as large as possible since new customers are less likely to be receptive to the brand value proposition. Cross selling becomes more realistic with more loyal customers and there are greater opportunities for price elasticity with loyal customers, who may not need huge pricing discounts to buy. Pricing discounts often impact brand equity negatively for a multitude of reasons.

The best conducted loyalty programs align rewards appropriately with level of purchase interaction with the brand. Rewards are good enough to serve as an incentive for future purchase while making the loyal customer feel special and valued. In each product category, the way rewards will be conducted is likely to differ, but the most important point for all brands should be to make the effort to make their current clients feel special and feel as though the value they receive from the brand relationship is meaningful.