Best Practices

Creating the Passionate Customer: Why Loyalty Programs Work

It is cheaper selling to an existing customer than acquiring a new one

Because April is International Customer Loyalty Month now is a great time to discuss loyalty programs and why they work.

 

It is commonly accepted wisdom that it is less expensive to sell to an existing customer than it is to acquire a new customer. Not only that, but returning customers tend to spend more. In fact, BIA/Kelsey research shows that repeat customers spend on average 67% more than new customers. That is logical since there is a real cost to customer acquisition while conversely someone regularly visiting your store creates multiple opportunities to sell them new or additional products. It is clear that encouraging customer loyalty certainly makes good business sense.

 

At retail, every customer who buys something represents a transaction. But what if each customer represented something more. For ease of example, let’s assume that the average in-store transaction is just $50. If you can develop a relationship with the customer to encourage them to come back repeatedly – even just once a month – then over the course of a year, that customer would spend an average of $600. However, over the lifetime of that customer relationship, say 20 years, at the same rate unadjusted for inflation, that customer will spend an average of $12,000 in your store.

 

What this exercise does not reflect is the fact that over time, with consistently positive experiences, a customer’s average-spend will grow. All of a sudden your customer who represented just a $50 transaction, is now worth at least 240% more than the one-time spend. What’s more, if your customers can come to depend on having a positive experience with you as a retailer, they will be more likely to visit more often and recommend the store to their friends, which means that their value as a customer has just doubled or tripled based on referrals.

That is why it is important not only to encourage customer retention, but also to secure customer loyalty as well. But, there is a big difference between satisfied customers and ‘loyal’ customers who regularly return.

 

What is Customer Loyalty?

Loyalty means your customers would rather do business with you than your competitor. Your location may be more convenient, your inventory may be more varied, but customers who remain loyal even when they have encountered a problem, do so because the store has provided consistently good service and addressed problems as they have arisen. Some loyal customers may actually believe that the products they buy from you are better than those your competitor offers, but they truly feel that the relationship they have with you is bigger than simply the products they buy.

 

Customers who are loyal are those who are more comfortable doing business with you, tend to shop with you more consistently, spend more and come away feeling positive about their experience. That doesn’t necessarily mean they don’t shop elsewhere, but those who are loyal will return to your store habitually.

 

However, it is essential to understand that developing customer loyalty stems from what is a consistent effort to deliver the same customer experience every time, which serves to reinforce the customer’s positive feeling about your store.

 

Loyalty Programs

Loyalty programs are built on the foundation of positive in-store experiences and are truly “customer appreciation” programs. While these programs may provide some type of extra reward for doing business with the store, they are wholly dependent on having created an ‘added value’ during the in-store experience.

 

The purpose of a loyalty program is to maximize your share of whatever your customer would otherwise spend on similar products, while encouraging more frequent visits to your store. Such a program is a system of structured rewards given to customers with the goal of increasing their loyalty while enabling the store to collect customer data. It is the acquisition of emails and customer preferences that allow outbound marketing programs to offer products in which a customer would be most interested. To get that data, programs leverage reciprocity (something of value in return), commitment (frequent visits) and loss aversion (of valued benefits), to increase the likelihood of customer loyalty.

 

Some retailers offer physical “club” cards that designate special benefits to the holder and are a way of tracking purchase history. Loyalty programs can also take the form of gifts or discounts that are earned based on purchase history, special “customer only” offers or invitations to special events where you may host and introduce growers or distributors, member-only sales, first notice of new products or the extension of additional discounts.

 

Loyalty programs are prevalent because they work…

 

  • 3 out of 4 Americans have at least one retail loyalty card. (Source:  CustomerThink)

 

  • 84 percent of loyalty program members are likely to choose the program retailer over its competitor. (Source Loyalty360)

 

However, not all retailers have successfully closed the loop after instituting such a program…

 

  • 85% say they have not heard from the program since signing up. (Source:  CustomerThink)

 

Loyalty programs require time and funding to create, implement and manage, but today’s technology has made it easier for individual retailers. For instance, you may consider creating a simple smartphone App that accepts mobile payments and requires customers to enroll so you can keep track of purchase history.

 

Creating “Raving Fans” as Customers

While business success means having desirable customers who are strongly tied to your organization, a raving fan is an extremely loyal customer, and someone who feels so good about doing business with you that they are not shy about telling others. But if you and your competitors stock and sell roughly the same products, what truly makes the difference for customers during the in-store experience?  

 

That difference is achieved by taking full advantage of opportunities to exceed customer expectations.

 

Customer Service – The answer is not just service, rather it is the type of service that inspires confidence in the outcome. It is the level of service that goes beyond what your competitors may be willing to provide. A customer wants to know that consistently, without fail, should there be a problem you will stand behind the product and resolve the situation promptly and satisfactorily.

 

Anticipating Needs – But relationships are based on more than service. They require that you know your customers, recognize them by name, understand their needs and be willing to go the extra step to engage them the way they want to be engaged. For instance, keeping track of what customers buy and ask for means you will be in a position to let them know when something new has arrived in which you know they’ll be interested. Cultivating an active email list and social media following – building that list through the implementation of a loyalty program – allows you to push this information out regularly to people you know who will be interested in what you have to offer.

 

Customer Education – No one is as familiar as you are with your products, the range and variety of experiences they can create, or problems they can solve. Often, there is not enough time during any single sales transaction to go well beyond what is being discussed to cover other unrelated issues. Customer education can be perceived as a benefit if it is presented as an “exclusive” invitation for customers who do business with you. Additionally, hosting seminars for a small number of people lends an “exclusive” quality to the gatherings and gives you an opportunity to get to know your customers.

 

Loyalty programs work when you offer something of perceived value, consistently engage and speak to the customer about things in which they have expressed an interest and importantly listen to and react to feedback in a timely fashion.

 

About the Author

Phil Cohen

Philip M. Cohen is CEO of CMN Holdings, Inc. and their subsidiaries, Cannabis Medical Network, a digital media network airing in cannabis doctors waiting rooms and Cannabis Lifestyle Network, airing in dispensary waiting rooms. Phil has operated a dozen ad supported digital signage networks in doctor offices and at retail since 1985 and is a past Chairman of the Digital Signage Federation. 

 

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