A vital part of building your business is gaining customers. Customers are of two kinds, those that buy once and disappear, and those that come back and buy again. Ideally, as many as possible of your customers will engage with you repeatedly, and you will collect information about them through those engagements. The information you collect becomes your customer database. You can use that database to discover your most valuable customers and create personas of your ideal customer. You can also use your database for several marketing activities, such as building customer profiles, sending calls to action and, as we shall discuss in this chapter, creating loyalty programs and making special offers.
In turn, these programs help you generate a larger customer database, since they encourage one-off and occasional customers to return more often, register with you, and spread the word to friends and family. In these ways your database will grow and grow, providing a firm foundation for your business and increasing your revenues and profits.The value of repeat customers to your business is enormous. It takes between five and ten times the resources and money to acquire a new customer than it does to sell to an existing one. Furthermore, loyal customers spend on average 67% more than new customers do. Building customer loyalty and expanding your base of repeat customers is the most cost-effective way to expand your business and increase your revenue stream. There is no doubt this is a marketing activity that you should focus on, and one that you should certainly not neglect. Consider it a foundation activity of your marketing program.
What Is a Loyalty Program?
A loyalty program is a way of rewarding customers with discounts for repeat business. They have become a common part of marketing for many businesses. The rewards given may be direct cash back, store credit, free shipping, gifts, or a variety of other things. There is plenty of scope for innovation in designing what kind of reward is best for your business. Companies are often very creative with their loyalty programs, and in recent years, they have expanded the types of programs they offer consumers. What all loyalty programs have in common in the concept of customer loyalty. They reward customers for repeat shopping, and are normally linked to the amount of money spent.
A loyalty program gives something back to customers for being loyal to your company. Many businesses, both large and small, implement these programs. The actual reward and amount of loyalty varies based upon the individual business. Rewards could include free gifts, cash
Today, loyalty programs are found in many sectors of business, as this chart shows. Retail and hospitality are the biggest users, with over a billion enrolments in the retail sector alone. The largest retail users of loyalty programs were grocery stores and specialty retailers, but in recent years drug stores and department stores have seen rapid growth, and are beginning to catch up with specialty retailers in their total enrolments. The chart below shows some details of the growth figures
|Retail Sector||2006 membership||2012 membership||Growth|
Figures taken from 2012 Colloquy Loyalty Census
How Did Loyalty Programs Develop?
The earliest loyalty programs in America began in the 18th century, when stores gave copper tokens as bonuses for purchases, which were then used as money in the store for future purchases. Later the Green Stamp system was developed, by a firm called Sperry & Hutchinson who created it in 1896. This became very popular in the depression years of the 1930s, and continued into the 1980s, until it was replaced by other systems, such as loyalty cards.
Retails such as stores and gas stations signed up for Green Stamps and gave what looked like postage stamps to customers, as a bonus to their purchases. The stamps came in different denominations of points, and the consumer put these into a special book, given free by S&H, until they had collected a sufficient number. Customers used these books of stamps to ‘buy’ products from Green Stamp stores or catalogs. Loyalty to the stores came in two ways – from the fact that they gave stamps, but also from the ability of stores to give more stamps per dollar spent than other stores did. The program spread to the UK, but died away during the 1970s, as more and more stamps were needed to obtain the gifts.
Betty Crocker introduced ‘box top’ loyalty coupons in 1929, and these also were popular with consumers, and developed brand loyalty. 1981 saw the introduction of ‘Frequent Flyer Points’ by American Airlines, a program that still exists today with 50 million members.
What Are Special Offers?
Special offers are marketing tools designed to raise a customer’s interest in a product, or influence their purchase habits. They are used to highlight a product and make it stand out from the competition. Usually they are offers of reduced prices, enhanced services, free upgrades, or other enticements, targeted towards specific people or through a specific outlet. Whatever form they take, special offers should only be available through a specific outlet or for people who have done a specific ‘task’, since if they are too general, sales at full price may fall sharply. Special offers typically take place through email, in-store , via social media, or for online shopping only. A wide variety of tasks may be used, from something as simple as ‘liking’ your Facebook page, following you on Twitter, signing up for a blog or email, as well as the more obvious purchasing of a specific product. These promotions may be offered through any type of business outlet, both virtual and real.
Why Are Loyalty Programs and Special Offers Important?
The purpose of these programs and offers is to increase sales, repeat business and company loyalty. Looked at another way, the goal is to convert a casual, and probably one-off visitor to your business into a customer, to convert that customer into a repeat purchaser, and from there to make them an advocate for your brand
Visitor -> Purchaser -> Repeat Purchaser -> Brand Advocate
Both loyalty programs and special offers help to bring in more business, and so they are another way of growing your customer database. More importantly, they help to create repeat business.
[OF NOTE: it’s hard to say that the Pareto Principle is actually true, and in many cases it does not in fact hold true at all, but it has the sound of something that ought to be true, and if following it leads to good outcomes, then something good has been done – what works is always worthwhile.]
Loyalty programs also show your customers how much you really appreciate them and their business, and this in turn is an important way to increase loyalty. Everybody likes to receive recognition for the things they do, and people tend to support businesses which support them, and pay attention to them.
Special offers are also used to drive sales towards a specific outlet of a chain, usually when sales in that outlet are low. By making a special offer only available at ‘our downtown store’ or something similar, sales can be increased and the exposure of customers to the outlet may also increase long-term business.
Special offers and loyalty programs are also often used as research and analysis tools to conduct studies on the success of various marketing efforts, and to assess how well certain marketing outlets are working.
Overall, these kinds of programs can and should be an integral part of your overall marketing strategy and they form part of the larger framework of your business activities.
Seven Steps to Creating Loyalty Programs and Special Offers
Step One: Decide on Your Goals
Begin by thinking about what it is you want to achieve with your program. For most companies, there are three possible goals for these programs, and you may want to do just one of them, although usually a company needs them all.
- Generate Leads: we have talked in earlier chapters about the importance of leads and their vital place in a viable marketing plan. Both loyalty programs and special offers allow you to create leads by reaching out to visitors or complete strangers and attracting them to your business. However it is obvious that special offers will do this much more effectively. A person who doesn’t know your company is not going to be interested in being loyal until they see what you have to offer, and if it is valuable to them. So if your primary goal is to generate leads for your company, then some form of special offer is where you should focus your attention.
- Encourage Existing Leads: Here again, special offers are probably the best way to encourage a lead to become a first-time customer. The extra impetus of ‘20% off’, or ‘free shipping’ may be all that is needed to create that purchase in a customer who is already thinking about it.
- Create Repeat Purchases: If this is your goal, then clearly a loyalty program, alone or perhaps combined with some kind of special offer, is the way to go. Once a customer has started using your services, or buying your goods, the incentive of future benefit from more purchases is going to encourage them. This is where careful design of your program can give the best results
Step Two: Design Your Program Properly
The first thing you need to decide is what it is you are willing to give away. The next thing to realize is that whatever it is, the loss of revenue should not impact too much on your bottom line, since you are a business, not a charity. Consider the outcome you expect from your customer and how that will affect your ROI.