Business owners who sell to consumers are constantly striving to grow their customer base, and to retain the one they have already established. Organic growth, whether driven by effective marketing and promotion or by product quality, or customer service that leads to word-of-mouth referral, is the first priority for most consumer-centric businesses. But most sales pros will tell you that it’s much less expensive to keep your existing customers happy and have them buy more, than it is to acquire new ones. So why are most businesses taking the expensive route, rather than increase retention and engagement of the existing customer base? Most likely, it’s because loyalty programs, or affinity programs that encourage repeat business and customer loyalty, are difficult to execute effectively. There are lots of moving parts, lots of detail to keep track of and account for, and they attempt to codify human behavior and account for each variation to counter potential abuse. This creates other obstacles, which will be addressed shortly.
Most businesses are good promoters of product, so crafting offers around product, centered on price or volume, is routine and straightforward. Put together a few “Buy one get one free” promotions, or “Early-Bird Specials” to add urgency, and they become your go-to strategy for driving foot traffic (or clicks). It takes little in the way of creativity or customer insight to knock off 10% or split 50-50 for volume purchase, and they do the job to a certain degree. But are you creating real brand loyalty, or just offering casual customers a reason to save a little money?
Loyalty programs have been around for many years, but the availability of inexpensive computer technology, databases in particular, have spawned a new era of growth for these types of customer engagement set-ups. Sometimes these programs are created in conjunction with other partner businesses – witness the partnership between Giant Food and Shell Oil – grocery purchases are logged and items assigned a point total, and that total yields a discount on gasoline purchases at Shell stations. By linking two basic expenses, groceries and gas, the program allows customers to be rewarded for purchasing things they would normally buy anyway. Credit card “cash-back” programs fill this same need. But, they do engender loyalty.
But a true loyalty program no only allows for more repeat business from your best customers, it give them a reason to tell others about what a great deal they get from you, thereby expanding your customer base organically without spending a dime. By rewarding the behavior you want -repeat purchase on a consistent and regular basis – you build transaction volume over time and increase profitability. But is this organic growth, or just incentivized interaction? The best loyalty programs no only facilitate repeat purchase, they also encourage referral, and some even provide disincentives for disloyal behavior.
The very best programs not only engender loyalty, provide an incentive for not only loyalty but referral, and provide a mechanism for it. But they are also very customer centric, which means they are elegantly simple for the customer to enroll in and use regularly. Keytags with bar codes are convenient, but if it takes you half an hour and twenty pieces of personal information to enroll, the abandonment rate will be huge and usage will never meet expectation as a result. Simple for the consumer includes simplicity in enrollment, usage, and in accruing benefits. Credit card points programs are notoriously complex when it comes time to actually reap the benefits of your buying behavior, with many rules, complex formulas, and exceptions to the promised rewards that can make cashing in more difficult than it’s worth. To avoid fraud and abuse, those companies have put the onus on the consumer to do their back-end work for them, and find their own way through the maze of regulations and guidelines. Simpler is better.
All the loyalty programs in the world won’t overcome product quality issues, poor customer service, bad product design, lack of distribution channels, low awareness or other inherent consumer business issues, but if you have the others conquered, a well thought out loyalty program can be a big help in tipping the scales toward brand loyalty, reducing churn, increasing engagement and retention. As usual in marketing, the secret to success is in the execution . . .
