Making customer loyalty a priority

U.S. consumers belong to an average of 16 customer loyalty programs—but only actively use half of them. Why?
The answer is simple: most brands are still using outdated, legacy loyalty strategies that just don’t work any longer.

If you want to increase loyalty and retention, the antidote is to expand the function of loyalty within the business. No longer can loyalty be an ancillary second thought. No longer can execs treat it as a nice-to-have. On the contrary, loyalty is mission-critical now more than ever.

In this post, I’ll break down 10 key benefits of implementing a customer loyalty program, then explain why loyalty matters in a modern context.

Customer loyalty—your secret weapon

Customer retention isn’t easy, but data shows that customers spend 67% more when they’re part of a customer loyalty program, so it’s worth the effort to get it right. Frankly, loyalty programs are not short-term retention plays. They’re an investment that may not yield for months or even a year for some customers.

That’s a hard pill for some big brands to accept. A scaled loyalty program that produces quantifiable results takes some time to cultivate. Brand affinity, and therefore customer loyalty, is mainly a function of two things: engagement and longevity. It’s recognizing that the longer customers are engaged with you (e.g., enrolled in a loyalty program), the more likely they are to come back, buy more and ascend in their loyalty status.

At a certain threshold in their journey, let’s call it ‘the loyalty point’, customers become committed to you as their brand of choice:

On a long enough time horizon, your loyalty program will become an asset that produces dividends in the form of more invested customers buying more and staying longer. As you improve your program, deeply-indoctrinated customers will become attached—even dependent—on your brand to fulfill functional and emotional needs that only you can provide.

A great, well-executed loyalty program (one that legitimately improves your customers’ lives) will accelerate the loyalty lifecycle on a macro scale across the database given time and consistency.

10 benefits of customer loyalty programs

Let’s dive into the 10 biggest benefits a dedicated customer loyalty program brings to your business (not necessarily in order of importance). Here we go!

1. Better customer engagement

Customers who’ve
opted in
to be a part of a closed community or forum like a loyalty program obviously
want
to be there. You don’t have to court and convince them with the same fervor that you do new customers. All you have to do is cater to what they tell you they want. As a result, loyalty members will tend to be the most highly engaged cohort among all your segments (which is no surprise). Engagement is a big buzzword today. When I use it in the context of loyalty, what I mean is that loyalty members are:

• More likely to interact with you on social, open and use your app, and login to their account
  
  

• More incentivized to act, buy and share

• Much more ripe in lifetime value than non-loyalty buyers
  

So, expect engagement to skyrocket inside of loyalty communities. And with all the triggers, recognition and rewards in a good loyalty program, it makes sense that it should.

2. Quantifiable impact on brand affinity

Mindshare soars once loyal customers reach a certain threshold. Theoretically, your customers won’t even think to go look at other options from other companies. The loyalty point marks the moment a customer goes from product-focused to brand-focused. This is when you know you’ve done loyalty right—when you’ve created affectionate brand advocates who choose you again and again no matter what you roll out. They need to have it!

As you increase the value threshold supplied inside your loyalty program, you reducing malleability while increasing ongoing affinity. It stands to reason that as customers continue to get higher levels of value from their membership, they’ll become more committed to using your services or products. Likelihood to purchase, frequency of purchase and willingness to recommend, share or invite a friend all skyrocket with good loyalty plays.

3. Improved experience for repeat buyers

One of the best parts about loyalty initiatives is that they’re a true win-win.

Mock scenario: let’s say someone visits your website, stores two items in their cart and checks out as a guest. In terms of what you know about them, you have their email, name and what they bought. That’s it.

The lack of historical and behavioral data makes it pretty difficult to predict and provide what that person might need in two months to complement their purchase. Sure, you can guess based on related products but there’s no context other than that—it’s impersonal. You can only do so much with so little information. But it’s a catch 22—customers need a personalized CX from you to feel valued, but you need them to give you enough data to do that.

The solution is to encourage as many touches from every customer as you can. Touchpoints beget more data. More data enables better context and content for individuals. And that’s the bridge to loyalty.

So, it goes without saying: it’s mutually-advantageous for customers to continue engaging with you—they get an increasingly tailored experience while you get to create a great relationship with someone who chooses you over and over.

4. Increased customer retention

It costs 25 times more to acquire a customer than to retain one (Harvard Business Review). New customers have to be paid for—each new customer you gain costs something up front. But retained customers are like waterfalls. They continue generating revenue over and over. You invest in them once at the outset, but retaining them doesn’t cost a thing.

Brands that put more weight on retention and who dedicate resources to understanding the positive effects repeat buyers have on the organization will win in the future. At scale, the ideal situation is to have roughly 75% of your business running on repeat customers, 25% net new. Yep—to that extent. There’s very little that’s more valuable than owning an asset in the form of a contingent of repeat buyers who make up the vast majority of your database. Read that again.

As you start to tip the scales from net new to repeat customers, your entire business will shift. But don’t fret—this is a good thing! Reliance on new customer acquisition is a dangerous game in this marketplace. The brands that’ll be saying ‘king me’ a decade from now are the ones that put retention at the core.

5. Sales and revenue growth

In the last year, The North Face has boosted topline revenue by 33% due to their investment in revamping their loyalty program. What did they do differently? They made membership worth it for customers.

What was a mundane, run-of-the-mill, points-based program has evolved to include a much more engagement- and feedback-oriented UX. Now, when loyalty customers log in to their account, they’re presented with rich surveys, customized recommendations, and other two-way or community interaction experiences that actually enrich their lives.

So, loyalty can and will impact the bottom line—but it has to go beyond the basics.
As you enroll more people into your loyalty program and elevate them to higher tiers revenue growth will be a natural byproduct.
Reward customers, and they’ll reward you.

6. Higher incremental CLTVs

The defining aspect of loyalty programs is their impact on longevity of the brand-customer relationship. I’ll go as far to say that a loyalty program has a causal effect on CLTV—if someone is a loyalty member, they’ll spend more with you and be worth more to the business.

When customers have an alternative motive other than your products and services to remain associated with the brand, they stick around longer—and spend more as a result. Moreover, if your loyalty program is engaging and offers continually beneficial perks, it can incrementally increase CLTV by creating more trusting, more educated, more invested brand advocates.

7. Reduction in customer churn rate

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A short story:

Jake, a 27-year-old man living in Chicago, sees a Facebook ad for a subscription box right up his alley. He clicks through, likes what he sees and decides it’s worth the $14.99/month to give it a shot. He checks out, consumes the item for three months but then cancels. Why?

Like most in their shoes, the brand’s CX team has no idea. They have no data, no feedback, no insight—just another cancellation to process.

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Sound familiar? This problem is being combatted if not prevented outright by brands who understand how to leverage loyalty programs as a bridge to drastically reduce churn. They do this by:

• Adding utility to their programs by incentivizing customers to store collateral like
  ratings and reviews
  or
  rewards
  that makes it hard to leave
  

• Adding social media and networking components to their program so loyalty members are connecting others

• Understanding who customers are by using their data to talk
  with
  (not to) them

When you do these three things—only possible with a loyalty program—your churn rate will notably diminish. If Jake had gotten additional value beyond his three-month stint with the brand, he might have remained a customer. As it were, he, like millions of other real-world customers, disappeared after a couple purchases never to be heard from again. Loyalty solves that gaping problem.

8. Development of strong brand advocacy

My mom practically wears her Starbucks and Nordstrom loyalty membership as a badge of honor. She’s developed her identity around the brands with whom she associates—nay, is committed to. In fact, she’s in a relationship with these companies. And she tells everyone.

She and her friends are always babbling about these brands—not their loyalty programs, per se, but shopping here or meeting up there or the new flavor this month. The company has become the focal point of discussion.

Loyal members are many times more likely to engage in casual conversation about your brand—spreading the word, influencing others and sending their circle your way. Brand advocates who positively influence their network of family and friends are the single biggest factor to mass market penetration.

When it comes to mindshare, you can only do so much. Then comes your customer army. You need people telling other people about you. You need word-of-mouth. A referral program that creates advocates and brings in more referrals is impossible to replicate through any other method.

9. Catalyzes new customer acquisition

As an ancillary benefit, loyalty programs work for you in another way: they can liquidate customer acquisition costs. The best way to spur new customer growth with loyalty programs is to weave in acquisition tactics that encourage loyalty members to share socially, which, in turn, generates traction to your brand.

Done right, you experience a ripple effect that works like this:

• Step 1: a new customer discovers you

• Step 2: through consistent service, they become an advocate

• Step 3: they join your loyalty program and invite their friends

• Step 4: their network is exposed to your brand and a percentage decide to join

• Step 5: the process starts again

This becomes a self-enforcing loop. Most people think of loyalty programs as just a retention strategy, but they forget about all the ways to leverage them to drive new business.
The fastest-growing businesses integrate compelling ways to do
both.

10. Enhances quantity & quality of customer data

Data is possibly the most priceless resource in the world (only rivaled by oil, water and food). In sticking to the analogy, loyalty programs are like a well of renewable energy constantly producing new priceless gold.

Vibrant loyalty programs let you collect rich zero- and first-party customer data including:

• In-app purchases

• Browsing history and saved items

• Notification & SMS message reactions

• Transaction patterns & POS behavior (redeemed discounts, frequency, etc.)

• Qualitative data like user sentiment, opinions and feelings about new products

Armed with this intel, you can feed other systems—your CDP, CRM, ESP and others. The result? More data enables complete customer profiles which allows for more personal relationships. While these 10 benefits of loyalty aren’t the only areas you’ll see positive change across the enterprise, they’re the most visible.

Value of customer loyalty programs

Loyalty programs matter—and your customers do want them. 7 in 10 consumers belong to at least one loyalty program. But 3 out of 4 of those people would also switch to a brand who offered a better loyalty program.

Yep. And therein lies the insight: just because someone is a member of your loyalty program doesn’t de facto make them brand loyal. Only time, consistent care, and continued over deliverance of value can do that.

The market we’re in now is more competitive than ever. Customers are finicky, regardless of their buy cycle stage. Some will even abandon their membership at the first sight of any inconvenience or perceived letdown. So, getting it right is effectively about going above and beyond where other companies settle.

Points, tiers and rewards could be loyalty of the past. Today, loyalty is about much more than that and modern customers require more.

What will customer loyalty look like in five, then years?

We’re entering a really interesting era for loyalty marketers. A global recession is looming, and consumers are more frugal than ever. Yet a few pretty remarkable trends are also transpiring.

For one, price has become antiquated. For brand-loyal customers, cost is a virtual non-consideration. If you bleed for your team, you’re going to that playoff game. If you’ve always bought from grill company X, next summer, you’re going back to them. So on and so forth.

Second, tribes are quickly emerging which perpetuate and reinforce the values of the sponsoring brand. This is happening fast and across platforms.

Third, expectations are at an all-time high. It’s not enough to hook and bait. Now, the formula for turning a first- or second-time buyer into a loyal one is: hook, bait, educate, serve, overdeliver, skim a little off the top, then repeat.

The stakes have been raised for what good CX feels like. It’s incumbent on companies they do business with to raise the stakes and meet them at the top.

Long-term impact of loyalty on business

A well-executed loyalty program shows that you care about customer development and education. Joining your loyalty program isn’t going to be for everyone—in fact, it’ll only really be for a percentage of your total addressable database. And that’s fine.

Those die-hard customers, though, they want to do more than just buy from you. They want to be a part of the fabric of what you stand for. VIP experiences that recognize those avid fans as exclusive members—that reaffirm their status as being special, different and more valuable than everyone else—is one of the most crucial non-quantifiable benefits that loyalty programs provide.

Effect of customer loyalty on the bottom line

The most important impact that loyalty delivers is undeniably improving the bottom line. As discussed throughout this post, customer loyalty impacts all the important metrics critical to running a successful business—acquisition, churn, CLTV, retention and, of course, revenue.

If you have happy and satisfied customers, they continue to buy from you, spend more than others, are less likely to leave, and more likely to turn into marketers for your company. New customers cost more to acquire, and don’t spend as much money as loyal customers. Keeping customers coming back for more is crucial to success.

Since modern consumers trust their peers more than advertising, fostering loyal evangelists who can effectively grow your business on your behalf is how winning will be done in the future. While loyalty programs do take work and time before they kick in, they’re worth implementing as an asset that’ll work for you as time goes on.

Final thoughts

Loyalty programs let you own the platform, the community and the messaging for opt-in users who want to extract value in exchange for the benefits of membership.

In summary, the benefits of implementing a customer loyalty program include:

• Improved interactions with your most valued buyers

• Dominant mindshare over competitors

• Ability to pamper repeat customers in a VIP forum

• Strong, predictable repeat purchase rate

• Revenue growth

• More lucrative relationships over longer timespans

• Reduction of one-and-done buyers

• Conversions and new business sales
  

• Better first- and zero-party data

If you can own the attention of your customers—and become the go-to solution the moment the impulse arises to seek a solution—you’ll become a loyalty pro. To do that requires a cross-functional commitment to loyalty not just as a priority, but as a business strategy.

Long-term loyalty favors goodwill over getting it now, brand over bidding, mindshare over minimum price and retention over acquisition. Loyalty is the key to unlocking sustainable customer retention, development of regular buyers into avid fans and the lucrative, decades-long, two-way relationship that every brand desires.

Annex Cloud’s scalable, configurable, SaaS-based loyalty solution is designed for global enterprises that are ready to invest in loyalty and reap all the benefits. Contact our experts to explore how the right loyalty solution can help you stand out, improve your customer experience and drive growth.