“Some people sell things so they can have customers — a smart business has customers so you can sell them things.” Dan Kennedy
Customer Loyalty Programs are a Profit Building Marketing Strategy
You already know that existing customers are more profitable customers. The general assumption is that loyal customers purchase from you over and over again. And, if you have a great product or service, customer loyalty will just happen automatically. This is only partially true.
What you may not have considered is that existing customers who purchase across your entire product line are even more profitable, more loyal and more likely to refer your business to friends and family.
If your goal is to increase your profit margins, increase sales to existing customers and sell additional products and services to existing customers – consider instituting a Customer Loyalty Program as part of your sales strategy.
Look. Customers can be loyal as a habit. And this type of purchasing behavior can expose you to risk. Restaurants and retail shops understand this all too well; this is the customer that comes in frequently and always gets the same thing. Their purchasing behavior is a habit, but if you suddenly eliminate this product or service or change something, you run the risk of losing that customer forever.
What is a Customer Loyalty Program?
A customer loyalty program is a marketing tactic that uses a system of structured rewards for customers in exchange for desired behaviors. They use the psychological principles of reciprocity, commitment and loss aversion to understand, reward and retain existing customers.
A great customer loyalty program fulfills on three typical marketing challenges and marketing goals:
- Increasing customer retention and lifetime value
- Selling, cross-selling and upselling more products and services to existing customers (which increases your profits)
- Understanding and profiling your ideal customer – because loyalty programs naturally capture your customers’ purchasing data and information.
Creating an easy-to-use customer loyalty program is a great marketing tactic if you have a decent number of customers, but they are stuck in rut or habit of buying specific products or services and not trying more profitable, more expensive products or services that might benefit them.
What are the different types of customer loyalty programs?
Each of the customer loyalty program types here are ideal for solving a particular marketing challenge. Read through each one and see which one sounds like one that could help you overcome that challenge or meet a marketing goal.
Points-Based to Increase Purchase Frequency
Points-based programs are the most common type of loyalty program. Customers earn points for every purchase they make which can then be redeemed against rewards, credits, discounts towards purchases of other products or services, or free services. Ideal for businesses with frequent, low-cost purchases who want to increase the number of times customers purchase from them.
Use Wilbur Rewards to implement a points-based customer rewards program. When customers earn enough points, they receive an instant cash reward and their points return to zero automatically. Customers use their phone number to pay for their purchase at their next visit. Instant Reward Programs are perfect for the majority of businesses, especially if your business has a simple pricing structure, small ticket items and regular repeat purchases. This type of program easily replaces a punch card, reducing fraud.
Wilbur Rewards also has an “extra points” option which is ideal for providing your customers an incentive to purchase at specific dates and times or when you want customers to try a new product or service.
Tier-Based to Increase Upsells and Higher Dollar Purchases
The tier-based system encourages repeat purchases and higher value purchases in order for the customer to get access to higher value rewards.
Basic participation entitles the customer to a basic reward such as a discount. In order to get bigger, better rewards, customers have to increase the frequency and value of their purchases. This loyalty program works best for high commitment and high priced businesses. A great example is the Sephora makeup brands loyalty program.
You can implement this strategy quickly and easily with Wilbur Rewards as well. Wilbur members can save points until they want to cash in their points for a prize. Loyalty reward points are only redeemed when members decide to cash in. Graduated rewards are perfect for businesses with a wide variety of customer spending habits and frequencies. By offering different prize levels, you can keep every customer interested and feeling appreciated.
Values-Based to Find and Create Brand Ambassadors
If you’re a purpose-driven business with a set of core values and you’re looking for customers who share those values who can ultimately serve as brand ambassadors, this is a type of customer loyalty program for you.
For this program to work, your values and beliefs have to be a core part of your marketing message and then you have to find a way to reward your customers in a way that fulfills on your shared values.
A great example of this type of customer loyalty program is Warby Parker, Bombas, and Tom’s Footwear. All of these brands will donate their products to less fortunate customers for every product that you purchase. The more you purchase, the more you help others. It’s a great way to help your customers feel good about themselves.
Popular for certain target audiences. Understanding your customers means understanding their values and lifestyle.
Depending on your brand and your target audience values you may offer a non-monetary reward as a result of your customer purchase.
Partnership Programs (Coalition loyalty) to Support Referral Relationships
This type of loyalty program is a great way to support and build referral partnerships between businesses who share the same ideal customer.
In a partnership or coalition loyalty program, you reward your customers with benefits from a partner business. For example, a real estate agent may have a partnership with a cleaning company or an insurance agent, Or a bank might have a partnership with a restaurant or a hair stylist may have a partnership with a clothing store.
Paid Program – Membership Program to Increase Profits
This is one of my favorite types of customer loyalty programs because you literally get paid TWICE! Once, when the customer pays their membership fee and the second time when they actually make a purchase using some of the discount options for the program that they are in.
The best example of a successful paid loyalty program has to be Amazon Prime. You pay an annual fee and in return, you get free shipping, discounts on products and monthly free deals with books.
A good example comes from the restaurant industry, but can be applied to almost any business. You create one or several different VIP member packages that include free offers and discounts at a tiered level. Then you host a monthly event for members only and invite them to bring a friend. This grows your membership and repeat business.
Gift Card Program or Spend Program to Drive Traffic to Your Store
Another popular option is using a customer loyalty gift card program.. Sometimes this is called a spend program. This is an often overlooked customer loyalty strategy because businesses “feel” like they are giving product or money away for free. But this is a myth. Gift card loyalty programs not only drive existing customers to your store, these customers actually will purchase more than the gift card amount.
The basic idea is that your customers receive a gift card after they reach a certain purchase amount over a time period. Some businesses offer a gift card from their business (which provides an incentive for a customer to return and purchase more products and services) and sometimes they provide a gift card to a partner if they are running a partnership program.
Use this customer loyalty strategy to drive additional traffic to your store.
Hybrid Loyalty Programs
Of course, you can create a customer loyalty program that merges several different types of programs This is called a hybrid loyalty program.
The most common combination is that of point-based system with a tier program as it makes the calculation of points easy for the customers and encourages them to pursue next loyalty level and thus, more purchases.
How to choose/create a customer loyalty program?
When it comes to choosing or creating a customer loyalty program for your business, there’s no doubt that it has to be:
- Easy to Use
- Customizable to your business
- Provide customer information that you can use in your marketing
- Low-cost and easy to implement and manage
- Provide a great customer experience, so that they use it.
But how do you actually choose the right loyalty program for your business? It’s not as overwhelming or expensive as you might think. If you follow these steps in order, you’ll find that the right choice will jump out at you.
WARNING — do not skip ahead and try to pick a software first, you will get confused and overwhelmed because there are different types of customer loyalty program software systems based on the type of program you are running
- Run your financials. Reach out to your accountant or bookkeeper and get a firm understanding of who your most profitable customers are (and what they buy) and what your most profitable products and services are (and who buys them). Get a firm understanding of your costs and profit margins so that you can make intelligent decisions on what level of discounts you can offer.
- Determine what marketing challenges you are overcoming or what marketing goals you’ve set for yourself. Once you’ve run the numbers and reviewed them, you will have some firm marketing goals or challenges.
- Decide on how you want your customer to engage with your loyalty program. This is an important element of your choice because different loyalty program software solutions require different levels of engagement and work for your customer. You need to know your customer and how they are most likely to engage with your software. Some customer loyalty software platforms require your customer to use an app, while others only require that they have a phone number.
- Match the loyalty program to your marketing goals. The next step is to match the goal you are trying to achieve with a loyalty program that will deliver. For example, if you have lots of customers purchasing a low-profit item. Maybe you want to shift them over to another higher-priced product or service that they will prefer and where you will make more money. In that case, you can choose a tier-based program or use a points program to reward them with this higher-profit offer.
That’s basically all there is to it. With the appropriate loyalty program tactic in hand, it’s time to find a technology tool or customer loyalty program software that will help you manage this program.
How to Find the Right Customer Loyalty Software for Your Business
You’ve decided on your customer loyalty program, now you need a customer loyalty software to help you implement it and manage it. This can get a little challenging if you don’t even know what to search for and how to choose a system.
Step 1: Research your options
The customer loyalty program space is extremely cluttered. In other words, it’s going to be really, really hard to find an all-inclusive list of all the software that’s out there.
Your research phase will take a little while as you get a lay of the land. Here are a few tips to help you along.
Answer these questions before you go searching:
- How many people will be using it
- What industry you are in
- Specific features or functions you want (points, membership,
- Is it web-based (Saas) or installed on a computer
- Which mobile platforms does it need to run on (Android or iOS)
Answering these questions will keep you focused on your search as you’ll need to search on Google, industry databases, etc. to get a list that you’re happy with.
2. Visit software directories to get seed names
Now that you know what you want, visit sites like GetApp, Capterra.com and G2Crowd to see what companies and software are listed on those directories. In my research for this article, I felt that Capterra was the better choices as they have a clear cut category for “Customer Loyalty Software” and filters available to help you narrow down your choices. However, G2Crowd doesn’t have categories or filters, but when I searched on “customer loyalty software” I received about 200 listings. Both Capterra and G2Crowd have customer reviews that will help you get a better understanding of what each platform offers.
3. Ask your industry association
If you belong to an industry association, it’s not a bad idea to reach out to them and simply ask what platforms they recommend for their members, you may even get some special discounts.
How to Start Your Customer Loyalty Program
In this article, I’ve laid out a simple step-by-step process for you to implement your customer loyalty program. While I did provide resources for you to research and choose a customer loyalty software, I’ve also recommended Wilbur Rewards as a customer loyalty software because it’s an ideal, low-risk, easy to start platform for the most basic rewards programs.
Don’t let another year go by without leveraging the power and profitability of your existing customers. Use a customer loyalty program to reward your loyal customers for their purchases, to start gathering data about your ideal customers’ preferences and (this is my favorite) to cross sell more profitable products to your existing customers.