Introduction To Customer Loyalty


Did you know it costs you five times more to acquire new customers than it does to retain existing customers? What that means is it is critical to hold on to your existing customer base as it is much more rewarding than attracting new clients. And unfortunately, as we all know, not every loyalty program succeeds. In this article, we explore what makes a loyal program successful and how to retain your customers in the long run.


According to a recent BIA/Kelsey / Manta survey, more than (61%) of SBOs now generate the majority (51%+) of their annual revenue from repeat customers rather than new customers. The weight of this is reflected in how SBOs spend their time and money. Sixty-two percent (62%) of SBOs spend the majority of their annual marketing budget to retain existing customers with less than half going to new customer acquisition. So to retain the existing customers there can be loyalty programs or other ways to reward the loyal customers to keep them engaged.


Why and How Loyalty Programs Work

Once a business has built a positive relationship with their customer, it’ll be more successful in generating customer loyalty. Loyalty programs are very beneficial for almost all sectors. Here are a few points on how it works:


  • It encourages repeat purchases - People like free stuff, which is pretty normal. Therefore it really makes sense to reward your customers with some exchange for their shopping. This will make them come again to your platform and spend more if they are earning their way towards a special reward such as a discount or some offers.

  • It creates a point of difference against your competitors - Many things can be matched these days - price, sales, advertising, locations, etc. But one thing which cannot be matched is customer loyalty programs. Your customer should feel that they are missing on some things if they buy from someone else. When considering a purchase decision, you want your customers to think “Even though the product I want to buy is on sale at the shop down the road, I am still going to purchase from your Brand because I want to get my points and I know they appreciate me.”


  • It makes your customers feel special - This really works well to strengthen your relationships and bonds with your customers and it helps to fuel their admiration towards your brand. It makes the customers feel special and recognized.


Increasing Sales With Loyalty Program

You cannot generate long-term profits without customer loyalty. In order to increase loyalty programs and overall consumer retention, companies have taken to expanding their loyalty rewards to incorporate social and behavioral actions, such as referral rewards and points for user-generated content, while also attempting to provide their customers with a more personalized experience. The expansion depends on a combination of careful planning and the right customer loyalty software.


Here are some of the insights about the power of loyalty programs:

  • 70% of members consider Loyalty Programs to be part of their relationship with a company.
  • An effective loyalty program can increase a brand's market share by 20%.
  • 84% of consumers said they are more likely to visit an online website with a loyalty program.


Why Do Loyalty Programs Fail

Customer loyalty does not grow overnight. It takes time and effort to build.


Loyalty programs are everywhere. Retailers, airlines, banks, telcos, coffee shops, restaurants; almost anyone who has customers has some form of a loyalty program, even my local bakery has one.


Understand what makes a customer loyal to your brand. There are times when loyalty programs won’t work. One must understand that traditional loyalty programs don’t work often as customers' expectations and habits change with time.


Here is a list of common situations when loyalty programs fail:

  • Absence of encouragement to grow the business.
  • Unreliable objectives and deliverables.
  • A low percentage of incentives.
  • Shortage of capital leads to extreme payouts.


Let’s first understand why loyalty programs fail


Unclear Terms And Conditions

If the terms and conditions are unclear or the program does not align with your business offerings, it will not be successful. Often brands attempt to spice up their program by supplementing new practices and complicated conditions, but rather than causing excitement it only discourages shoppers and makes it challenging for them to join the program.


Thus, design a program that states clear requirements along with the benefits the customers will get from it. Develop loyalty schemes that add value and motivate your customers to make a purchase.


Unappealing Rewards

When the program does not have tangible benefits, it will not get success in the market. Your customers should notice the values you are offering to avoid the failure of the program. Make your loyalty program appealing so that you can attract a number of customers to participate in loyalty schemes. Once your customers are getting to know about the value proportions of the loyalty program, they will drag other consumers in by word-of-mouth publicity. Consumers with strong emotional engagement also act as brand evangelists. We found that 8 in 10 consumers with high emotional engagement promote the brand among family and friends.


Lack of awareness

There is no point in introducing a loyalty program when the customers do not know about the program at all. If customers are unaware of the program, how are they going to make a purchase? Usually, a loyalty program fails because of a lack of awareness. It is important to inform your audience about the upcoming loyalty program for them. A study by Edgell Knowledge Network investigating the loyalty programs of 60 retailers found the vast majority of customers (81%) weren’t aware of what their rewards entitlements consist of or how they’re redeemed. With the average consumer being a member of an estimated 18 loyalty programs, yours need to be clear and stand out.


So, before implementing the tactics to begin a loyalty program, your agenda to generate awareness should be ready. According to your business type and customers' preferences, decide the ways to produce awareness about the program. For instance, advertising and social media posts are great ways to entice customer interest and create awareness about your loyalty program.


No emotional connection

A loyalty program is far more than just the incentives and benefits you are offering to your audience. With the rewards, you are bonding a strong connection with them. The giveaways are not only goods but also values for your potential customers. So, if your program is not adding values, it will not last for a long time. When customers find out the valuable insights of the loyalty rewards they emotionally get attached to your brand. Therefore, try to build an emotional connection for the success of your loyalty programs. For example, Virgin Money invested in lounges for its customers which offered no banking services at all. Instead, the hotel lobby-style areas offered customers free newspapers, magazines, Wi-Fi, and refreshments, as well as an area to watch TV and even play grand pianos. The program resulted not only in increased brand loyalty but also a 200% increase in sales at lounges located near a store.