Fact: Loyal customers spend on average 65% more than new customers.

Fact: New customers cost businesses on average, 500-1000% more than up-selling to existing customers.

Fact: A happy customer will share their experience and the next ‘great deal’ with their friends and family.

Theory: Therefore, businesses should put more effort into making existing customers happy and into offering them a multitude of opportunities to buy more merchandise, more often, while also prompting them to share their experience with others in order to seamlessly acquire new customers.

How might a business most effectively accomplish these goals? Allow me to introduce the loyalty program.

What is a loyalty program?

Loyalty or reward programs provide incentives for customers to do business with you on a regular basis. The more they buy or share, they more rewards they earn. Rewards can vary from free merchandise, to discount coupons, tickets, special services, trips, and the best reward of all – cold hard cash. Some loyalty programs require customer to purchase upgrades, while others automatically increase the reward value over time. Programs like those offered by PunchTab, TeleFormix, and Venga allow businesses to create and monitor custom loyalty programs, both online and offline, based on the needs of their industry and their customers.

What are the downsides to loyalty programs?

There really aren’t many, aside from wasted effort. A recent census reported that nearly 33% of loyalty rewards go unredeemed. You might think, “well that’s a good thing because my business won’t have to give away free merch”, but this line of thinking is flawed. Time, effort, and therefore money, is wasted when customers neglect their reward points. We WANT our customers to redeem their rewards so they get more ‘perceived value’ from the business, and again, share their experience with others.

To combat wasted effort, we need to offer a high value loyalty program. This can be most effectively achieved by bi-passing complex cookie-cutter rewards program, in favor of a combination of some of the following high value customer loyalty rewards.

  1. How to Encourage Repeat Business With a Tier System

    Using the tier system, we trying to find the optimal balance between rewards that are attainable and rewards that are desirable. When loyalty rewards seem unattainable – for example, if customers need 1,000,000 frequent flier miles to get a ticket discount – most of them will just ignore the rewards system entirely. Why should they care?

    Typically, top tier rewards are the most desirable, so it is also important to provide desirable low tier rewards to keep customers coming back. As customers ‘upgrade’ to consecutive rewards tiers, the top tier is increasingly perceived as more attainable. When a big prize seems attainable, customer retention tends to soar!

  2. How to Simplify the Points System

    The points system is the most common loyalty program, and it is applicable to virtually all types of business. Using this system, customers earn points for each purchase. Once they reach a certain point total they redeem their points for a prize, which can be a special service, a free product, or a discount code.

    The secret to simplifying the points system, is preventing the customer from having to think. Some of the best strategies include:

    • a simple punch card that is redeemed for a freebie when full
    • a loyalty card, swiped at each purchase, the reward discount is applied automatically when the reward threshold is reached
    • a loyalty card, swiped at each purchase, the reward coupon is sent to the customer when the reward threshold is reached
  3. How to Make Rewards Programs Fun

    Many companies can attribute their rewards program success to fun and games. Allow your frequent customers, who reach a reasonable reward threshold, to participate in online games where they can win discounts and prizes. For example, every 5 purchases from an eCommerce store ‘unlocks’ a game that offers a small variety of prizes like free merchandise, gift cards, and service discounts.

    This would also be a good opportunity to partner with related online vendors, who might donate prizes for your games and mutually benefit from the inexpensive promotion. A little research can go a long way to understanding what additional products and services your customers can use.

    People also love to share their experiences socially. With the recent surge in social networks like Facebook, Twitter, FourSquare, Pinterest, and Instagram, many companies offer reward programs based on quality and quantity of social sharing. The more sharing your customers do, the more rewards they earn, and if you are able to track successful conversions from social traffic, additional bonuses can be offered for those as well.

Monitoring the Results

Once your loyalty program is in place, it is important to monitor the results on customer retention and participation. Try to gauge whether or not the loyalty program increases the customer retention rate – after all this is one of the primary goals of the program. Over time, a successful loyalty program WILL increase customer retention. If this is not happening, then the loyalty program is flawed. You also want to monitor participation and redemption. How many customers upgrade or purchase as a result of the rewards program? How many of them redeem their rewards?

Just as it is always important to split test your advertising and marketing campaigns, effort should be made to split test loyalty programs as well. Offer a variety of prizes, services, and benefits; altering tier upgrade requirements; and partnering with several different vendors, are all suggestions for split testing a loyalty program. Sometimes the littlest changes can have significant results on your bottom line.