How Do Customer Loyalty Programs Work?
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Thursday, 05 December 2019
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12/5/2019
How do customer loyalty programs work?
It
is one thing to attract new customers, but it is quite another to keep
them in the face of staunch market competition. Enter:
Customer Loyalty Programs,
known also as rewards programs, points cards, advantage cards or club
cards. The market is awash with Loyalty Programs, with everything from
your coffee takeaway to the local carwash offering points or rewards for
your return custom. But how do loyalty programs actually work?
What is a customer loyalty program?
Loyalty
Programs are specifically designed marketing programs that are
structured to encourage customers to continue using the goods or
services offered by a particular business. They exist in almost every
sphere of the economy from airlines to retailers to leisure services.
Usually, they take the form of a plastic or paper card on which
purchases are recorded, but more sophisticated
ERP systems
(Enterprise Resource Planning) are able to track customer points
digitally via customer numbers, mobile numbers or other tracking
systems- and allocate points automatically. When presenting their
identifying information, customers are either rewarded with a discount
at the point of purchase or ‘points’ are allocated for future purchases
or rewards once a threshold is met. Usually signing up to the system is
facilitated by customers filling out a form and agreeing to the business
or merchant using and keeping the customer’s information in order to
allocate rewards.
What are the advantages for the customer?
By returning to a certain vendor over time, customers are rewarded for their
loyalty.
This can be in the form of select offers, discounts on future
purchases, or even free gifts. More and more as consumer power increases
customers are demanding such programs. With the robust market
competition for consumer purchases, businesses can feel pressurised to
offer such loyalty programs in order to keep up with the market. But are
these rewards programs only about customer benefit?
Loyal customers
Certainly, a major aspect of loyalty programs is about
retaining the customers
that a business has worked hard to win over in the first place.
Generally speaking, it is more expensive to market and persuade a first
time customer, than it is to satisfy and maintain an existing customer.
Usually running a loyalty scheme or program works out more
cost-effective for a business than winning over new customers all the
time. Moreover, most companies will run a loyalty program on top of
existing marketing campaigns. That means that they will retain their
existing client base while attracting additional customers on top-
ultimately growing their business. Furthermore, active loyalty programs
can act as a great incentive to new customers, who are persuaded by the
long term benefits of loyalty and repeat purchases with a particular
firm.
Marketing and product development insight
While
maintaining an existing client base is a very important role for a
loyalty program, it can be argued that the information that a business
is able to harvest and use from a loyalty scheme is even more powerful.
Especially in the case of fast moving consumer goods
(FMCG)
where customer accounts are not created and information about clients
not gathered for the purchase (in the case of major grocery retailers
for example)- a loyalty program allows a business to do just this:
gather information about an, otherwise anonymous, consumer. It is a bit
of a “tit for tat” scenario, where business and client enter into a deal
with each other. The business gives rewards or discounts, in exchange
for tracking a customers’ purchases and habits and harvesting personal
marketing information about them.
Information is power. And in
the case of business and marketing, this could not be more true. In
order to sign up to a program, one is asked to allow the business to
keep and use customer’s personal information (usually agreeing not to
share it with third parties), and so businesses are able to collect
information previously unavailable to them. How old are their customers,
where do they live, what age are they? All these insights assist
businesses in appealing better to their
current target market,
and also identify gaps in their current market base as well as new
segments that are untapped. In addition, finding out the purchase habits
of their existing customers is invaluable. With that information you
can see who buys what, when they buy it, how much they but, and what
else they buy at the same time. It helps you to understand how and when
price promotions should be offered and to what level, and also enables a
business to make use of targeted marketing campaigns. For example,
businesses can send vouchers for different baby products to a customer
who has previously purchased nappies to encourage them to trial new
products in their business; or send a discount voucher for a newly
launched face cream to a customer who has previously bought face cream
in the store and is therefore more likely to be interested in facecare
product information and offers. The opportunities for tailored marketing
campaigns are almost endless when a wealth of data is available to a
business.
Loyalty programs are a win-win for both customer and
supplier. When run effectively they can provide real benefits to
customers- that in turn increases repeat purchase for the business. When
the data is effectively analysed and used by a business, the customer
can receive targeted marketing offers that are of real interest to them,
and the business has a whole array of market information at their
disposal to increase current customer spend and attract new customers to
the business.
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