Do Rewards Really Create Loyalty?

Retaining customers in any competitive space is difficult. Unless you operate wafer thin margins and offer free delivery, it’s difficult to keep customers happy. Especially in such a price orientated market as eCommerce.

In reality, maintaining low prices is unsustainable as cost prices inevitably creep up. This forces you to increase your prices or operate at a loss.

Both can ultimately kill your business if allowed to go on for long enough.

Retention is everything to the long term survival of any business. Whether it’s repeat shoppers or clients who stay with an organisation for years.

While new customers are also important, they can cost your business five times more to attract than a repeat customer. Repeat customers also spend considerably more, they’ll also spend more often.

The challenge is moving a one-time customer into the retained column, and retained customers into loyal.

Loyal customers are the proverbial golden goose. Not only do they have a higher average spend, they have a far greater lifetime customer value.

They are also more likely to advocate for you to friends and family and share your content online.

They are walking free advertising for your brand, products and services. The more love you show them the happier they’ll be and the more they’ll spend.

What can Loyalty Programmes Do?

At their core, loyalty programmes are designed to make customers feel valued. Whether you offer points, discounts, vouchers or exclusives the entire ethos of your programme should be to delight your loyal customers.

Not least because valued customers spend more because they feel like they are getting a better deal than everyone else.

Repeat customers spend 67% more than first time customers, so investing in a loyalty programme makes a lot of sense.

Also, in a red ocean space like eCommerce, loyalty programmes can be a key differentiator for your business. The ability to offer your customers more than bargain-basement prices matters.

Not least because your customers want more from the companies they give their money to.

But research suggests that loyalty programmes can increase purchases by as much as 44%. The same research showed that loyalty members spent 22% more than non-member repeat customers.

Even if 5% of your loyal customers increased their order value by 22%, that would represent a significant increase for your business.

What’s interesting is around 57% of customers join loyalty programmes to save money. This means that their perception of value shifts in your favour by becoming a member.

Essentially, your customers see the value of the experience they get by shopping with you as more important than the intrinsic value of the product.

If customers are receiving rewards or discounts on a regular basis this sense of value will only increase.

This gives businesses considerable freedom when it comes to defining their loyalty programme. 

Why do Loyalty Programmes Work?

While there is a quantifiable aspect to loyalty programmes – such as discounts and rewards, there is a psychological component too.

We build personal connections to the businesses and brands we spend our money with. The more rewarding the experience the deeper that connection goes. 

Businesses that have blogs or share content about the products communicate a shared passion for what they sell. The more they communicate with their audience in a personalised way builds a level of trust that competitors can’t match. 

Customers feel understood, heard and valued as a result. 

This sense of belonging is a powerful driver behind buying habits and is linked to the primal parts of the human mind. We naturally seek out communities because we are a tribal species.

Loyalty programmes give customers the opportunity to take that affinity further. They get to feel part of something bigger. They get to be on the inside.

On a psychological level there is little distinction between being part of a loyalty programme and a tribe of physical people. The feeling of shared interest is what matters.

As the alpha of this tribe your business serves as the provider through rewards, discounts and exclusive news. All of which benefits the tribe.

In exchange loyal customers sustain the tribe through shopping and grow the tribe by advocating on your behalf.

Providing customers with a community and rewarding them for actively participating in your success is the foundation for all successful loyalty programmes.

Why don’t all Loyalty Programmes Work?

For any loyalty programme to be successful there are a number of things you need to have in place. Some are technical, others are more holistic, but equally important.

• You need to actually value your customers.

Loyalty programmes that do nothing to communicate how much your customers mean to you will never get off the ground.

The average consumer is a member of 14 loyalty programmes but only engages with around 6 of them. So 58% of loyalty programmes aren’t relevant to the customer.

Loyalty programmes are as much about thanking customers for their business as they are about driving sales. If you lose sight of that, or don’t care, neither will your customers. Remember, no one likes to feel used.

• You’ve got to deliver greater service

Loyalty programmes should be building on what you already deliver. You are transitioning repeat customers to loyal customers.

You can only do that if the customer experience is already a rewarding one. Your customers need to be delighted every time they shop with you. Or any time there’s a problem.

Unless your customer experience is already high class you’ll struggle to attract loyalty members. Mainly because they won’t feel very loyal.

• Make it worth your customer’s time

Loyalty programmes need to be worth it. Too many businesses offer a points system that is designed to look appealing but in reality requires excessive spending to be worth it.

It’s miserly and customers aren’t stupid. They know they’re being taken for a ride. That breeds resentment and undermines the process.

Remember, these customers already like shopping with you. They also spend more money with you than new customers. Offering a loyalty programme that actually rewards their loyalty, will drive up sales as a result.

• You need to have the data

This is crucial. It’s impossible to make customers feel valued and understood if you can’t communicate with them.

Personalised communications and product recommendations are the bedrock of building loyal customer relationships. Without it you’re left with generic messaging and a long slog to build any loyalty at all.

You need a health repository of first party data on each of your customers and a means to access it.

Invest in a customer data and engagement platform that allows you to pull this data together in one place. The Single Customer View will help you to create those personalised communications.

• Your loyalty programme needs to be robust

There are two things to consider here. 

The first is can you afford it? 

Offering potentially thousands of customers discounts, exclusive offers or even stock as gifts all has a cost attached.

Plan your loyalty programme accordingly. Make sure that you can sustain what you plan to offer based on current spending patterns.

While in the majority of cases spending increases with loyalty programmes you shouldn’t bet the house on it.

Keep your projections conservative that way you’re in a position to delight your customers without putting your business at risk.

The second is can you sustain it?

You need to be in a position to continually offer new offers or exclusive products for the foreseeable future.

This will partly come down to what you sell. Either way, variety is important. Endless discount codes quickly become tiresome and shifts the relationship away from tribal and into transactional.

• Treat your customers with respect

Nothing will kill your business faster than treating your loyal customers like cash cows. You have to maintain the value in the relationship. 

Discount codes with a high minimum spend is a sneaky tactic that customers see through. Don’t forget, they know how much they spend on average. If they don’t they can very easily look it up because they have access to the same data you do.

It’s not a saving to them if they’re spending more money. Yes, they are getting more products but that’s only a positive if they see the value in spending more money.

This comes back to the customer experience and the quality of what you sell.

Essentially, the loyalty programmes that fail do so because they fail their customers and put sales above the experience. The experience drives sales, not the other way around.

Grow the Tribe

Loyalty programmes work. But only if you fully understand your customer and what matters to them. And only if you’re willing to give it to them.

Consolidating your data into one place is an essential first step. Bringing together customer data, purchase history and product data in one place provides deeper insights.

You can see buying habits and what products each of your customers like. This gives you the foundation for personalising your communications and building that deeper relationship.

Taking time to tag your content will make it easier to pull through relevant articles that add further value to build trust.

Develop a loyalty programme that will delight your customers. Don’t use it as an excuse to squeeze them for more money because they’ll only abandon you. 

Never forget that there are plenty of competitors out there. If your loyalty programme is transparently a money making scheme they have no reason to stick with you.

Moreover, 58% of loyalty programmes aren’t engaged with, but rolling it up is a PR disaster waiting to happen. That forces businesses to either keep it going at considerable cost or invest heavily to put it right.

In other words, get it right the first time.

To learn more about how a customer data and engagement platform can help you to build your loyalty programme, request a demo today and a member of the team will be only too happy to help.