The benefits of loyalty programs for SMBs

Many businesses, and especially SMBs, are very aware of the importance of retaining their loyal customers. A good loyalty program is one of the oldest, and best strategy to accomplish this goal. With one already in place how often do stop and check or even rethink our customer loyalty strategy and update it to keep it fresh? Are we using data all the effectively and communicate with our loyal customers often enough?

Loyal customers are those who help businesses not only to sustain their market share, but also to grow it. Statistics show that repeat buyers spend 33% more than new ones and that 82% of small business owners claim that loyal customers are the main way they grow their business. Also, if your business provided a good experience and service to the customers, it is much cheaper to retain your old customers than to solicit new ones.

Corporations with strong and innovative loyalty programs don’t hide the fact that this marketing strategy has done wonders for their sales as well. For example, coffee giant Starbucks a few years ago reported that its famous customer-retention program “My Starbucks Rewards” was a key driver to the 26% rise in profit and 11% jump in total revenue. A well-tailored loyalty program can help any size business to retain its customers and increase the sales.

Still, in the age of ever-changing technology and highly competitive market, many retailers are struggling to retain their customers. This is mainly due to the fact that, while transforming our business to meet the new trends, we forget to also rethink our customer loyalty strategies.

Loyalty program rewards were traditionally organized in a form of a loyalty card, where the customer would show it every time he / she enters a store, to reap the benefits. Then we saw the move by more and more loyalty programs being created and distributed online, and very often via mobile phones. Now with the help of new technologies and social media, companies are opening new channels of communications and finding new ways to keep their customers.

Knowing all this, let’s find out more about how can we benefit from loyalty programs today:

Retain Existing Customers

Without focusing on the customer retention, you could quickly start losing your loyal customers to the competition. Customer retention is proven to be less costly than acquisition as numbers show that the probability of selling more products or services to an existing customer is high as 70%, while the probability of selling to new ones goes only from 5-20%. Also, your old customers are 50% more likely to try new products you may have and they spend 31/% more than new ones.

Loyalty programs can be pricey, so to be sure you are investing wisely, you have to effectively reach the right customers. This won’t work without you knowing the customers and their buying habits, or by simply replicating the loyalty programs used by similar business in the industry.

  1. Your starting point should be keeping track and collecting data about your customers. Once you have the data, you will be able to design the loyalty program that matches both your goals and your customers needs and expectations.
  2. One of the most important things is also to identify the right program to provide the customers with something valuable and interesting to participate in.
  3. After establishing this, you should create the loyalty program business model that matches your company in terms of profit. Loyalty programs are used to keep the customers and to sell more, not to lose money and time you are investing in it.

Considering the fact that technology and market trends extensively changed the way loyalty programs work, many successful companies are rethinking their approaches and channels they use to lure their customers into loyalty schemes.

When talking about different approaches to loyalty schemes, one of the most recent examples is the loyalty program “Blazin’ Rewards” launched by Buffalo Wild Wings. Unlike the other loyalty programs in the industry, Blazin’ Rewards allows the program members to redeem different menu items for a different number of points earned. Members can, for example, quickly redeem 250 points to get a free drink, or save up to 3,500 points for a large serving of wings. This flexibility in spending the earned points made the Blazin’ Rewards very popular and distinctive from other loyalty programs restaurants usually have.

Improve customer’s lifetime value

Loyalty programs also help SMBs improve their customer lifetime value and ensure the cash flow from this relationship.

Loyalty programs need to be consistent, but also bear in mind that customers like being offered something new. Win your loyal customers attention with new ideas and new incentives. By keeping the rewards fresh you will excite your customers without making big investments into a new loyalty program.

Update your rewards and specials regularly to keep your customers interested. For example, for one month, you could offer double points for customers who refer their friends to your business or change that “5% off coupon” with a free product reward or a gift that matches the worth of the coupon.

You can also add more rewards to your program and split them into different customer tiers or, for example, limit some rewards to VIP program members. This ensures that you don’t overwhelm your new customers while still continuing to motivate your most frequent buyers.

French cosmetics company Sephora does a great job with its “Beauty Insider” loyalty program. Some rewards drop twice a week, some are only redeemable in stores. Due to the effective use of tiers, they ensured different (and more attractive) rewards to those who spend more. By challenging their customers to reach that next milestone, Sephora made their most loyal customer feel like they achieved something that others could not and inspired other customers to get there as well. This made their loyalty program very popular not only among the program members but also all over social media and industry related websites and blogs.

Build a personal relationship with customers

What makes a great loyalty program is the way it uses customer data to build better future relationships with them. By building a data pool businesses can create personalized experiences for their customers and boost their loyalty. This way you can also build your brand and differentiate your business from other similar businesses in the market.

Use customer data gathered from a variety of sources such as your website, social media analytics and, sales and inventory history to determine what your customers would be most interested in. And moreover, use the data to find the best way to approach them. Conduct the surveys on different topics related to your business and/or industry, their buying habits and more and design (or adjust) your loyalty program around it.

The more data we gather, the closer we are to our retention goals.

A good example of using data to build a better relationship with your customers is the loyalty program designed by U.S. online shoe and clothing shop Zappos. After realizing that their most loyal customers have a 50% return rate but are still buying their most expensive shoes, Zappos developed a very successful strategy. Their 365-day returns policy, free two-way shipping and not charging for returns proved to be a very effective tactic in keeping their most profitable customers.

Upsell to existing customers & drive new revenue streams

Loyalty programs offer a great opportunity to upsell or persuade existing customers to buy additional and/or more expensive products or services. To improve your loyalty scheme in this way:

  1. Start by gathering data based on customers previous purchases, and offer them something new and attractive for a reasonable price.
  2. Think carefully about timing and wait until your customer has decided to purchase to offer additional products or services. If you try to upsell an item just as they landed on your website, you may scare them off. Wait until they’re close to actually buy something from you and then make your move!
  3. Consider their budget and be reasonable with pricing. If the suggested purchase is much more expensive than the first one, it’s not upselling – it is just another major purchase!
  4. Also, always add value to your upselling offer. Customers need to see the difference and feel that they really getting something better for that slightly higher price.

Best examples of upselling are those coming from successful companies such as Virgin Atlantic whose marketing team came up with a great idea how to sell more business class tickets. First of all, they renamed the business class section into ‘the economy premium’ section to make it seem like their customers are not making a big step in purchasing the more expensive ticket. Secondly, they included a link with a short video for each of the seating options so that customers can easily discover all the benefits of the more expensive offer.

A similar example can be found in Booking.com which lures the attention of their customers online by offering the cheapest booking option, while at the same time displaying a more attractive option which is, of course, slightly pricier than the first one.

Turn customers into brand ambassadors

An excellent way to use loyalty programs to increase your sales is to turn customers into your brand ambassadors. Making your most dedicated customers feel like they’re part of your brand you also make you and your business more approachable to other potential customers out there.

It may sound trivial, but in order to turn the customers into brand ambassadors, you need to have – a brand! When we say brand, it means much more than a simple name attached to your product or services. What you offer must be different, worthy, well-designed and well-promoted across the social media. One of the best industry examples is the one coming from technology giant Apple. Their products are simple to use but they’re also simple in design. People just love Apple wherever we go and promote the brand without being asked to – which is the ultimate goal of every company out there. Do you have a clearly defined message for your brand? If not get one.

Along with offering outstanding products or services, you need to provide a superior customer service. Stay in touch with your customers, ask them for feedback, include the return policy in your offer, give them something for free but don’t forget to be creative. Offering some free perks to expand an ambassador program was successfully employed by Google via their Google Pizza Program. The main idea involved Google campus ambassadors visiting their hard working IT peers across the top US engineering universities and ordering a pizza for them. This is how Google created buzz around the company and formed strong ties with the next generation of consumers and talented programmers they want to possibly work with in the future.

Collecting data about your customers and their purchases, interacting with your social media followers, following hashtags and your brand mentions will help you to identify so called “super customers” who can be turned into you brand ambassadors. Don’t forget that this is not the end of the process. Show gratitude to your brand ambassadors by offering them special perks in the future or, for example, organize the special event to show that you appreciate their engagement. Do you know who your super customers are?

Build a competitive advantage

Loyalty programs became a big asset when businesses realized that the competitive advantage that they once had no longer holds true. Maintaining loyal customers has become more important but also more difficult. Loyalty programs gives your business a chance to once again offer something new, compelling or less expensive than your competition even though you both may have very similar products or services to sell.

In order to rise above it, look carefully at your competition and design a loyalty program that differentiates from other companies similar to yours.

Customers today need more than loyalty points offered by traditional loyalty programs. They expect personalization, interaction and new experiences from products or services you offer. Consistently creating new opportunities and offers is your key to success. Specific milestones, meaningful surprises and engaging encouragements are as important as individual offers relevant to their purchase history.

Think about offering something different from your competition without investing a lot of money and try to substitute it with being creative and adding more value.

A great example of rising above competition comes from Starbucks. Even they may not have the best coffee in the world, but their customer loyalty strategies are certainly making it to the top. Starbucks provides a constant flow of new offers to their customers such as paying and ordering the coffee online, receiving a mobile device notification when close to the store and more. They are also constantly working on creating the new and colorful drinks with an imaginative names. Launching a drink called the Frappula Frappuccino decorated with a blood-colored raspberry syrup during a Halloween season turned out to be a great success. Along with buying it, many customers were posting pictures of a drink online which created a big craze around the product on social media.

Being creative like this is certainly bit easier if you are in the food and beverage industry, but rethinking the ways to approach your customers and providing them with a new experience that differentiates you from your competitors can really set you apart and be executed by any business out there.

Wrap up

Loyalty programs can provide many benefits for small and medium businesses, such as increasing sales and developing a stronger relationship with their customers. With loyalty programs, SMB owners can also stand out and rise above the competition without investing a lot of money in it.

Remember to get the best from your loyalty program:

  1. First think about the right business model that matches your company in terms of profit and responds to your customers needs and interests.
  2. Collect and analyse the data about your customers and use it to segment your buyers and decide on rewards and incentives they would like to receive.
  3. Once you have your loyalty program running, keep your rewards fresh and your customers engaged.

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