‘Loyalty over Royalty’ is a term coined to convey that our loyalty first lies with our conscience over authority. Existing customers’ loyalty wins over a brand rather than a new incentive-based client on a more straightforward basis. When we buy vegetables from a vendor, we often tell them to add free chillies or coriander saying, “We always come here”. They acknowledge that we have been their loyal customers as they see us buying their products regularly; this is known as brand loyalty.
It is five times more difficult to acquire new customers than to retain the existing ones and this is why brands introduce loyalty programs. Learn here why customer loyalty is vital to a brand’s long-term success and how loyalty programs benefit you and your customers as brand loyalty advocates.
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What is a Loyalty Program?
A loyalty program is a marketing strategy designed to retain customers to continue purchasing with the same company or service. From banking and entertainment, to hospitality and travel, many e-commerce companies use this strategy. These programs sponsored by retailers and businesses offer rewards, coupons, gift cards, incentives, etc. These programs encourage customers to buy at the same store, increasing purchases and tips, and pushing them towards brand loyalty. These programs help companies keep track of their sales, most sought-after products and customer statistics for that product. Most companies like Starbucks give out gift cards and seasonal discounts for members, while others like Marriott have annual memberships so the program depends on the business.
How Does A Loyalty Program Work?
A loyalty program involves a company setting up an account for the customer related to the scheme related to the product and issuing them a loyalty card, a coupon, rewards, gift card, club card, etc. The customers must provide details of their account to join the loyalty program and a unique ID will be issued for them to identify while purchasing the product.
When customers present their cards, they would be able to avail discounts or reward points on their purchases. All these points and rewards would be now available on the business app as everyone goes digital for a faster process. Loyalty program incentives differ from points and rewards; they include early access for exclusive merch and special offers for members. For example, online platforms such as RedWolf, Bewakoof Official etc., have membership programs that avail customers to get free shipping and early merchandise.
Why Is Customer Loyalty Important?
Retention programs are a huge part of small businesses initially, since we are more vested in retaining the existing customers as they provide the base for the company, and customer loyalty is a huge part of retention. Loyal customers stick around to purchase but stay for a longer time when they receive in return for their dedication to a single company. They’re more likely to recruit others when the incentives are worth it and they could decide to stick with the apparel store, hotel or restaurant because of those loyalty points. Some benefits include –
- Increased Profit
This profit refers to the amount of money the customers spend on your brand rather than your competitors. These could also result in bulk purchases on accounts of discount sales.
- Word of Mouth Referrals
This process directs to Referral Marketing wherein the existing customers refer your brand to their known ones, resulting in brand conversion. When brands offer better incentives and rewards, the chances of referrals increase.
- Trust Factor
This is the trust between a customer and a brand. The value they gain from your relationship differs from the potential benefits of the competitors. Swiggy offers a late payment option through Lazypay to its customers in case of immediate pay failure; this entrusts the customers to put their needs before the monetary gain and urges them to return to the same brand.
Types of Customer Loyalty Programs
Points Loyalty Program
This is one of the most common customer-based programs. Frequent customers get a discount code, freebie or a special offer. Here, the program works for businesses with short-term purchases like cafes and restaurants. Keep the conversions simple to use and not extensive as it could burn a hole in the company’s pocket.
For example, Nykaa engages their customers with reward points, where INR 1=100 points. They reward you with 2000 points on their app download, which can be redeemed at the final checkout.
Tiered Loyalty program
This program offers rewards based on a customer’s milestones with the brand. This is more customer engagement-based, as they increase the tips based on the number of purchases by the customer and tie it with the status quo. This solves the issue of customers forgetting to redeem their points as they keep coming back for more, making the program fun. Customer value increases as their points increase and they acquire exclusive access stature.
For example, Sephora’s Beauty Insider program is the most talked-about program as the signup is free and the customers are ushered into the insider’s room. This gives them a secret rush. As they up their purchase, they gain more rewards like five free samples with an order or a free makeover for an asset over $350 with the VIP status and Rogue Status being a purchase of over $1000 with private access to exclusive events.
Paid Loyalty Program (VIP)
Customers wouldn’t want to pay for an extensive loyalty service unless they get something to make their purchases more manageable. These programs enable customers to pay at once to attain benefits for a long-term purchase. Sometimes, we abandon our online shopping cart after the tax and shipping charges; these programs save money by exempting these charges.
For example, Zomato Pro and Gold membership include monthly and annual subscription, which provides many benefits such as free delivery, unlimited discounts, special offers at restaurant bookings, etc.
Coalition Loyalty Programs
These are pretty interesting as they involve a partnership with another company that shares a mutual interest with your business. This works for the program more than the customers, but these partnerships benefit both the companies as either of them would refer the customers.
For example, payment merchants in India such as Google Pay and PhonePe offer multiple scratch cards for different brands through their platform when customers use their gateway.
Cashback Loyalty Programs
These are very similar to a points-based program where you spend a certain amount and gain a small percentage of its return. There are not many incentives nor instant gratification in this program, but we would try and claim it as we like to save every penny as it goes.
Pros and Cons of Loyalty Programs
|Customer retention helps retain the existing customers which could lead to referrals.
|The time for retention could overlook the new customers and result in wasted potential revenue.
|Attract new customers through loyalty incentives and referrals.
|Market saturation due to similar or better programs for small businesses.
|Valuable data collected through the sign-up helps understand the customer’s behaviour and purchase preference.
|The constraint of data as the signup data determines their behaviour for your product alone, not for their other brand purchases.
|Offer rewards and points based on customer old purchases, which helps in customer satisfaction.
|The introduction of new loyalty programs could cause customers to conflict due to more budget or change of taste.
|Personal brand advocates due to good incentives.
|Temporary brand advocates based on better offers
Loyalty programs offer good returns to customers but it might not be a forever marketing strategy as it involves a give-and-take method. At times like these, membership programs like Amazon Prime can be introduced for a well-planned customer allegiance as the benefits outweigh their annual cost of a premium membership status. Customer loyalty directly ties to your business revenue drive, retention and the ability to grow as a company so tap into the above tactics for a long-lasting relationship with your customers.