Drive Profits with a Loyalty Program

By Lori Karpman

A well designed loyalty program can dramatically drive sales and increase bottom line results.  Many studies have shown that businesses with a program retain their customers for longer making more money on them without the expense of advertising making them lower cost customers than new ones to whom a business must market to in order to generate first time trial. The basic principle of a successful program is to reward your customers for making the purchases that you want them to make.  Additionally, each visit allows a business to create a long term relationship with that customer by always excelling at customer service or problem correction, and by providing a more personalized shopping experience such as knowing how they like their coffee, or suggesting new items that you already know will fit their needs. Returning customers not only buy more, but they bring other customers with them, introducing your products or services to new customers who the business having to pay to advertise to them. These customers then become loyal ones themselves and then bring others, and so on and so on. Additionally, the detailed customer data that comes with a program such as demographics, purchase history, geographics, and more provide essential information about your clientele in general as well as your product mix and pricing. All of this allows you to be more specific and relevant in creating and targeting marketing campaigns and offers to generate new business, which reduces overall customer acquisition costs. So the value of just one loyal customer is very significant; it’s not just the value of the additional purchases the customer will now make in your establishment versus any other, it is also the value of every person who gets introduced to your business through them, and then the process repeats again and again. So one new customer can mean 50, 100, 500 new customers over time, and it adds up fast!   As they put the power of word of mouth to work, a business’s cost of customer acquisition will decrease since it’s free.   All told, these produce quicker results than most marketing promotions and should be the foundation of any strategic marketing plan of any business no matter what it does.  Fortunately, it’s super easy to get one going.

A Good Loyalty Program should have these elements:

1.  Clear and Easy to Administer:  The Loyalty Program has to be easy to understand, for example, for a simple business card with 10 square boxes on it and the number $10 inside each box. At the end of the 10 boxes there is an “=” sign and then another box with a 10 in it.  It’s pretty clear that for every $10 you get one tick and after $100, you get a $10 discount. Make it simple. If you are using Points then make the Points value and easy calculation such as 10 points/$1.00, and then specify what customers can redeem at various Points levels.

2. The Rewards must be Meaningful:  The reward itself must be enticing; enough to encourage the number of visits required earning the reward.  

3.  The Reward must be attainable within a reasonable amount of time, given the nature of the business. It cannot take more thana month to get a free coffee but it can take a year to get a free pair of shoes worth $100.00. Make the amount they have to spend challenging but not too far out of their reach because remember you are already getting more money from them as members of the Loyalty Program.

4.  If your business is part of a chain, the Loyalty Program must be available at all locations in the chain. You can have “only at participating locations”, but at least 75% of locations should be participating. However, the customer would have to redeem their reward from the store they had either visited the most, or, spent the most money at, depending on the nature of the business.

5.  It must gather important data on the business’s customers that can then be used in the creation of targeted promotions to generate new business and to be able to track if the Loyalty Program is working, by whom is it being used and the length of the redemption period. It should also give information regarding demographics, geographic information, and a variety of other markers that allow for the creation of very targeted campaigns to generate new business. All of this lowers the cost per new customer acquisition because they are going to a much higher percentage of targeted prospects and producing significantly more value for each advertising dollar.

Your Loyal Customers have a Greater Impact on your Bottom Line than your New Ones.
Earning customer loyalty pays off big time!  Loyal customers buy more, and are often willing to pay more, which means an increase in top line sales, they will refer your business to others and this saves you a ton on the marketing and advertising costs it takes to generate them as news customers, and   their endorsement is more powerful to family and friends than any ad campaign would be.  Also loyal customers know your business and are not shy about suggesting ways to improve. Customer feedback is the most important information of all, they will tell you exactly how to keep your customers happy.

When you add all of the benefits of a Loyalty Program that I have spoken about, and see how easy it is to create one, (my local $1 store has one, business card sized with 10 boxes, $10 each/$100 = $10) ,  there is really no excuse for not having one.  The impact that it has on a business overall can be significant in so many ways not just financially.  It gives businesses the opportunity to really build relationships with their customers and therein lies true ‘loyalty’. 

 

Lori Karpman, CEO Lori Karpman & Company
E-mail: lori@lorikarpman.com 
www.lorikarpman.com