Loyalty programs: Five benefits of a loyalty program

Updated by the editor 26/06/2020

Did you know that increasing your customer retention rate by just 5% can boost your profits by as much as 95%? But, far too often, the focus is put on attracting new shoppers – not looking after existing ones. While it’s understandable that you want to grow your customer base, how do you keep hold of the people who are more likely to buy from you again?

One way can be to say thank you by offering customer loyalty benefits. While it’s obviously good for your customers, what are the benefits of loyalty programs for businesses such as yours? There are many possible financial and non-financial upsides. Here, we’re going to focus on five key benefits and how you could find that adding a loyalty program can help you hold onto those all-important customers.

1. Stop competing on price with competitors

Today, it’s too easy for discerning shoppers to compare hundreds of prices in just a few clicks. If they are just thinking about the products you sell instead of your store and brand, then you will find yourself in a pricing race to the bottom. And it’s those larger stores such as Amazon who will win.

One of the biggest benefits of customer loyalty programs is that they stop you from needing to compete on price alone. It gives you a way to stand your store and your brand apart – offering a much more enhanced (and personal) customer experience by connecting with their emotions.

Let’s elaborate on that here.

Studies show that when a customer makes a purchase, the decision is a highly emotional one. If you sell a product that people buy through desire and not necessity, then it’s crucial to appeal to their emotions. Customer loyalty benefits are a highly effective way to surprise and delight those who shop with you – rewarding them for something that previously went unnoticed.

Each time you reward a customer for signing up, referring a friend or making a purchase, you’ll appeal to their emotional side. And, by doing that, you start building a connection with them. As that connection develops, your customers will see you as more than a selection of products. And, in turn, this strengthens their loyalty – encouraging repeat purchases that boost your profits.

See how the beauty brand, Mirenesse, set up their rewards program for success:

2. Retain existing customers

Loyal customers spend 67% more on average than new ones. And that’s a stat you can’t afford to ignore. In addition, acquiring customers could cost you at least five times more than retaining existing ones. Apply this thinking to your business and you can see the impact that could have on your profit margins.

It shows how retention can be one of the most cost-effective ways of growing your business. A major benefit of customer loyalty programs is that you can do more to keep customers coming back to you – and spending more with you. when you start to turn existing customers into loyal ones, you’ll see the importance of loyalty programs shine through in the long-term.

For more statistics on loyalty and retention, take a look at Part 1 of our 36 ecommerce loyalty facts and figures.

3. Increase Customer Lifetime Value

Customer Lifetime Value (CLV or CLTV) is the net profit attributed to the overall relationship you maintain with a customer. It tracks how valuable a customer is to you now – and how much this ongoing bond could be worth to you in the future.

With LoyaltyLion’s customer loyalty program software, you can work out exactly what the CLV is for each of your customers. And this can help you wield all the stats at your disposal into usable data to inform solid strategies that help you retain your customers.

The advantage of a loyalty program here is that you can get data that looks at your customers’ buying habits. We saw earlier how purchases are emotional decisions. So, it makes this data all the more vital – helping you to better understand your customers’ needs.

After all, the data you have access to is like a pile of bricks ready to be assembled. But one of the benefits of loyalty programs for retailers is making sense of this data – both on macro and micro levels. Put simply, you can see the steps your customers take before they buy. And that means you can reward them at each step of the journey – and increase your CLV too.

4. Build personal relationships

To create this emotional bond and make your customers feel loyal to your store is to show just how much you value them. At LoyaltyLion, we believe you can achieve this by building genuine relationships. Your customers are unique – so be sure to treat them like they are.

Data is important. Spoke about this in the section on how to retain customers. But it can’t be overlooked. LoyaltyLion’s platform can provide you with valuable customer data and insights. This can include order history, site activity, visits and referrals. Knowing more about who shops from you is a big benefit of loyalty schemes as you can better tailor your service to their needs.

It might seem like a lot of information, but companies often segment customers into only one or two categories for marketing reasons. And it can make customers feel invisible or under-valued.

We know there is more to an individual customer than just a generic segment. Their needs can differ from day to day or month to month. What’s right for a customer in one location can be different to the next. Or there could be a change of personal circumstance.

With LoyaltyLion’s data-driven platform, our loyalty program management tools can help you identify these changes. You’ll be able to provide a unique level of service, which will stop your customers feeling invisible and start feeling valued. With it, you can start to realise the longer-term benefits of customer loyalty.

5. Create Brand Advocates

It’s a mistake to think that your only valuable customers are the ones who spend money. In fact, some of the most valuable aren’t the ones spending money – but actually generating it instead. We refer to these people as brand advocates. These are the ones who will refer your store to their friends, family and – if they’re on social media – their followers.

One of the big advantages of a loyalty program is that you can build a network of advocates – people who are more than happy to endorse your brand. And this is really important too.

Past research shows that at least 80% of people trust word-of-mouth recommendations from friends or family – more than any other form of marketing. Meanwhile, word-of-mouth is the main factor for up to half of all purchasing decisions – according to McKinsey research.

LoyaltyLion can make it simple for your customers to refer their friend. Using a two-way reward system, you not only show how much you value the existing customer – you get a new one too. And this is proven to be an effective benefit of customer loyalty programs for everyone.

If your customer refers their friend or relative, for example, one may earn points and the other could get a discount off their first purchase. Each is a different loyalty program perk – but both work to bring in new shoppers and keep existing ones loyal to your brand. A win-win situation!

Round-up – the benefits of customer loyalty programs

In our view, these are five of the most important benefits of a customer loyalty program. But it’s important to know that some benefits can take a little longer to see than others. So, we’d advise only starting a loyalty program if you’re committed. Take a look at our case studies or see for yourself how a loyalty program works with our free trial and you can try all of LoyaltyLion’s features for 14 days.

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About the author

Mollie Woolnough-Rai

Mollie is a Senior Content Marketing Executive at LoyaltyLion. After graduating from UCL in 2016, she has worked both in-house and at marketing agencies providing expertise in content for both B2B and B2C clients. At LoyaltyLion, Mollie manages our content, making sure our readers get the best quality resources about customer loyalty and retention.

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