Loyalty programs: Five benefits of a loyalty program

Updated by the editor 01/12/2020

Did you know that increasing your customer retention rate by 5% boosts your profits by as much as 95%? But far too often, businesses choose to focus on attracting new shoppers – not looking after existing ones. It’s understandable that you want to grow your customer base. But how do you keep hold of the people who are more likely to buy from you again? Well, one solution is to create a customer loyalty program that rewards those shoppers who come back.

A dedicated program that offers customer loyalty benefits is a great way to say thank you. It’s obviously good for your customers, but what exactly are the benefits of loyalty programs to a business like yours?

The truth is there are many potential upsides – both financial and non-financial. Here, we’ll focus on the five key loyalty program benefits, and how creating a loyalty program of your own will help you hold onto those all-important customers.

What makes customer loyalty so important?

For smaller businesses, we know that money isn’t always free-flowing. There are important decisions to make about where to focus your investment. Should it be on attracting new customers? Or on making sure existing ones come back – time and time again? Retention often proves a more effective way to grow a business. And customer loyalty is a big part of it.

If you’re unsure whether you should focus on acquisition or retention, here’s why existing (and loyal) customers matter. 75% of customers say they would switch brands for a better loyalty program. And our own research found that 52% of customers will prioritize – and shop with – the brands where they have points and rewards in their account. Loyal customers are your lifeblood.

What are customer loyalty programs?

In recent years, more brands have started to think about how best to encourage and reward customer loyalty. And it’s one reason why those brands are investing more money into their loyalty and rewards programs. If it’s something that you’re thinking about doing, you should know exactly what a loyalty program is before getting started.

It’s nothing new in the grand scheme of things; the earliest known form of customer loyalty marketing goes back to 1793! But the basic ingredients of a loyalty program haven’t altered much since. Part of your wider marketing strategy, it’s essentially a program that rewards a customer in exchange for an action you want them to take.

History Of Loyalty Programs Infographic V2

For many, that could be a purchase. But it can also include referring friends or spreading the word on social media. Ultimately, a loyalty program is a great way to keep hold of customers.

Are there different types of loyalty program?

Each loyalty program for customers is different. You can choose what rewards you offer, the actions to be encouraged or the mechanics of the program itself. There are, however, some broad categories in which loyalty schemes can be grouped.

There’s the Earn and Burn approach, which is pretty simple. A customer takes your desired action in exchange for points (earn). With those points, they can then use (or burn) them to redeem their preferred reward.

Or how about tiered loyalty programs, which take your customer engagement to the next level.

At LoyaltyLion, our software helps with all aspects of loyalty program management so that you can design the one that’s right – not just for your customers, but your business too. If you’d like to learn more, book a time to talk and see how one will work for you.

Loyalty programs for businesses: Why does yours need one?

In short, your business needs a customer loyalty program because it has a major impact. Our research shows us that a customer who signs up to your loyalty program is 47% more likely to buy from you again. And when 80% of your business will come from just 20% of your customers, you can see why it pays to invest in – and reward – customer loyalty.

But it’s not enough to simply send a thank you email each time they buy from you. With a loyalty program, you can tap into the key drivers of customer loyalty. Most shoppers in today’s world (74%) admit that working towards a goal or reward makes them loyal. An even higher share (79%) like to know that being loyal to a brand – your brand – gains them points.

2 Rewards Make Me Loyal

Add in that you can incentivize referrals, and the benefits of creating your own loyalty program for customers become even clearer. The shopper gets a reward for spreading the word about your business. And you get someone to do your acquisition marketing for you.

They just don’t know it!

So, what are the five main benefits of loyalty programs for retailers?

We’ve just touched on the benefits of customer loyalty programs – so let’s now take a look at five of the key ones.

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’re only thinking about the products you sell instead of your store and brand, then you’ll find yourself in a pricing race to the bottom. And it’s the larger stores like Amazon that’ll win.

One of the biggest benefits of customer loyalty programs is that they can stop you from needing to compete on price alone. By connecting with your customers’ emotions, it gives you a way to set your store and your brand apart – offering a much more enhanced (and personal) customer experience.

Let’s elaborate on that.

Studies show that when a customer makes a purchase, the decision is highly emotional. Do you sell products that people buy through desire and not a necessity? If so, it’s crucial you 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, you’ll appeal to their emotional side. By doing that, you start building a bond. As that develops, they see you as more than a range of products. In turn, it strengthens their loyalty – encouraging repeat purchases that boost your profits.

It also makes them more likely to tell a friend, with 81% of emotionally connected consumers willing to both spend more and spread the word. Why not see how beauty brand Mirenesse set up their loyalty rewards program for success:

2. Retain existing customers

Loyal consumers spend 67% more on average than new ones. That’s a stat you can’t afford to ignore. At the same time, acquiring customers could cost you at least five times more than retaining existing ones. Apply this thinking to your store and you can see the positive impact it can have.

Even in difficult times, members of a customer loyalty program can bring more value to your store. Our data from the first COVID-19 lockdown reveals how order numbers from signed-up members were far higher in April compared with March.

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

For more reasons why retention is so important, see Part 1 of our 36 ecommerce loyalty facts.

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 is worth in the future.

Why is this important? Well, figures show that you’ll see most of this 365-day “value” within just 30 days. Two-thirds of that is realized on the first day alone, rising to 79% by three months.

With LoyaltyLion’s customer loyalty program software, you can work out exactly what the CLV is for each of your customers. With all the stats we provide, you can inform solid strategies that retain your customers.

The benefit of a customer loyalty program here is that you have data on a person’s unique buying habits. We saw earlier how purchases are emotional decisions, so it makes this data all the more vital – helping you to better understand their needs.

After all, the data you have access to is like a pile of bricks ready to be assembled. And one of the benefits of loyalty programs for retailers is making sense of this data too. Put simply, you can see the steps your customers take before they buy.

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 shows how much you value them. At LoyaltyLion, we believe you can achieve this by building genuine relationships. Your customers are unique – so treat them differently.

Data is important.

We spoke about this in the section on how to retain customers. But it can’t be ignored. With the LoyaltyLion platform, you can access valuable customer data and insights such as: order history, site activity, visits or referrals. Knowing more about who shops from you is a huge benefit of loyalty programs. That’s because it means you can better tailor your service to their needs.

Often, companies only segment customers into one or two categories. This makes customers feel invisible or under-valued.

We know there is more to a customer than just generic segments. And we can also see that customers are increasingly looking to form a genuine bond with the brands they buy from. After all, we know 66% of people will join a loyalty program if it builds an ongoing relationship.

7 Customers Want To Align With Their Customers

With LoyaltyLion’s data-driven platform, our loyalty program management tools give you the power to provide a unique level of service. It’ll stop your customers from feeling invisible and start feeling valued. With it, you’ll start to realize the longer-term benefits of their loyalty to you.

5. Create brand advocates

Your most valuable customers aren’t only the ones who spend money. They’re also the customers who generate it instead. We call them “brand advocates”. And they’re the ones who’ll refer your store to their friends, family or – for those on social media – their followers.

Another benefit of a loyalty program is that you can build a network of advocates. Past research shows at least 80% of people trust word-of-mouth (WOM) recommendations from friends or family more than any other form of marketing. Meanwhile, WOM is the main factor for up to half of all purchasing decisions, according to McKinsey.

In addition, 86% of consumers engage with the brand they’re loyal to by spreading the word. It’s the power of advocacy in action.

Using a two-way reward system, you show how much you value your existing customers. And you’ll get a new one too. It’s an effective benefit of customer loyalty programs for everyone.

If your customer refers their friend or relative, for example, give one points and the other could 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!

How to start a customer loyalty program?

With all the benefits of loyalty programs just waiting to be explored, why not start one for your business today? It doesn’t need to be hard or take up lots of precious time either.

The first step should always be to make sure you know what your loyalty rewards program will look like. Will it meet a long-term business need? How can you ensure a seamless fit with your brand identity? Do you know what your customers want from a loyalty program?

Using these insights and answers, you can then start to build and launch the program. By using a dedicated loyalty program platform such as ours, you have the freedom to create a unique program with support of our friendly experts. And you can see how this can work for you today by finding a time to talk with a member of our team.

Why choose LoyaltyLion?

At LoyaltyLion, we’re all about helping omnichannel and ecommerce businesses succeed; to take on the big brands and win.

Our loyalty program software is designed to help you grow. When you choose our platform and loyalty know-how, we’ll help you keep hold of your customers – and win you new ones too. From that, you can realize the long-term value of those who buy from you.

We’re already working with many leading brands to build customer loyalty worldwide. And the results they’re achieving speak for themselves. Why not take a look at our case studies to see what’s possible when you invest in customer loyalty? Or you can see how a loyalty program works for yourself with our free trial – letting you try all of LoyaltyLion’s features for 14 days.

Soon enough, we believe your business will start to realise these five most important benefits of a loyalty program. Of course, some benefits can take a little longer to see than others. If you’re committed to your customer loyalty, however, that patience has the potential to pay off in the ways we’ve explored in this article. And it could help take your brand to the next level.

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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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