When operating a business, many resources are dedicated to getting things off the ground, with factors such as loyalty marketing taking somewhat of a back seat as you focus on generating new leads.
However, if you want to establish a viable and effective marketing strategy, placing significant emphasis on customer loyalty and customer loyalty programs is one of the most sustainable methods for prolonged success.
As your business continues to grow, incorporating your existing customers into your big picture plans is paramount.
One of the most productive methods for doing so is through loyalty marketing.
In this article, we will discuss:
What is Loyalty Marketing?
At its core, loyalty marketing is an extremely straightforward concept. It’s a marketing program or strategy that encourages a business’s existing customers to repeatedly purchase or use their product or service.
Most frequently, these approaches involve offering various incentives and fostering and maintaining customer loyalty.
These loyalty programs are built on a foundation of reciprocity.
In other words, to keep existing customers interested and willing to bring repeat business time and time again, companies will provide various incentives and rewards programs to recognize and encourage this continual brand-based loyalty.
While branching out and reaching new customers is essential for businesses to grow, retaining existing customers is equally important. Additionally, it serves a wide range of purposes from financial, social media, and customer retention-related standpoints.
Why is Customer Loyalty Important?
According to the book Marketing Metrics: 50+ Metrics Every Executive Should Master, the probability of businesses selling to existing customers is 60-70%.
However, the likelihood of selling to a new customer is much lower, at 5-20%.
Additionally, research conducted in 2010 from the IT service management company Gartner Group states that 80% of a business’s future revenue will come from just 20% of its existing customers.
These statistics are just two of many that illustrate the crucial point of how customer loyalty and customer retention are pinnacle revenue-generating elements that impact the overall longevity and profitability of a business. They also highlight the vital importance of investing in these loyal customers for continual success.
Below, we will highlight some of the most relevant reasons why customer loyalty and loyalty marketing are not only important but essential to driving conversions and sales.
Customer Retention
As we outlined above, most of a company’s profits actually come from already established customers.
As such, ensuring this population remains engaged and loyal is essential in continuous revenue generation.
Creating incentives, such as a rewards program or loyalty program, is an effective means of rewarding these valuable customers and ensuring that customers feel appreciated and respected.
Customer loyalty programs are also an excellent method for businesses to offer a positive experience and demonstrate its values align with their customer base. Learn more in “Customer Loyalty Programs – How to Make One That Works.”
Customer Loyalty Drives Referrals
If your customers are happy, they’re likely to share these positive experiences with friends and family. Customer loyalty programs don’t only serve to incentivize your already existing clientele, they could also drive up referrals.
So, not only does this mean that your marketing loyalty incentives are working, but that they are serving the additional benefit of broadening your client pool and potentially generating more loyal customers, which thereby drives sales and conversions.
This also serves as a savings method for marketing programs through gaining referrals from word-of-mouth marketing.
Boosting Sales at a Lower Cost
Engaging current customers is far cheaper than enticing new ones, not to mention easier. The cost to attain a new customer can be five to 25 times more expensive than keeping an existing one.
These pre-existing consumers are already familiar with your brand and have personal knowledge and experience of its quality and effectiveness.
In this way, it is easier to convince them to purchase from your business because there’s already an established context that they can refer to.
According to the Gartner Group, increasing customer retention by 5% can increase a company’s profits by anywhere from 25 to 125%.
While attracting new customers is necessary, implementing the necessary marketing programs to bring awareness to your brand and entice new clientele is significantly more expensive.
How to Use Loyalty Marketing to Grow Your Brand
What makes customer loyalty a difficult area to maneuver is that your customers are under no real obligation to remain loyal to your business.
Nothing is stopping them from picking up and moving over to one of your competitors at the drop of a hat.
However, the appropriate loyalty marketing strategies can retain these customers and keep them interested as long as their feedback is heard, valued and subsequently implemented.
Openly Ask for Customer Feedback
It’s entirely normal for a business to experience ebbs and flows regarding customer retention and acquisition.
Before instilling practices to retain customers, it’s crucial to find out why some are dropping off in the first place.
Equally important is learning why, while some are leaving, other customers choose to stay.
There are multiple avenues to elicit customer feedback, the most accessible being social media.
Social media creates a platform for customers to easily tell you how they feel and share their opinions about your business, products and service.
These opinions can provide significantly valuable feedback and insights into brand trust and customer lifetime value.
This information could relate to why some customers decided to leave and feedback on various areas where the business could improve itself or its product or service.
While social media is likely the most efficient method of receiving customer feedback, businesses can also garner crucial feedback through other channels, such as issuing customer surveys and asking clients to leave reviews.
Use Social Media to Highlight Loyal Customers
Continuing in the realm of social media, these platforms can also be an incredibly valuable loyalty marketing tool targeted at rewarding customers that supplied their feedback and shared their experiences with your brand.
For example, Instagram and Twitter are fantastic avenues for users to demonstrate their unique personality and buying behaviours to a network of their peers.
In turn, these digital platforms provide the ideal venue for you to encourage and facilitate customer relationships and interactions through user-generated content.
Hosting a contest or giveaway provides the perfect incentive for customers to engage with your brand and promote it themselves across their networks. Besides the potential to receive discounts or win free products, being featured by a brand is a reward for many consumers.
Creating opportunities to highlight your appreciation and celebrate winners of these various events is an excellent way to show your customers that you genuinely care, value and are grateful for them.
Social media has real benefits for your business, even if it’s a startup. Learn more in “How Social Media Benefits Your Business with Real Startup Examples.”
Incentivize Repeat Customers with Reward or Loyalty Programs
Establishing a loyalty program is a surefire method to encourage consumers to continue to purchase from your brand, specifically, with the driving motivation being that they are rewarded for it.
What’s great about implementing a loyalty program is that they are innately customizable. In other words, these marketing programs are easily tailored to the specific individual.
Integrating birthday promotions or personalized product recommendations are two excellent ways to make your loyalty marketing strategy more unique to the individual customer.
Not only will this make consumers feel special, but it will also motivate customers to want to share these deals with their friends, thereby driving more conversions and sales.
3 Successful Examples of Loyalty Marketing
Establishing a loyalty program is a surefire method to encourage consumers to continue to purchase from your brand, specifically, with the driving motivation being that they are rewarded for it.
What’s great about implementing a loyalty program is that they are innately customizable. In other words, these marketing programs are easily tailored to the specific individual.
Integrating birthday promotions or personalized product recommendations are two excellent ways to make your loyalty marketing strategy more unique to the individual customer.
Not only will this make consumers feel special, but it will also motivate customers to want to share these deals with their friends, thereby driving more conversions and sales.
Sephora – Beauty Insider Program
French multinational cosmetics, personal care and beauty products retailer Sephora is a prime example of how loyalty programs can serve as a key revenue-generating model. The company’s VP of Interactive Media, Bridget Dolan, believes that its significant success is thanks to its loyalty program.
In an interview with Forbes, Dolan describes that “one of the smartest things Sephora has done” was implementing its Beauty Insider program in 2007. This claim also has stats to back it up. According to the data, 80% of Sephora’s total transactions today come through their Beauty Insider program.
This loyalty program promotes several features that make it not only incredibly practical but totally customizable. It’s built on a tiered structure based on how much customers spend, with different rewards for each tier. These incentives give customers a reason to continue buying from Sephora to reach the next tier and gain access to the better corresponding rewards.
For example, higher tiers grant members free makeovers and free shipping, two effective motivators.
The Beauty Insider program also features exclusive birthday promotions and personalized product recommendations. Users can also take a personalized quiz to find out what products would best fit their specific needs or target areas.
Sephora’s loyalty program is one of the best examples for highlighting how these programs can make customers feel valued and inspired to purchase from a specific brand. Its unique offers and valuable resources are individually targeted to make customers feel special.
Starbucks – Starbucks Rewards
It almost goes without saying that American multinational coffeehouse chain Starbucks has cornered the market on all things coffee, which extends to their customer incentive and loyalty marketing programs.
While it’s not uncommon for brands to have their own dedicated mobile apps these days, Starbucks has taken this concept to a whole new level by being one of the first companies to have consumers download the app as a means of accessing its loyalty program. When the company launched Starbucks Rewards through the Starbucks app, it was a relatively new idea.
Running this program through the app makes it especially easy and accessible for customers without needing a physical loyalty card. The system works by having customers use the app to order or pay for their items to earn loyalty points – or stars, in this context.
Basing customer transactions on a digital app generates invaluable customer data, including customer preferences and behaviour that the company can utilize and implement into their business practices and products.
By consolidating all of the information in the app, Starbucks can collect all these key insights in one place. This approach allows them to streamline their strategy and empower them to offer perks and incentives that are more relevant to their customers’ actual desires while simultaneously creating an avenue to establish efficient communication.
Amazon – Amazon Prime
You’ve likely heard of or already enjoy the perks of the Amazon Prime membership program.
With an evolving consumer base that places substantial emphasis on fast or same-day delivery options, Amazon was quick to jump on this lucrative revenue-generating opportunity.
The Amazon Prime program is based on a flat annual fee where members receive unlimited free two-day shipping for millions of items on its eCommerce website. On top of that, they also qualify for other perks that Amazon has to offer, such as its streaming service, Prime Day sales and lightning deals.
Amazon is host to a wide range of different products and services. In many instances, consumers can find the same products elsewhere, meaning that the company’s competition is always rampant, particularly from big-box retailers such as Walmart and Costco.
However, Amazon Prime serves as a differentiating factor that provides additional convenience through faster delivery times, motivating consumers to purchase from Amazon exclusively.
Amazon’s loyalty marketing strategy is precisely what sets it apart from other retailers in the same industry and provides a competitive advantage.
Key Takeaways
When it comes down to it, the string that ties all loyalty marketing programs together is the basis of valuing your customers and creating incentives to promote engagement and repeat business. Whether this comes in the form of a loyalty program, rewards program, or digital engagement, the objective remains the same.
Ultimately, it’s about highlighting your gratitude for the people who essentially determine your business’s fate and taking the time to create offers that illustrate how much you value and appreciate their ongoing support.
As long as this remains at the heart of your overall strategy, you are on the right track to creating and growing a foundation of loyal, invested and engaged customers that will drive profit, provide crucial feedback and overall be the catalyst for your business’s prolonged success.
