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The merchant's guide to customer loyalty programs.

April 21, 2021

From frequent flyer miles and box top vouchers, to stamp cards and points programs, customer loyalty programs have been around for decades. Although consumer shopping habits have changed over time, the concept of loyalty schemes remains the same: keep your customers coming back for more.

With the rapid growth of eCommerce in this digitally driven age, it’s more important than ever to reward repeat business and keep your brick-and-mortar store booming with satisfied, loyal customers.

In this article, you’ll discover everything you need to know about modern customer loyalty programs and the multitude of ways that they could benefit your business.

Why are customer loyalty programs important?

Customer loyalty is critical for business success. A satisfied customer is an enthusiastic advocate for your brand, and even with the vast scope of marketing methods available, word of mouth is still the most popular method of recommendation.

Customer loyalty programs benefit not only your customers, but your business and brand too. Did you know that it costs five times more to attract new customers than it does to retain your existing ones?

Loyalty is the result of a satisfying emotional connection, so creating and nurturing emotional connections with your customers is one of the key ways to drive retention, advocacy, and sales.

The 2020 What The British Want From Loyalty Programs report found that 73% of shoppers think loyalty programs are a great way for brands and businesses to reward customers.

What are the benefits of customer loyalty programs?

The benefits of customer loyalty programs are numerous. Here are three key business advantages of having a strong loyalty program in place:

1. Retaining your existing customers

Keeping your current customers and driving repeat business is key. According to a study by Bain & Company, increasing customer retention rates by 5% can increase profits between 25% to 95%. Customer retention increases your customers’ lifetime value and helps you to build strong customer relationships.

2. Improving your brand’s reputation

Launching a customer loyalty program can easily boost appreciation of and satisfaction with your brand. With hordes of happy customers effectively becoming ambassadors for your brand, your business’ reputation can be boosted exponentially.

3. Increasing sales and revenue

According to Adobe, customer spend tends to grow alongside trust, with loyal existing customers spending 67% more than new customers. A customer loyalty program specially tailored for your target market can go a long way towards boosting business sales because, once a customer identifies your brand as a favourite, they become more likely to purchase in higher quantities.

How effective are customer loyalty programs?

If you’re wondering whether customer loyalty programs really work, the simple answer is yes. But when it comes to implementing an effective customer loyalty program, there’s no one-size-fits-all solution; what works for one business might not necessarily work for yours.

A loyalty program alone isn’t necessarily enough to generate brand loyalty, so in addition to an enticing program, it’s important to make sure that your brand also:

  • Delivers on value and quality
  • Engages with customers and takes feedback on board
  • Maintains consistency and authenticity
  • Focuses on customer service and experience as a priority
  • Operates innovatively and proactively

“In an age of instant gratification, the competitive dynamic can change very quickly. Traditionally, the key drivers of consumer behavior have been value, convenience and experience. Looking ahead, brands and retailers need to also consider choice, purpose and privacy if they are to earn and maintain their customers’ loyalty.” Paul Martin, Head of Retail – KPMG in the UK

What are the design characteristics of an effective loyalty program?

The best loyalty programs make your customers feel valued, while also proving cost effective for your business.

If you’re looking to set up a customer loyalty program, consider these key factors:

Raise awareness

Make sure your customers know about your loyalty program. This may seem obvious, but according to the 2019 KPMG Customer Loyalty Report, more than one in three customers who do not belong to any loyalty programs say it’s because they are unaware of them.

Be clear about what you’re offering

Make sure your loyalty program is a convenient, streamlined process that’s easy for your customers to understand. Technical difficulties or confusing conditions will only deter your customers from making the most of the scheme.

Don’t be afraid to innovate

As consumer and market preferences change, so too should your loyalty programs. Implementing new and enticing rewards helps to keep things interesting for your customers. According to YouGov, 95% of UK consumers want companies to find new ways to reward their loyalty.

Ensure secure customer data

One of the fastest ways to lose customer loyalty is by being careless with customer data. Your customers will entrust you with personal information, so it is your duty to make sure that data is protected and secure.

The 2020 What The British Want From Loyalty Programs report notes that savviness is the dominant emotion in the reward psyche of British consumers. 83% of shoppers want rewards programs to save them money, 53% want rewards to be a treat and – as a nation of deal hunters – 68% of shoppers make sure they always use all available coupons, deals, and sales when shopping.

How to create a customer loyalty program.

Step 1: Do your research

Based on your business type and target audience, the first thing to do is analyse what your customers want and determine what kind of reward(s) will attract customers to your loyalty program. Conducting customer surveys and/or interviews is a great way to gain insight into what your customers want.

Step 2: Determine how the program will work

Next, consider how you want your program to work. These are five of the most common types of customer loyalty programs:

  • Points-based programs: Customers accumulate points for purchases.
  • Cash back programs: Customers spend a certain amount and receive discount vouchers for their next purchase(s).
  • Punch/stamp card programs: Customers earn a discount or free merchandise after making a certain number of purchases.
  • Tiered programs: Customers receive rewards or benefits based on specific milestones reached. The more the customer spends, the higher the reward value.
  • Hybrid programs: Customers can benefit from a combination of different loyalty programs.

Step 3: Customise your program to align with your brand

Next, it’s time to give your program its own identity. Create the name of your loyalty program, try to think of something catchy, exciting and relevant that reflects your brand tone and the intention of the program itself.

Step 4: Promote your program and create ways to join

Get the word out about your new loyalty program by letting your customers know about it. Think about running an awareness campaign to promote it online as well as in-store, and make sure your customers are clear on how to join, as well as the ways that it can benefit them.

Step 5: Set goals and decide how to measure them

Finally, identify your specific measurable goals and KPIs. Customer-centric data is key to measuring the success of your customer loyalty program. If you’re not sure what to measure, these four KPIs are a great starting point:

  • Loyalty redemption rate: RR = total points spent/total points issued.
  • Customer retention rate: CRR = (ending customers – new customers) / initial customers x 100.
  • Repeat purchase rate: RPR = repeat customers/total buying customers.
  • Customer lifetime value: CLV = revenue spend to date + expected future revenue – acquisition and redemption costs.

Nominate: The customer loyalty app from Valitor.

Our cutting-edge customer loyalty app for POS transactions gives you the ability to design and customise the perfect customer loyalty program for your business.

Nominate features at a glance

  • No set-up costs or monthly charges
  • Easy to use
  • Real-time performance analytics
  • Customisable campaigns

How Nominate works

When customers pay via your PAX A920 card terminal, the cashier is prompted to offer them the option to participate in the loyalty program. If the customer agrees, reward points are accrued each time they use that same payment card. Once the customer has reached the required number of points, they can claim their reward – it’s that simple!

When it comes to convenience, Nominate outshines traditional reward programs by:

  • Being completely contact-free for COVID-friendly use
  • Not requiring a physical loyalty card that could easily be misplaced by customers
  • Easily incorporating into each transaction for seamless application

Find out more about Nominate

If you’d like to speak to a member of our sales team about how Nominate can help you retain customers and drive sales, get in touch today and we’ll be happy to help.