Gartner predicts that 80% of your future revenues will come from 20% of your existing customer base. So, basically it means, a few loyal customers bring more revenue than a heap of new ones and you must invest and show high perceived value to your existing customers in order to keep them. Experiential loyalty programs will play a critical role in retaining customers, but there are some myths that surround them that have prevented some companies from developing loyalty programs. Shopping in today’s time is anything but easy because of the many options available. Shoppers can get easily confused with so many different options in the market. Unfortunately, many of these options provide little value and just add to the confusion. Hence, achieving customer loyalty is no easy feat and businesses need to be unique in their approach to engage customers. An effective loyalty program can make customers ambassadors of your product or services. A customer loyalty program is one of the most effective marketing strategies any business can employ when it comes to engaging customers and maximizing customer lifetime value (CLTV).
However, there are a number of misconceptions about loyalty programs, their purpose and value. Let’s debunk some of these common rewards programs myths:
- Myth #1 – Loyalty programs are costly. Not at all, in fact, quite the opposite as increases in customer retention will significantly drive up profit margins. For example, according to Bain, a 5% increase in customer retention can yield a 25%-95% increase in gross margins. You will definitely need to invest in an effective loyalty program but let’s evaluate the ROI as compared to the investment. According to a research, customers who join loyalty programs and redeem points spend 2.5 times more than those who don’t, which signifies that you’ll more than cover your costs. Loyalty programs create a constantly growing affiliation between customers and their brand, thereby increasing the frequency at which customers will return to make purchases.
- Myth #2 – You need a lot of customers to start a loyalty program. It’s true that the more customers you have, there is going to be more potential to have more members, but that doesn’t mean you have to wait to start a loyalty program. As soon as you have customers pouring in, you have the opportunity to engage with them, and have them join your program. The moment you have built your store and created that POS system, it’s time you focus your efforts on loyalty right away. What matters most is what you plan to do with your loyalty program and how you can reward your customers for doing all the things you need for your business. Logistics of your loyalty program is also something you should consider before you start a program but definitely don’t delay. The sooner you implement, the better it is because then you get access to meaningful data that can be used to significantly grow your business.
- Myth #3 – Loyalty program sells itself and customers will keep coming the moment you launch one. False! Having an effective marketing strategy or campaigns in place is extremely significant as much as staff buy-in and support. Everyone on your team should have complete knowledge of how the loyalty program works, why it exists, and how it benefits the customers as well as the brand. Make sure your employees are excited about selling the loyalty program and they have all the resources they need to market it well. The sign up process should be easy and seamless and include sign up and referral incentives to entice customers to join. Also, send an announcement via email or text message to your existing customer base to alert them about the rewards program.
- Myth #4 – Loyalty programs are difficult to manage. If you don’t have the right tools and technology at your disposal, this myth could be true but with advancements in technology these days, nothing is difficult to track or monitor. If you are aware of the metrics that are important to you, you can measure them. Processes like tracking customer’s points, rewards, and card numbers are very easy to manage now. You can also easily measure the factors like repeat purchase rate, average order value, net promoter score and customer lifetime value.
- Myth #5 – Customers don’t want loyalty programs or are tired of loyalty programs. According to some reports, 81% of consumers agree that loyalty programs make them more likely to continue doing business with a brand. Add to that, the fact that US customers alone hold nearly four billion memberships to customer loyalty programs. If your loyalty program is personalized and offers meaningful rewards and experiences that differentiate their shopping experience, why would they not want to sign up?