Editor's Note: Today's post comes courtesy of John Rampton, entrepreneur, author and contributing writer for Forbes, Entrepreneur.com, Inc., and The Huffington Post.
Customer loyalty is a top priority for many brands. Acquiring new customers is costly, requiring an additional expenditure of marketing costs. Loyal customers come back week after week, purchasing products and keeping a company in business. Through loyalty programs, brands have found that they can encourage customers to come back on a regular basis, often choosing their brand over other nearby businesses.
But how much must a company spend to maintain that loyalty? As the article Closing the Gap Between Revenue and Loyalty Management points out, a brand can give away more than it actually has to at the expense of valuable revenue. A hotel with a loyalty program, for instance, may upgrade its rewards program members to a suite on the hottest weekend of the year. Instead, that same hotel could have simply upgraded the customer to a slightly nicer room without the larger expense. A brand can maintain top-quality rewards programs without sacrificing earnings.
While hotel chains offer free rooms and upgrades, grocery store chains offer much smaller rewards. Customers get a smaller amount off each item, as well as points off of gas at their fuel pumps. The grocery industry is forced to do this due to its smaller profit margins, but customers enjoy the access to exclusive discounts and coupons. This can serve as a lesson to businesses thinking about starting their own loyalty programs.
Grocery stores make a point of letting customers know just how much they saved, thanks to their loyalty memberships. At the end of every transaction, most of these chains point out the savings, as well as making it available on receipts. Because customers provide their contact information at signup, this also means grocery chains can send coupons specifically addressing items those customers regularly purchase.
Traditional loyalty programs have something provided as paper-based punch cards where customers received something for free after so many purchases. This allows customers to see the progress they were making as they went. Today’s punch cards are often electronic, making it slightly more difficult to see those accomplishments.
Starbucks provides the same progress tracking with its loyalty app. Customers can use the app to pay, earning points with each purchase. Murray Newlands, who owns online invoicing company Due, suggests "After they reach “gold level,” they’ll earn a free food or drink item. The app updates users of their points level each time they open it. Because of the company’s regular cost for beverages and food items, by the time a customer wins one cup of coffee or menu item, he’s already spent a sizeable amount."
Perception of Exclusivity
Businesses should realize that free items and room upgrades aren’t the only reasons customers interact so eagerly with loyalty programs. Even knowing they’ll receive access to exclusive offers and members-only coupons can be enough to win over some customers. Department stores have long realized the benefits of offering VIP-customer discounts to its most loyal customers.
But even the most marketing-savvy businesses are realizing the importance of personalizing their efforts. Kohl’s Department Store, which brings customers back by offering free Kohl’s Cash to spend in the store during a limited number of days, has seen a gradual loss in recent months. The company plans to use the data it’s already collecting on customers to deliver personalized messages to each shopper on an ongoing basis.
While loyalty programs have their value, it’s important that brands walk the line between winning return visits from customers and losing money on the perks it provides. There are many benefits a rewards program can offer that don’t require giving away entire meals or luxury suites to a business’s most valuable return customers.