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What is Customer Loyalty Program and How to start it?
Aug. 17, 2024
According to the Loyalty Report, 85% of customers are more likely to spend with the brand again if enrolled in a loyalty program. This stat clearly indicates how great it could be for a brand to get sales and revenue from its existing customers. The best part is that it doesn't stop there.
Based on another report by Antavo Loyalty Cloud, 81% of business owners who run loyalty programs agree that it helped them to remain stable in an economic downturn. Now, the benefits of such programs make them a must-have for businesses. But do you know what it is, its types, and how to employ it? Let's find out.
Defining a Customer Loyalty Program
A customer loyalty program refers to a planned incentive-based effort to retain customers in a business. It applies to the customers who have already been in business with you, and now you want them to shop more. In such programs, customers are offered incentives to purchase from the business again. It is an effort to retain customers and make them loyal.
You can offer vouchers, free delivery, or an offer that applies only to repeat purchases. But what is the return on this investment?
Return on Investment from customer loyalty programs
By running a loyalty program, you can expect ROI in the form of:
Lesser Costs Related to Existing Customers
As a business, spending on customers to make them buy from you is essential. These costs are spent on marketing expenses, running offers, etc. Now, no matter how uncertain the market is, these costs never fade. But, with a loyalty program, you can cut your expenses of selling to existing customers. Moreover, loyal customers can also serve as a backbone in case of uncertain market conditions.
Also, selling to the existing customers is more likely to happen than selling to the new ones. That's why you get a surety while spending on the loyalty programs for existing customers.
Attracts New Prospects as Well
Provides Loyalty Data
While running such programs, you can collect customer data, which can be further used to enhance their experience. So, it is a straightforward customer experience management strategy, but how does it work? With this data, you can learn about customer needs and preferences. So, ultimately, it helps you personalize their shopping experiences with you.
Different Types of Customer Loyalty Programs with Examples
Now, let's talk about some different loyalty programs that exist:
Paid Loyalty Program
A paid loyalty program is when a brand charges customers for exclusive services and benefits. So, there can be a one-time fee for a month or a year, for which the customer can benefit from that package. Now, the services or benefits included in such programs are carefully put in to motivate customers to buy more.
For example, Country Delight, a grocery startup in India, offers VIP membership. With their membership, one can save a minimum of 20-40% per order if they buy the membership.
Tier-Based Loyalty Program
Value-based Program
Almost unlike any other type of program, a value-based program focuses on making the customer proud. The brand pledges to spend a set amount of money or effort on a social cause whenever a customer buys their product or service.
Mama Earth, for example, plants trees whenever a customer buys their product. This way, the beauty and cosmetics brand makes their customers feel proud for shopping from them.
Reward Program
Let's talk about the simplest loyalty program: the reward-based loyalty program. In this program, a customer earns reward points for buying or using a brand's product or service. These reward points can now be used to buy vouchers, discount coupons or even a whole product from the brand.
It is the simplest one because it is very easy to maintain for the brand. Unlike the other programs where you need to track multiple things, you just have to calculate the reward points the customer will get per transaction.
One of the most popular Indian private sector banks, Axis Bank, gives Edge Reward points to customers using their credit cards or other products. These Edge Rewards are then redeemed against various products and vouchers from other brands like Amazon, Flipkart, Myntra, and many more.
Refer a Friend
Finally, we have a program that motivates existing customers to keep doing business with the brand and helps to get new customers. The program is known as a referral program, where the existing customer is mostly rewarded with in-app money to use in their next purchase. But what do they do to get the reward? They refer the brand to others, like their family and friends. It leads to getting new customers at a very low customer acquisition cost.
The bike taxi startup Rapido has implemented this program where one can get ₹25 for every new person they refer the Rapido app to. In such programs, a referral code tracks the referrals and their status.
When and How to Start a Customer Loyalty Program?
Assess the Need for a Loyalty Program
The first step to setting up a loyalty program is to assess its needs. Yes, it's crucial that you first understand if there is a need for a loyalty program or not. If you ignore this initial step, then it may lead to an expense that has nothing to pay you back. In Simple terms, it will be a failure and loss of your capital. However, the question is what to measure and compare to determine whether you need a loyalty program.
The answer lies in metrics like CLVs and customer retention and acquisition costs. The CLV or customer's lifetime values will help you understand how much money you can make per customer from the start to the end of their journey.
So, it will let you know how much money you can make from a customer with the help of a loyalty program and how much you'll need to spend. Similarly, the acquisition and retention cost will help you understand whether it is economical to use loyalty programs for new acquisitions and retention.
Once you assess the need for a loyalty program, you can proceed with the second step.
Understand Your Customers
Before creating your loyalty program, gather insights into your customers' preferences and shopping behaviors. This will help you design a program that offers rewards they value, increasing the chances of its success.
Set Clear Goals
Determine what you want to achieve with your loyalty program. Whether it's increasing repeat purchases, boosting average order value, or gathering customer data, having clear objectives will guide your program's design and implementation.
Choose the Right Rewards and Keep It Simple
The rewards you offer should be desirable and attainable. They can range from discounts to free products or exclusive access to events. Ensure the rewards align with your brand and resonate with your target audience. A complex loyalty program can confuse customers and may resist them from participating. Ensure that your program is easy to understand, with straightforward rules and reward structures.
Promote Your Program
Once your loyalty program is ready, promote it across all customer touchpoints—your website, social media, and email campaigns. Communicate the benefits of joining and how customers can earn rewards.
Measure and Adjust
After launching your loyalty program, continuously monitor its performance. Use customer feedback and data analytics to make necessary adjustments, ensuring it remains effective and relevant.
