Is a Loyalty Program Worth the Investment?
Loyalty Program Benefits
For retailers, it’s no secret that competition is tighter than ever. They need to invest more in how they deliver value to their customers while differentiating themselves in the marketplace. One of the best ways to do it is through a marketing program that promotes customer loyalty. But the reality is a lot of retailers feel loyalty program benefits are minimal. It’s too expensive of an investment or demands too much time to run.
Much of this was true in the past, but the cost of entry into a program has gone down over the years and many of the tasks are now automated. The following loyalty program benefits should convince you to implement your own loyalty program, today:
Benefit #1 – Loyalty Programs Have a 2.5X Average Return
Calculating the return on a loyalty program can be very challenging. There are a lot of factors to take into consideration, because the cost of transitioning new customers into loyal ones requires a lot of data. However, when customer acquisition costs five times more than retaining one, the return on a loyalty program could be much more than expected.
The average amount per transaction is another strong indicator of a positive return. Loyal customers spend on average three to five times more than new customers. Best of all, increasing customer retention rates by a mere 5% can increase profits by 25%.
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Benefit #2 – Loyal Customers Make Lots of Referrals
Did you know that customers are your best brand ambassadors? They frequently talk about their favorite products and services to friends and family. Some will often share their positive experiences on social media. Posting pictures along with authentic comments are the best recommendations any business can receive. Consumers are more likely to trust recommendations on future purchases from people they know. More importantly, the positive effect of customer recommendations through word-of-mouth advertising generates more than twice the sales of paid advertising.
Benefit #3 – Loyalty Programs Promote Deeper Engagement
Consumers rely on online reviews to make their purchasing decisions. Loyalty programs can encourage online reviews by offering rewards or special discounts. Email surveys sent to loyal customers will provide even more in-depth information than a review. The key here is to learn about their overall experience, which drives deeper engagement.
It’s difficult to know how a new product or service will be received by customers. Fortunately, repeat customers are more willing to try new products and spend more money doing it. Plus, their feedback is a valuable resource for future purchasing decisions. Retailers need deeper engagement with their customers to know what’s on their minds. Understanding what customers want, such as what’s new on the horizon, can alleviate anxiety over future market trends. This type of engagement also leads to improvements in their customer service.
Focus on Getting the Best Customers
The average retailer uses 90% of its marketing budget to capture new customers. This leaves only 10% for repeat customers who have larger transactions—spending 67% more than new customers. With these numbers, it’s definitely time for retailers to shift their marketing activities away from getting the most customers possible. They should focus more on getting the best ones.