Promoting your business

Customer loyalty programs

Effective customer loyalty programs enhance the overall value of your product or service and motivate loyal buyers to make their next purchase.

Customer loyalty programs were originally developed to instil and maintain loyalty. Some of the earliest loyalty program examples were the frequent-flyer programs of the major airlines.

Loyalty programs aim to retain existing customers by understanding and meeting customer needs and wants. In doing so, they maintain sales levels, margins, increase the loyalty and potential value of existing customers, and induce cross-product buying by existing customers. The underlying belief, based on the 80/20 law, is that a small percentage of customers generate most of a company’s sales.

Modern customer loyalty programs

Today, customer loyalty programs are diverse. Banks offer regular customers credit cards with a range of valuable benefits, while business-to-business markets focus on rewarding customers with discounted offers and wholesalers offer customers discounts on bulk orders.   

In an Australian retailer study, the most mentioned loyalty programs cited by respondents as 'doing a particularly good job' are Coles Flybuys, Woolworths Everyday Rewards, Qantas Frequent Flyer, MYERone, Priceline, Virgin Velocity, CBA credit card, and IGA.

It’s not just big companies implementing their own schemes. Smaller businesses have jumped on the loyalty bandwagon. Cafes offer customers free coffee when a voucher card is fully stamped, while hairdressers and hardware stores offer VIP discount coupons for regular clientele.    

However, not all programs are successful. Some customer loyalty programs fail because they have been adopted too quickly, without much thought or planning.

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Effective customer loyalty programs enhance the overall value of your product or service and motivate loyal buyers to make their next purchase.

Rewarding customers  

First up, put some serious thought and market research into choosing to create a loyalty program right for your customers. It’s not simply a matter of seeing a good idea and adopting it.  

Get your marketing team to measure the potential contribution of a loyalty marketing program using data and qualitative insights. Consider two important aspects:

  • Would a program create extra loyalty beyond that derived from the relative value of the product or service? 

  • Would it encourage customers to spend more? 

Maximise your program's success

If you decide it is the right choice for your business, here are some helpful guidelines to maximise the program’s chances of success:

  • Identify who your loyal customers are: You can use database marketing and market research for gaining, managing and storing this information. Sophisticated, computerised database technology allows you to monitor your customers’ behaviour, more efficiently target products and services to customers, and allocate appropriate marketing resources to achieve the maximum return.
  • Design any customer loyalty programs to enhance the value proposition of a product or service: Free gifts such as lottery tickets are nice to receive but tend to be only short-term initiatives that aren’t meeting customer needs. Ultimately, these can end up devaluing the brand.
  • Fully cost the loyalty program: There are a number of highly visible costs, such as those associated with program launch, database creation and maintenance, value of rewards claimed, and issue of regular activity statements.
  • Consider the less visible aspects involved: There is time and effort involved in managing a loyalty program. Is this time well spent compared to other marketing activities?
  • Consider the effectiveness of the loyalty program: Especially compared with alternative use of the funds, particularly if you are allocating the program to the marketing budget.  
  • Design loyalty rewards that make the most of the individual buyer’s motivation to make the next purchase: Personalise your rewards scheme where possible and take into account how often and how much customers purchase.
  • Design it with the profitability of different types of customers in mind: Ideally, you want to motivate the most profitable customers to give your business the biggest share of their business. Realistically, aim to build loyalty to ensure your business maintains market share.

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