The customer loyalty program is a long-term marketing activity aimed at creating and maintaining fruitful relationships with individual customers who are the most attractive to the company.
Customer loyalty program: advantages and disadvantages
A correctly chosen loyalty program strategy allows you to increase sales of a product or service at a lower cost of other forms of promotion. Typically, a customer participating in a loyalty program is awarded a certain number of points for each purchase, which he can then exchange for prizes or receive a one-time discount on purchased goods. Research has confirmed that loyalty programs are effective tools for optimizing sales.
How to reward customers for loyalty?
All the analyzes carried out clearly show that finding a new client for a company, as a rule, costs several times more than retaining an existing client. This is why it is so important for all entrepreneurs to take care of their clientele. There are many methods that help in customer retention. Recently, a bonus loyalty program has become a very fashionable tool for achieving this goal. The popularity that programs of this type enjoy is mainly due to their high efficiency. A properly designed customer loyalty program can significantly increase consumer attachment and positive attitude towards a brand.
Principle of operation
The idea of a loyalty program is very simple. The client, in addition to the products and services for which he already has to pay, receives something more - a prize, a gift or a discount. On the other hand, subsequent purchases and discounts and rewards received tie the client to the company. But most importantly, they increase his awareness of the brand. Then the company uses this, which, thanks to regular customers, receives guaranteed profits and indirectly acquires new customers. The key to most loyalty programs is discount cards, with which a company can identify a customer and entitle him to discounts and bonuses. The discount card can be made in the form of a smart card or a regular cardboard one: the choice depends on the needs of the company and the finances that can be invested in loyalty schemes.
How much is a client worth?
Entrepreneurs often ask themselves this question. Correctly determining the value of a customer is really a question of the profit generated from the customer. If during a month a client makes purchases in the amount of, say, $25 and brings the entrepreneur a final profit of $5, then over the course of a year he will provide $60 in profit. Such calculations are often a prelude to customer segmentation, which allows you to focus on those that generate the most profit for the firm. Of course, the best tool for measuring consumer behavior, segmenting and retaining them is a well-designed customer loyalty program.
Promoting loyalty
The main advantage of a loyalty program is the ability to coordinate its scale with the size of the enterprise in which it is to be implemented. Thus, not only large concerns and world-class companies can afford loyalty systems. A customer loyalty program designed for a small chain of stores will not require large costs for maintenance and implementation. Most small businesses do not yet think about the fact that they can all freely implement loyalty programs that will not burden the company’s budget, but will help it attract many new customers.
Adaptation
So how can loyalty programs be tailored to the needs of small businesses? You can, for example, run loyalty programs using cheaper cardboard cards and count points manually. These are labor-intensive, but proven and effective methods of attracting and retaining customers. Although they lengthen the time it takes to complete a single transaction, they can significantly increase customer satisfaction. The card is a key element of the loyalty program. It is used to identify the client, and also legitimizes him to receive discounts and bonuses. Often, the card is also an electronic medium that allows you to quickly record a transaction and helps process customer data. Cards of this type are increasingly being integrated with regular credit cards.
Appearance
An extremely important factor is the appearance of the loyalty card. The most important thing is that it attracts the client’s attention and does not let them forget about its existence. That is why the client is usually credited with points only when he has the card with him. Of course, there are disadvantages to this solution: for example, if the client forgot the card. In addition, the card can be printed according to the client's wishes. Obviously, the more colors and patterns on a card, the more expensive it costs to produce, but if it is to return in the form of customer loyalty and influence the success of the entire program, then it is a good investment. Loyalty schemes based on discount cards can take different forms, but the simpler they are, the more effective and cheaper they are to implement.
Implementation of loyalty programs
How to introduce a loyalty program in a company? First of all, it is necessary to develop a concept that would outline the customer loyalty program and its goals, as well as the methods and mechanisms used in it. You can develop such a concept yourself, or you can use the help of a specialist with experience in developing loyalty programs. In most cases, the loyalty program is based on a system of calculating and awarding points for purchases made by the client. There are many ways to award points. These could be standard points for each product, points proportional to the price of purchased products, bonuses (for example, individual ones provided on the client’s birthday), etc.
Terminals
A customer loyalty program that uses magnetic or chip cards will require special terminals for service. They are necessary for quick and easy use of cards. However, purchasing such terminals is not a big investment, especially since they can be rented from companies offering loyalty programs. If the retail outlets that need to serve the program have POS terminals that accept card payments, then the whole process consists of installing additional software, and there is no need to purchase new equipment. The corresponding programs are installed on cash registers or cash register systems by their manufacturers or companies that service the equipment. As numerous examples show, a well-designed and structured customer loyalty program can be put in place by leveraging the retailer's existing infrastructure.
Reporting in loyalty programs
The main mechanism for assessing customer activity in loyalty programs is reporting. Therefore, all loyalty programs should have it. Reports typically come in several forms: for all programs, for different outlets, and for individual program participants. Further reports may concern the presentation of prizes, as well as bonuses, points received by users, etc. These reports are usually provided in the form of files that can be easily exported to programs that analyze them.
Loyalty program cost
The first question that entrepreneurs ask themselves before starting to implement a loyalty program in a company is: “How much will it cost?”, and then: “How much is the client for whom the company will fight?” And it costs as much as it brings profit. This value is assessed by an indicator called Customer Lifetime Value or “Customer Time Value”. Thanks to this indicator, it is possible to perform the initial segmentation and selection of valuable customers who will be covered by the customer loyalty program. Thus, the cost of a loyalty program may vary.
Sales costs
The main costs of implementing and using loyalty systems consist of the following:
— card prices for clients;
— prices for renting or purchasing a card terminal;
— costs of implementing the program;
— prices of bonuses and gifts;
— the cost of training company employees to use the system.
In addition, the costs of implementing a loyalty program depend on the number of consumers participating in it. There are times when loyalty programs are too expensive to operate. And if, in addition to this, we are dealing with low margins and high competition, then loyalty programs may not live up to their expectations, and there is a danger of low profitability of the system. In this case, loyalty programs do not bring the benefits for which they were created. Therefore, before starting to implement the program, you need to conduct a market analysis and evaluate the feasibility of using a loyalty program. A separate task is the way to build loyalty in a particular company. Here you will need various ideas and original solutions so that clients tempted by competitors remain loyal to your company.
Buyer monologue
Now, honestly, ask yourself, how does your loyalty affect salespeople and loyalty program managers? Most likely, it has no effect! Most often, the factor influencing the choice of purchase is price, then again price and again price. Well, it’s also important whether it’s easy to park a car there. This is probably the reason I try to avoid the large shopping center that is located in close proximity to my home. My mood is negatively affected by the crowding, jostling, crushing and those of our fellow citizens who are trying to park their mud-stained cars without waiting in line.
And also
Also, of course, I sometimes think about the quality of goods or their features, how well they correspond to the description. Few people actually think about how to get a discount through a loyalty program, and if this happens, it is unlikely that the buyer will make a purchasing decision based on the program’s offers. One of the reasons for this is the relatively small purchasing return - the profit that can be obtained thanks to the accumulated points. A buyer who makes purchases in the same supermarket and spends $50 a month will leave $600 there over the course of a year and ultimately earn a certain amount for which he can buy a bottle of good wine, nothing more. Not everyone can spend $100 a month in one store. Maybe it makes sense for retail chains to consolidate their loyalty programs? So that with the same card I can collect points for gasoline, and for pharmaceutical drugs, and for dry cleaning services, and for food, and then these points can be exchanged for something really worthwhile.
I am confident that a large percentage of customers will join the integrated loyalty program. But for now, the customer loyalty program is a real burden for sellers. But the pursuit of loyalty costs the administration money, like all those plastic cards, leaflets and software. Staff are forced to scatter their attention, wasting time that could be devoted to improving services, changing approaches to product presentation, or some useful innovations. Of course, loyalty programs of large retail chains can achieve their goals if they take into account the priorities of customers, their habits, the dependence of age and social groups on location and other factors.
Are you thinking about creating a loyalty program for your customers? We'll tell you what programs there are, how to choose the best one for your business, and whether it's worth doing it at all.
How it works
The principle of operation of loyalty programs: the more the buyer spends, the larger his bonuses. Large bonuses force you to buy even more, and product turnover increases. Essentially, these are sales incentive programs.
Loyalty programs can help:
- Retain the client: If he has accumulated a large discount, he would rather stay with you than go to a competitor.
- Increase sales: the bigger the discount or the closer the reward, the more willing you are to buy.
- Attract new clients: Sometimes customers give their cards to friends or family to increase the discount.
In addition, you accumulate information about customers, based on which you can segment customers, make them better offers and earn more profit.
What are the loyalty programs?
Discount system (discount card)
A discount card entitles you to a percentage discount. The discount can be fixed or cumulative. The size of the cumulative discount increases up to a certain limit; the buyer gains the maximum discount in stages. Having purchased for a certain amount, the client moves to the next stage. The larger the discount, the higher the transition threshold.
Pros:
- clients love this option because they get benefits immediately;
- easy to organize and control.
Minuses:
- the company may begin to incur losses when many customers reach the maximum possible discount;
- With a maximum discount, the client loses the incentive to buy more.
Example: TwinsWood online store uses a classic system - the discount depends on the order amount:
Bonus system
The client does not receive discounts, but collects conventional units: points, rubles, stickers. The more expensive the product, the more conventional units the buyer receives. Received bonuses can be exchanged for a product, service or discount.
Pros:
- the buyer receives a large discount on a specific product or a limited category of products, and not a small one on the entire catalog. Wanting to receive a gift or a discount on a certain product, the buyer orders more than usual - this way he will quickly collect the required number of bonuses;
- the system works forever, to get more, the client must start the accumulation process again each time.
Minuses:
- suitable only for frequent inexpensive purchases; collecting bonus points by purchasing once a season is neither interesting nor profitable for the buyer;
- the buyer does not receive benefits immediately, the motivation to buy decreases;
- the conditions must be made as clear as possible so as not to confuse the client;
- It is more difficult to organize accounting than with a discount card.
Example: bonus systems are often used by supermarkets, mobile operators, and retailers at Yves Rocher:
Multi-tiered program
Clients are divided into groups depending on the amount of their spending. The more spent, the more privileges the client receives. These could be free services, additional options, or significant discounts on them. For each group, bonuses are fixed and are provided constantly.
Pros:
- a multi-tier program simultaneously stimulates subsequent purchases and rewards the client with bonuses, they do not have to wait long;
- In addition to bonuses, the client receives a certain status, which in itself can encourage them to buy more.
Minus:
- Suitable only for expensive goods and services.
Example: Multi-tier loyalty programs are used by airlines, banks, and insurance companies. At S7 Airlines, clients receive bonuses and status for accumulated miles:
Paid program
A paid loyalty program gives the buyer bonuses as if for a subscription fee. This could be additional services, improved service, access to club information resources, or an early sale.
Pros:
- simple organization;
- The buyer pays for the services, but may not use them.
Minuses:
- may scare away some customers if you do not convince them of the value of paid status;
- Suitable for products that are purchased frequently.
Alina Vashurina is a PR director at Ecwid. Writes to inspire and educate readers about all things e-commerce. Loves to travel and runs marathons.
A recognized way to increase customer loyalty is through bonus and discount programs. If earlier they favorably distinguished several advanced players, today they will surprise few people. In this issue of the newsletter, we will look at what loyalty programs exist, how to choose “yours” and implement them.
What's the point?
You reward the buyer with special bonuses that directly depend on the amount spent and the quantity of goods purchased. A good bonus for a large purchase will push the buyer to a new order, because he does not have such a privilege elsewhere, but with you he is already profitable.
Who is it useful for?
- Obviously, those who sales problems. If customers already love you and come back for new purchases, improve your service.
- To those who service configured, order processing process is streamlined, good quality of goods and packaging, attractive price. If, despite all these factors, there are few returnees, implement a loyalty program.
- If you're in the mood for gradual increase in sales, not an explosive effect. The loyalty program will require patience from you, because its real results will be noticeable after a few months.
- To those who price within the recommended retail price. If it is higher, there will be little point in your loyalty program. We are not talking about a product that has no competitors.
What gives?
- More sales. If your loyalty program is truly profitable, the client will return to you again and again.
- New clients. Typically, news about good bonuses spreads quickly. Those who appreciate the benefits recommend the seller. Often, to use bonuses with a limited validity period, customers give cards to relatives and friends for purchase.
- Hold. The bonus program provokes new purchases because the client knows his benefits well. Even if competitors also have a loyalty program, everything needs to start over there.
- Information. By participating in the loyalty program, the client will provide you with information about himself, based on which you can create special offers for him.
Where to begin?
- Segment your customer base; identify customers who bring maximum profit.
- Develop a bonus that will really attract the client.
- Select a program according to the client's needs. Read more about the types and specifics.
Types of programs
One of the most important steps is determining the program you will implement. Let's look at the types of loyalty programs:
Discount system
As a rule, it is implemented through the introduction of cards. The discount can be fixed or cumulative. In the second case, the client can receive the maximum discount for several purchases. As a rule, each new discount level is given for an order amount greater than the previous one. This is one of the simplest options that is easy to launch. It is important to think through the mechanism so that the program does not become unprofitable.
Who uses? Stores of clothing, shoes, accessories, household goods, etc.
Bonus system
The client receives bonuses for each purchase, the amount of which depends on the amount spent. Accumulated bonuses can be exchanged for a discount, a specific product or service. Such a system encourages the client to buy more, since this will give him more bonuses and bring him closer to the “freebie”. The advantage of such a program is that the client finds himself in a constant cycle of accumulating and spending bonuses, which can be in the form of rubles, points, stickers, etc.
Who uses? Suitable for off-season inexpensive goods and services (for example, taxis). This system can often be found in supermarkets, clothing and shoe stores. For example, Vodafone awards bonuses depending on the amount spent. They can be exchanged for an SMS package, megabytes, free call minutes, or donated to charity.
Multi-level system
Clients are divided into groups depending on the amount spent. Bonus amounts are determined for each group separately. These could be established discounts on goods or services, free opportunities, gifts. This system is suitable for the expensive segment.
Who uses? Banks (gold, platinum cards), airlines (accumulated miles), etc.
Paid bonus program
The client must pay a certain amount for participation in the “club”. This may give him access to restricted materials, gifts, bonuses, improved service (priority in delivery, priority service), “secret” sales. This is a simple system, but participation in such a program needs to be encouraged.
Who uses? Goods of regular demand or expensive segment (banking services, jewelry, insurance).
Partnership
The client is encouraged to make a purchase by receiving a bonus - a discount or gift from a company that is potentially interesting to him.
Who uses? For example, when buying a wedding dress, there is a discount on makeup and hairstyle in a beauty salon. When ordering goods for children, you will receive a discount on a trip to an amusement park or theater.
The Detsky Mir Yo-Yo bonus loyalty program has a set maximum discount of 20%. There is a short video on the program page that explains why the card is needed and what it gives.
Loyalty programs are a system of rewarding regular customers. They help manufacturers cope with competition, attract and form a pool of regular customers. Recently, the effectiveness of such programs has been declining: the client does not see real benefits, perceives bonus programs as an attempt to sell unnecessary goods and ceases to trust brands. This doesn't mean they don't work. For each task, it is necessary to select a special loyalty program. In this article we will analyze 6 programs and help you choose the one that is suitable for your business.
1. Bonus for every purchase
The more often a customer buys, the greater the discount he earns. With the accumulated points you can buy a free product or get a discount. The program works in the areas of quick and short-term purchases. When making their first purchase, the client issues a card to which bonuses are awarded. The more you buy, the more bonuses you get on the card. They can be spent on the following purchases: receive a discount or pay for goods in full.
Pros:
- a flexible discount system that motivates you to buy more and maintain a high discount;
- accumulated bonus system;
- personal communication with clients. Creates trusting relationships;
- additional bonuses on purchases.
Minuses:
- the program may not work if there is no communication with clients;
- To participate in the program you need to make a purchase and receive a bonus card;
- Feedback from the client is required;
- To receive a discount, you must present a bonus card;
- complex implementation system.
2. Percentage of all purchases
A fixed and permanent discount on your next purchase is a simple and ineffective type of loyalty program. The client does not know how much money he has accumulated on his card, so he is not motivated to make a purchase. In addition, to get a good discount, you need to buy often and a lot. Usually such a frequency is not needed, as a result the program is forgotten.
A card with a fixed discount percentage is common in stores where purchases are made once every 3-6 months. For example, flower shops, clothing boutiques or car service. The discount does not provide additional motivation. Most often, they simply forget about it due to the widespread use of this loyalty program.
Such a discount program is ineffective, but will be useful for stores that rent their own premises in residential areas. A convenient location and an additional discount will counteract a trip to the shopping complex. A card with a fixed discount will not motivate purchases in the same place: similar discounts await the client in the opposite boutique with a similar assortment and prices. Therefore, with the same discounts, the client will choose the store that provided better service.
Pros:
- the system is inexpensive and easy to implement;
- the client always knows his discount.
Minuses:
- lack of recognition of the loyalty program. Everyone has similar programs;
- limited action. If bonus points can be given, awarded or taken away, then this will not work with a discount. It is unchanging and constant.
3. Free promotional items
Rewards for purchasing N quantities of goods are suitable for retail stores and service providers. The effect of the program is short-term. Competitors will also use this model, so bonuses are devalued. Especially if competitors have similar products on sale.
The program is easy to implement, but if you don’t think through pricing, the client will be scared off by inflated prices and will stop trusting the company. The product itself should be interesting and liquid, so that there is no doubt about the need to purchase. The program is suitable for retail and e-commerce, where purchases are instant, and the client makes a decision here and now.
Pros:
- the program is easy to implement and not expensive;
- transparent client reward system;
- It is not necessary to have a loyalty card to participate in the promotion;
- clear and immediate benefits for the client;
- motivation to buy more;
- additional bonuses that can be exchanged for another product.
Minuses:
- inflated prices for goods scare away customers;
- the client feels deceived. The impression of the company is spoiled and a negative perception is created;
- there is no direct interaction with the client;
- the strategy should be thought out at least six months before the launch of the program. The company agrees on the product and price with the supplier, who is ready to provide his product at a low price. Otherwise, the price of the product on sale will be inflated;
- high competition due to the prevalence of the program.
4. Multi-level bonus program
The client makes the first purchase and receives a bonus, learns about the loyalty program, and can become a member of it. The benefit is clear: rewards for everyday purchases. Bonuses can be accumulated and exchanged for discounts or free goods or services. Next, you need to retain the client by rewarding them with new bonuses and gifts.
The client makes his first purchase in the store and issues a loyalty card. Points are awarded to the card for every purchase. You can use the accumulated points to pay for purchases or exchange them for gifts. The program will work in the field of reusable purchases and essential goods. Loyalty programs for airlines, hotels, and beauty salons are built using a multi-level reward system.
Pros:
- flexible points accumulation system;
- accumulated points do not expire;
- motivation to shop in one place;
- additional discount for program participants;
- clear system for writing off points;
Minuses:
- complex and expensive implementation system;
5. Partnership of companies for exclusive offers
The loyalty program can also be developed through offers from partners. For the program to work, the product must meet the customer’s needs and the purchase process must be convenient. Such a loyalty program with multiple partners can be effective when the audience is growing in a new company or when the customer base is expanding. Interaction with customers and control over the quality of purchases is monitored using CRM systems.
Pros:
- participation is free. There is no initial purchase required to enroll in the program;
- wide geography of the program. Partners work throughout Russia;
- competent co-branding. Program partners represent food, entertainment, medical and other service sectors;
- multi-level reward system. The more the client spends, the more and more valuable bonuses he receives;
- individual offers. Each customer receives an offer based on previous purchases.
Minuses:
- the implementation of such a program is very expensive, since you need your own card and partnership at the technical level with many companies;
- complex implementation system;
- constant monitoring of the work of partners.
6. VIP service fee
In order for a client to buy goods in one store, the company must make shopping as comfortable as possible. If you analyze customer behavior, you can identify factors that prevent you from making a purchase.
For example, when purchasing through an online store, a customer may be confused by additional taxes or expensive delivery, limited product selection, or high prices. To eliminate this, the company can introduce a paid loyalty program. It consists in the fact that for a certain fee the client receives VIP service. Shopping is more enjoyable if the customer feels that he is being taken care of.
Pros:
- the client pays and receives good service;
- a paid subscription motivates you to make purchases more often and more;
- direct interaction with the client, the ability to select individual offers.
Minuses:
- complex implementation system;
- the program may not pay off, high risk.
Conclusion
- Bonuses for each purchase are suitable for stores with quick and short-term purchases. If the program is not clogged with unnecessary information, it can give good results;
- The discount card program for each client is easy to implement, but does not provide more profit;
- A promotion with free goods is suitable for retail stores: the client will buy more than needed;
- It is difficult to implement an affiliate program, but due to it you can significantly expand your customer base and increase brand awareness;
- A loyalty program with paid participation is suitable for online stores, banks and companies that provide VIP services or VIP services. A risky move, but you begin to appreciate what you pay for more.
Do not miss:
The sales volume of any company is determined by the number of consumers. For this reason, each company develops different ways to attract target audiences and customers. One of the most effective methods is a customer loyalty program. In order for it to bring maximum profit, it must be properly developed and implemented.
Why is it necessary to build customer loyalty?
Customer loyalty is a trusting and warm attitude towards the organization. In this definition, it is necessary to emphasize the importance of a positive customer experience. If, as a result of purchasing a product and interacting with the seller (specialist), the client received positive emotions, then there is a high probability that he will return again.
Research in this area has shown that if a consumer is satisfied with the quality of a product or service, then, most likely, he will react favorably to another offer from this company. And the introduction of special, “privileged” loyalty programs, which allow you to use the organization’s services on the most favorable terms, additionally motivates regular customers to cooperate with you.
How to MAXIMIZE your company’s competitive advantages over competitors” at the training
But stimulating clients with material benefits is far from the only method to promote your company well. It is important to understand that there are many competing businesses on the market offering a similar product or service, the cost of which may be lower than yours. But the client is focused not only on price. If the consumer is satisfied with the brand image, the main mission of the company, its social activities and attitude towards its responsibilities, a certain emotional loyalty of buyers is formed. They will even be willing to pay a little more in order to feel part of the company and support it.
Suffice it to remember the long lines in front of the store on the day the sales of the latest iPhone model started. Are these customers getting any benefit? No.
Why you need loyal customers:
- They spend more(average bill increases).
A loyal consumer readily enters into an additional support agreement and willingly goes for improvements.
- They ensure your positive reputation.
Quite often we come across complaints from clients about their partners who violate agreements. Such disloyal consumers are the main source of negative reviews of your work.
- They ensure the effective operation of word of mouth.
An analysis of customer loyalty shows that a satisfied consumer will recommend you to four of his friends, each of whom, being a buyer of your company, will recommend you to four friends. Thus, the target audience increases exponentially.
- They are more willing to try your new services.
Imagine a situation where you have developed a new product or service, and you need a target audience that will be interested in this product. In this situation, the easiest way to sell it is to a loyal client who trusts you unconditionally.
Thus, we can conclude that customer loyalty is the most important factor in the success of your business.
What are the different types of customer loyalty?
Rational
This type of loyalty is built on mutually beneficial terms of cooperation between the company and customers. In other words, they are making a deal of sorts. The more goods the buyer purchases, the higher the discount, etc. The vast majority of loyalty programs adhere to this principle, where the main condition is a high degree of customer satisfaction with the quality of the product and the company’s service. If the consumer is dissatisfied with the product or service, the bonus and discounts will no longer apply to him.
Nowadays, a special place is given to financial incentives for clients. In this bonus loyalty program, the emphasis is on individual favorable conditions that are formed depending on the buyer’s consumption model. Typically, these algorithms are based on the following fundamental principles:
- The loyalty program is designed to stimulate regular consumers. Most of the budget is aimed at their material incentives. The main goal of the loyalty program is to increase the number of regular customers and their level of product consumption with minimal investment.
- The loyalty program is designed in such a way that its participant should generate more income than a client who is not involved in it. If this does not happen, it means that the wrong strategy has been chosen, which does not give the desired effect. It is important that the comparison takes place among customers from similar consumer segments.
- Buyers should not get used to bonuses. A loyalty program should be designed to highlight its value and respond to changes in consumer behavior.
Rational loyalty has favorable conditions for both customers and the company itself. Incentives are not only in the material aspect in the form of discounts and various bonuses. This program also uses a system of exclusive offers, additional features, and special conditions that perfectly motivate purchasing activity.
Emotional
This type of loyalty is understood as the client’s partiality and attachment to a particular brand. Apple, Starbucks, IKEA are prime examples that demonstrate active consumer engagement and create armies of fans of their products around the world.
Of course, not every company is capable of creating such a stir around its product as Apple, but this is not required. Emotional customer loyalty involves the formation of sensations, feelings and subconscious reactions of the buyer. Now the market is oversaturated with offers. The client will prefer the company that will give him positive emotions and pleasantly surprise him. Therefore, in order to attract as many consumers as possible, an organization must know the answers to the following questions:
Emotional loyalty is formed due to:
- The reputation and image of the brand, the peculiarities of the worldview and value system of which are readily shared by customers. The consumer, by purchasing a product, thereby accepts the principles declared by the company. And it doesn’t matter how famous the organization is. The most important thing is the message conveyed to the target audience.
- The special significance of the product in the eyes of consumers. Each product has its own individuality and has a set of useful properties, which sets it apart from similar products at the consumer level. And the company’s goal is to emphasize these product features in the process of interaction with customers. It is necessary to competently plan and build communication with consumers, then you can clearly determine what specifically attracts them to this product.
- Positive recommendations and reviews from acquaintances and friends. Trust is the most important product sold through word of mouth. Thanks to recommendations from friends, potential customers begin to ignore negative signals towards the product, which, in turn, contributes to the formation of a positive assessment of the brand.
Level of customer loyalty and stages of loyalty formation
As a rule, customer loyalty is divided into 3 levels:
- Satisfaction from purchase.
At this stage, the consumer experiences positive emotions after purchasing a particular product, however, he still compares the products with similar offers from competitors and can give them preference at any time. At this stage, the client usually continues to monitor the market, he reacts to both positive and negative experiences. It is impossible to manipulate the mood of such a consumer and predict his preferences. This initial level of loyalty is not permanent. It is determined by the client’s age, social status, psychotype, market fluctuations and other factors.
In order to increase consumer loyalty, it is necessary to adhere to a clear algorithm of actions. In order to consolidate the client’s first positive experience of purchasing a product, it is recommended to build personal communication with him within the “seller-buyer” framework.
- Brand loyalty.
At this stage, as a rule, the client is offered various interesting promotions. They also carry out a comparative analysis with competing companies, the manufacturer helps the consumer in solving any individual problem. Thus, the organization actively works proactively when the product of a particular company is presented in a more advantageous light than a similar product of competitors. In other words, the consumer is deprived of choice and gives preference to what the manufacturer offers him. This is how customer loyalty is managed.
The consumer moves to the second level of loyalty – brand loyalty. At this stage, the client has already clearly made his choice, is loyal to a specific brand and does not think about changing it to a similar product from competitors. This stage does not imply an abundance of offers and various promotions. However, it is always necessary to monitor the dynamics of consumer loyalty development. Even a loyal customer can be swayed by clever strategies from competitors. This stage of loyalty involves an in-depth analysis of consumer sentiment. The firm's marketing professionals conduct strategic planning and carefully study the reasons for customer loyalty to the brand, and also enhance these characteristic features of the products.
It is worth remembering that at this stage the buyer's loyalty is passive. The company is just beginning to win consumer respect. Right now it is important to switch to personal relationships characterized by mutual benefit, which are aimed at creating the highest degree of customer loyalty - partnership.
- Partnership.
At this stage, the client is a like-minded person and ally who helps promote the product on the market and its development. This stage of the relationship between the company and the consumer is the most active, when the buyer begins to give recommendations regarding the organization’s strategy, and also helps to improve its structure, monitoring the actions of competitors, and is a kind of “partner” for the brand.
Formation of customer loyalty, which consists of 6 stages
Each buyer is at a certain stage of trust in your company:
- Random client– purchases goods from you only because your organization is geographically located closest to everyone else. You cannot manipulate the behavior of such a buyer. He may remember you, but it’s not a fact that he will come back again.
Example for b2c: a person is thirsty and buys water at the first store he comes across. For b2b: the entrepreneur ran out of business cards, he went to the Google search engine and called any printing company.
- Just a consumer– buys from you because he knows that in your company he can purchase the product or service he needs. In this case, you should provide the client with the most complete information about the available products and remind about yourself as often as possible.
Example for b2c:“I want to buy Coca-Cola. I’ll go to the store next door because it’s always in stock there.” For b2b: “We purchased hosting from this organization, we will buy a domain from them.”
- Regular customer(client who has motivation). He purchases a product from you only because it is profitable for him at the moment. This is the worst option for the company. As soon as such a consumer receives a more interesting and profitable offer, he will go to competitors.
Example for b2c:“I only buy groceries from this store because they have the lowest prices.” For b2b: “We conducted a thorough monitoring of the market and found that this offer is the most profitable.”
- Loyal consumer– purchases a product because he likes it. Such clients are very beneficial for any company. They are oblivious to the organization's mistakes, but they expect you to be loyal to them in return.
Example for b2c:“I just love purchasing this brand.” For b2b: “We are pleased with the cooperation with this organization.”
- Adherent– purchases a product because he believes that the product is worthy of it. Such customers are even more profitable than loyal ones. They don't need to be taken care of. All you need to do is maintain the image that is attractive to this type of consumer.
Example for b2c:“I buy products from this company because they emphasize my status.” For b2b: “Their buyers are companies with an impeccable reputation.”
- Fanatic– for such a consumer, the brand is a life goal. This type of client is necessary, because it is thanks to him that the image of the company is created, which so attracts Adherents.
An example for b2c is fans of sports clubs and players.
It is also important to be able to distinguish false loyalty, when a consumer simply works with a company out of habit. If he receives a more tempting offer, he will no longer cooperate with you.
What should be an effective customer loyalty system?
In order to competently organize and maintain long-term relationships with customers based on mutually beneficial cooperation, it is necessary to develop a customer loyalty system. The main principle of this system is to provide an individual approach to each client.
Now, when there is a fierce struggle between competitors in the market, the decisive moment in business development is its own consumer base and its periodic replenishment. And a customer loyalty system allows you to ensure an additional influx of customers.
It is a set of various marketing mechanisms aimed at attracting new consumers and retaining existing ones. In order for a casual customer to become a regular one, it is necessary to wisely use the loyalty system, which, in turn, provides additional advantages in the fight against competitors, and also helps to increase sales.
Developing a loyalty program involves choosing a way to reward consumers. As a rule, the desired effect is achieved through various drawings and gifts, a system of bonus cards, special offers and promotions, personal coupons and additional privileges for regular customers.
Nowadays, the most popular system is a system of comprehensive discount programs that unite several organizations. As a rule, it operates in a specific industry segment (for example, a single card for several unrelated shoe stores) or applies to companies that differ in their field of activity.
It is important to understand that the effectiveness of a customer loyalty program is determined by its compliance with consumer expectations, which, in turn, requires feedback from them. Buyers must feel important to the company.
For this purpose, marketing research is usually carried out. Analysis of the results of regular customer surveys allows you to make timely adjustments to the loyalty system, as well as optimize the activities of the enterprise as a whole.
The company's production should be based on the current needs of the population. It is by identifying customer needs and maximizing their satisfaction that the organization gains the trust of customers, and at the same time achieves the main goal of any company - increasing profits.
How to evaluate and find out the customer loyalty index
In order to measure the level of consumer loyalty, you need to understand how willing he is to recommend your company's products or services to his friends and relatives.
It is those clients who advise their friends to contact you who give you the highest score, thereby even exposing their reputation to some risk, and are loyal consumers. They act as a kind of brand advocate. How to evaluate customer loyalty indicators?
For this purpose, they use the net support index technique (abbreviated NPS), according to which all the company’s consumers are conditionally divided into three categories:
- Promoter clients. This is the most loyal type of customers who are willing to risk their reputation and recommend the company to friends and family.
- Passive consumers. This group is usually satisfied with the organization's products and services, but, as a rule, is not inclined to make recommendations to their loved ones.
- Detractor buyers. These customers, for whatever reason, experienced negative emotions when interacting with the company and share negative reviews about its work.
The NPS pure support index methodology is assessed on a 10-point scale, where 0 means that the consumer will never recommend the organization to his friends and family, and 10 means the client is highly satisfied with the company’s products and will readily give positive feedback:
- if clients rate the possibility of positive recommendations from 9 to 10 points, then they belong to the category of promoters;
- from 7 to 8 points – passive consumers;
- from 0 to 6 – detractors.
Typically, customer loyalty is calculated using the following formula: the number of promoters - the number of detractors.
Accordingly, the more loyal customers a company has, the more positive reviews the market receives about it, the more often potential buyers turn to this organization on the recommendations of their relatives and friends.
According to statistics, in order for a future consumer to make a choice in favor of a particular company, he needs to receive 5-6 positive recommendations. One promoter gives 3 to 4 good reviews. In turn, the detractor can make from 4 to 6 anti-recommendations. It is worth remembering that one negative review can be stronger than five positive ones. Thus:
- 6 positive recommendations = +1 new consumer;
- 1 negative review = - 5 positive statements;
- 1 negative recommendation = - 0.83 new customers;
- 1 detractor = from 4 to 6 negative ratings;
- 1 detractor = - 4.15 new consumers.
Thus, to attract one new client, an organization must have at least two consumer promoters. Moreover, just one detractor can deprive a company of 4-5 potential buyers.
Consequently, the more promoters in the ranks of the organization, the higher the chances of attracting the interest of new consumers, which, in turn, indicates an increase in profits.
But the benefit of client promoters is not only that they readily recommend the company to their friends. They represent the main profitable group of the firm's client base.
How is it possible to increase customer loyalty?
You can increase the level of consumer loyalty by:
- material incentives for buyers (discount and bonus programs, special offers and promotions);
- customer feedback - a kind of “hot lines”, meetings, sending various notifications with useful information by email or sms;
- non-material motivation - exclusive offers for regular customers in the form of VIP service, gifts, free samples.
The principle of stimulating consumer loyalty is quite simple: your company issues cumulative discount cards, and the buyer, in turn, purchases products from your company in order to achieve a high level of discount.
Moreover, the card owner can lend it to his relative or friend, thereby helping to attract additional customers. Thus, the number of sales increases many times over, and the percentage of the discount provided quickly pays off.
Various companies prefer to develop special customer loyalty programs. They offer their consumers services on especially favorable terms.
Perfume stores and cosmetics boutiques reward regular customers with free samples and gifts for holidays and birthdays.
An example of increasing the loyalty of bank customers is an increase in interest rates on deposits available to a limited number of service users. Supermarkets usually use a club card system.
Timely informing customers about promotions and various seasonal sales, as well as conducting surveys on the level of satisfaction with the organization’s products and services actively contributes to the formation of consumer loyalty.
The client understands that his personal opinion is of great importance for the manufacturer; he is an integral part of the company, taking part in its activities. Thus, we can conclude that consumer loyalty requires the creation of mutually beneficial conditions, as well as focusing the attention of a particular buyer on his importance for the company.
How to create a loyalty program for regular customers
Stage 1. Setting goals for the loyalty program.
The following series of tasks of this system can be distinguished:
- Attract new clients.
- Retain loyal customers.
- Counteract the efforts of competing companies to lure away the target audience.
You should settle on one goal. Achieving two or more at once is quite problematic and, as a rule, even futile. The best goal is to increase the value of an organization or product in the eyes of consumers. In other words, a well-designed customer loyalty program after a certain amount of time confirms the importance of an established relationship with the company.
Stage 2. Determining the key factor of the loyalty program.
This moment is determined by the characteristics of the business and the market situation. The key factor should be one and only one, and it will serve as the basis for the formation of a customer loyalty program. In order to make the right choice, you need to clearly understand the value system of your regular consumers.
Thus, at this stage, you determine how you will create customer loyalty (the reason why your customers will purchase products or services again and again). What could it be:
- Special treatment for loyal customers?
- Unique services that are available exclusively to regular customers?
- Special prices reserved only for loyal customers?
Often, organizations make their life easier: they simply take a ready-made key factor from the loyalty program of competing companies as a basis. However, keep in mind that you cannot copy their target audience and market position.
Stage 3. Assessment of the level of economic feasibility.
Each loyalty program necessarily implies material and other dividends. There are many examples when this or that company incorrectly calculated economic parameters, and as a result went bankrupt due to fatal discounts and bonuses. Also, many organizations suffer significant losses when they refuse to fulfill their obligations.
It is possible to identify some methods that allow one to calculate economic feasibility, but, alas, they all differ in their probabilistic nature. Much is determined by the experience and intuition of manufacturers and organizers of the loyalty system.
Stage 4. Choosing the main tool for a customer loyalty program.
Can be used:
- Fixed discount– a personalized card or certificate to highlight a certain category of consumers (silver, gold and platinum).
- Progressive discount scale.
As a rule, the size of the discount directly depends on the amount of goods purchased. Such a card motivates the client to buy a more expensive product in order to get a good discount.
It is also necessary to take into account the specifics of a particular product. A consumer may purchase a larger quantity of a product than originally planned if:
- A system of bonuses and cumulative discounts.
As a rule, this version of the loyalty program is personalized.
The main idea of this system is to encourage not each individual transaction, but the purchasing history as a whole. That is, when purchasing a particular product, the consumer receives certain bonuses. Subsequently, they are recorded on a map or entered into a computer database. At some point, the bonus reaches a set value, and then the client is provided with a gift, discount or any other incentive.
- Creation of special conditions of service.
This type of loyalty program is suitable for especially important clients (VIPs). This system is relevant when the consumer, in addition to the cost of the product, is interested in the cost of delivery, the possibility of obtaining a loan, and how long the service process will take. Such a program is available only to trusted clients, whose loyalty is no longer in doubt. It can also be used to attract consumers of competing companies.
- A system of prizes, awards, lotteries, gifts and other material incentives.
This version of the loyalty program is based on holding certain events. As a rule, they are associated with the organization of a prize draw. Typically, these programs are aimed at motivating customers to purchase a certain number of products and send labels to the organization.
- Providing access to resources that are closed to other consumers.
Every company has particularly important servers that are used as bait for buyers. The slogan of this program: “Become our regular customer, and you can get an exclusive pass to a world closed to outsiders.” There is a certain group of VIP consumers who want to distance themselves from society. Such people are willing to pay extra for their club to be closed to others.
- Taking part in income.
This option is used extremely rarely. When you need to bind a consumer to you, you can pay him a portion of the income. The registration methods may vary, but the main idea is to complete as many transactions as possible. Then the profit and, accordingly, the buyer’s remuneration will be higher. Typically, this ensures loyalty from suppliers. If the entire organization, and not a specific person, is involved in the profit, then the risks of loss of loyalty after his departure are reduced. Such a relationship between the client and the company is secured by a formal contract, and the recipient of the income is assigned a number of obligations.
- Clubs and associations.
Stage 5. Analysis of the results of the loyalty program.
In order to correctly assess the effectiveness of this system, it is necessary to conduct a consumer survey. There are various ways to provide feedback: place a box for collecting questionnaires at the entrance or organize the work of “mystery shoppers” and personal meetings with consumers.
What customer loyalty programs do they have: examples of well-known companies
Savings loyalty program
It is the most common model, characterized by simple mechanics: regular customers try to accumulate as many points as possible, which are then exchanged for various material benefits (discounts, free products, special offers, etc.).
However, it often happens that companies themselves complicate the operation of this method, which ultimately leads to confusion.
Therefore, it is necessary to remember that the accumulation system should be simple and understandable to use. This model is suitable for any b2c business, but it is best to use it where the frequency of purchases is quite high.
Example. Consider the Boloco Card loyalty program. The American restaurant chain Boloco is loved by its customers not only for its signature burritos, but also for its special operating system. Their loyalty program rewards consumers with one free product for every fifty dollars spent. Typically, the prize is a cocktail or a large burrito. Thus, points are converted into dollars, and material assets, in turn, into goods.
Multi-tier loyalty program
The main task of the company in the process of developing a customer loyalty program is to find a harmonious balance between the cost of the gift and its achievability. For this purpose, a multi-tiered model of maintaining interest and encouraging buyers is being introduced. By providing small rewards as your customer builds loyalty and progresses to more meaningful rewards, you can both retain their attention and create motivation to participate in the program.
The main advantage of this model, in contrast to the funded one, is that a number of short-term and long-term benefits are available to the consumer. While the other system is of less interest, since the gap between purchasing the product and achieving the goal is usually too long, and the buyer may simply forget that he is a participant in this program.
The tiered loyalty model is widespread among airlines and insurance organizations.
Example. Let's look at the features of the Flying Club loyalty system. Virgin Atlantics invites its passengers to take part in a widespread multi-tier program that involves accumulating miles. Customers are divided into the following segments: “Red”, “Silver” and “Gold”. Members of the first category, in exchange for accumulated miles, rent a car, pay for parking and hotel accommodation. Members of the Silver club receive 50% more points on their account when flying, and as a bonus they also have priority when registering electronically. “Golden” get double the number of miles and have access to VIP rooms.
Affiliate loyalty program
In order for this system to function effectively, it is necessary to identify the needs of your customers, as well as understand where they carry out their customer activity. Don't limit yourself to just what your company offers. Determine who your strategic partners are, serving the same target audience.
With the help of strategic partnerships in the field of loyalty programs, you can significantly grow your business and increase your customer base. This will let your customers know that you care about meeting their needs.
Example. American Express makes extensive use of the opportunities provided by affiliate marketing. They maintain cooperation with such famous brands as Macy's, AT&T, Rite Aid and others.
Members of the program participate in the accumulation of points in a network of partner organizations, paying with them for purchased goods. For example, by renting a car from Enterprise, customers earn a certain number of points, which they then use to pay for telecommunications services at AT&T.
Natural loyalty programs
Loyalty systems are very widespread today, so coming across an original idea is quite a difficult task. The most creative move in this case is to completely abandon the use of the motivational model.
This option is especially relevant for organizations that produce unique products or services. The cost of the product or its quality in this case are not particularly important; we are talking about reorienting the industry as a whole. Then using a loyalty program is not at all necessary - you can already reward your consumers with quality service and good products.
Example. Apple never rewards even its most loyal customers with discounts and prizes. The organization primarily focuses its efforts on product quality and service that highly meets the requirements of their customers.
Loyalty programs with non-material rewards
A competent long-term motivational model is based on understanding the true needs of customers.
Any organization can use a system of discounts and prizes to attract customers. But it is those companies that can offer their consumers value that cannot be measured in monetary terms that build truly trusting relationships with them.
Example. Let's look at the features of Patagonia's loyalty program. Marketers at this well-known sportswear manufacturer realized that their consumers were not interested in accumulating points and receiving discounts on products. And then they organized the repair of goods purchased in their stores. This program reveals the emotional connection between athletes and a specific item of clothing from a given brand.
Loyalty programs with gamification elements
The game element introduced into the loyalty program can stir up interest in it from the target audience.
A simple example of using this system is holding various competitions. But it is important that they are not trivial to keep consumers motivated. Effectively designed programs can add an element of show to the otherwise leisurely shopping experience.
The benefit must be valuable and at the same time achievable, and the conditions of the game and a number of restrictions must be worked out to the smallest detail, otherwise the drawing will be of interest not only to your regular consumers, but also to ordinary prize hunters. Pay special attention to informing company employees.
Example. Let's look at the features of the customer loyalty program of the food delivery company GrubHub. This organization has been successfully holding competitions for six years. After the order is placed, the company’s client is invited to take part in the game. If the winner wins, the consumer receives a free dessert or drink.
Paid loyalty program
The goal of any loyalty system is to strengthen the relationship between the company and its consumers. Sometimes, instead of a minor bonus or prize, it is better to provide the buyer with more value, but at some additional cost on his part.
If this system helps overcome obstacles to purchasing a product, it will be beneficial to both parties - the company and the client. Paid participation in the program stimulates an increase in the number of sales and diverts the buyer's attention from competing companies. Thus, using this scheme, you can make an exclusive offer to the client on a reimbursable basis.
This model is relevant for businesses characterized by a large number of repeat purchases.
Example. Let's look at the features of Amazon's loyalty program, called Prime. For example, regular customers have the opportunity to purchase a yearly subscription for $99, which provides the benefit of free express delivery. At the same time, the average cost of purchases for Prime members is usually twice that of regular customers.
In what cases can a customer loyalty program harm your business?
Characteristic features of the relationship between the company and the client, in which the loyalty program is not justified and will do more harm than good:
- Owner's wish.
The head of the company simply wants to introduce a popular loyalty program into his business. In this case, there is only an emotional component, not supported by objective reasons for using this system. Thus, the loyalty program does not have its purpose, therefore, it will not be effective. In addition, there is a possible risk of dismissal of the employee whose task was to develop and implement this system. It's important to understand that more than 50 percent of loyalty programs fail simply because they weren't relevant.
- Tool replacement.
The next serious reason for the failure of a loyalty program is tasks that are inadequate for the system. For example, the company's management noted a decrease in the flow of consumers. In order to stop customer churn, they develop and implement a loyalty program. But this doesn't help the situation. It should be understood that in this case it is not the lack of such a system that is to blame. You need to look for the reason for losing clients and work directly with it. For example, if there are problems with hygiene in hotel rooms, you should not spend money on discounts - you need to establish a cleaning system.
- Monetization of client motives.
The third common mistake is the assumption that the client is always driven solely by mercantile interests. The consumer loves to receive discounts and prizes, but, nevertheless, this does not give him a feeling of trust in the company. As a rule, providing a discount leads to a drop in business profitability. If bonuses and discounts are accompanied by price competition, then the company will soon begin to make losses. A discount is a kind of gratitude to the client for his loyalty. And the main task of creating a loyalty program is to create such conditions for the buyer so that, having used the organization’s services for the first time, he wants to come back again.