Building and maintaining a loyal customer base is a fundamental objective of every brand. Even today, Pareto's Principle, or a variation of it, remains true – 20 percent of your customers are responsible for generating 80 percent of your business. More significantly, as noted by CRMTrends, the bottom 30 percent of your customers can eat up to 50 percent of the profits generated by others.
But which customers represent that top 20 percent that you want to nurture and who is in that 30 percent that you would be better off jettisoning, or at least leaving to their own devices?
Loyalty marketing programs (sometimes called "rewards programs") have long been considered the most effective way to identify customers as individuals, determine their value to your business, motivate them to increase the share of business they give to you, and recognize and reward best customers for their continued business.
Traditionally, a loyalty program requires customers to register to participate and most utilize some form of "currency" – such as points of miles. Members then accrue this program currency based on the frequency or value of their purchases and can then redeem the program currency for a variety of rewards.
In the travel industry, the currency most often takes the form of points or miles redeemed for free trips, upgrades, free rooms, or products or services offered by partner companies. Some of the best known include:
American Airlines AAdvantage; United Mileage Plus, Delta SkyMiles.
In retail, a few well-known and particularly successful loyalty programs are:
Starbucks, which allows customers to redeem "stars" for drinks and food.
Bloomingdale's Loyallist program, which offers gift cards in exchange for points.
Walgreens, which rewards customers not just for dollars spent in the store, but for immunizations, weight loss and exercise.
Ultimately, though, loyalty cannot be bought simply by offering rewards. Successful loyalty programs understand this and ensure that recognizing their most valuable customers by providing specialized or preferential access to products and services lies at the heart of their program.
Loyalty marketing programs have many advantages: They can attract new customers, enhance customer experience with the brand, and provide valuable data about customer habits and preferences. But all loyalty programs need to be carefully planned, executed and maintained. It's important not to launch one just because your competitors have one.
Once you've decided to launch a program, employee buy-in is important to cultivate, as is having a steering committee of senior-level staff who can see the "big picture" of how the program affects the company and the brand. Moreover, having a financial model that appropriately projects the actual cost of the program to the enterprise is key to success. It's also crucial to take stock of exactly how a loyalty program will affect customer experience with the brand, at all touch-points.
Many companies make the mistake of launching a loyalty program and then neglecting it – that is, failing to constantly revisit measures of success and adjust the program accordingly. But if you are careful and follow the suggested steps for implementation, and allow the program to evolve as the market changes, a well-designed and executed loyalty program can work wonders for your brand.