Staying Loyal to Your Loyalty ProgramFrom airlines to coffee shops, paper cards to smart cards, programs are popping up everywhere rewarding customers for their loyalty.
But as more retailers climb on board, some are concerned that these programs will lose their effectiveness at doing what they were designed to do - gain customer loyalty.
Most would agree that customer loyalty is harder than ever to earn. And for some, loyalty programs may be nothing more than a passing trend. But for companies that implement the right strategies to create value for both customers and employees, loyalty programs are alive and well.
Gaining and maintaining long-term customer loyalty is a complex process and not one that necessarily works simply because you offer a loyalty card. It is building a strategic process that requires listening to what your customers want, weighing how these needs change over time and successfully meeting and exceeding these needs.
From the retailer's perspective, the benefits of customer loyalty are obvious. First, there's the old rule that 80 percent of your business comes from 20 percent of your customers. Then there's the high cost of acquiring customers, estimated at six times the cost of retaining them.
Hallmark Cards' Gold Crown Card program is a simple example of a successful loyalty program. For every purchase made, customers earn points toward future discounts. They also receive communications offering special promotions. During a two-month period, Hallmark reported that 92 percent of cardholders responded by purchasing from a Hallmark Gold Crown store.
The majority of retailers who invest in loyalty programs do so to bring customers back to the store. For those who feel there are too many loyalty programs available to be effective, they are missing the big picture.
The process of adopting a loyalty program is one from which almost every retailer can benefit. If implemented correctly, loyalty programs can determine which customers are responsible for the majority of your sales and which ones have the potential to generate big revenue.
Beyond providing a competitive advantage, retailers need to understand how to use data generated from loyalty programs as a tool to understand customers and to measure the success of their promotions. The right program can help move customers from infrequent, low-spending shoppers to more frequent, high-spending shoppers.
Retailers need to look beyond price breaks or "Buy 10, Get one free" deals. They need to consider qualities that will differentiate their program from their competitors, be it streamline ordering and fulfillment, 24-hour customer service or special VIP treatment.
It is important that retailers realize the importance of rewarding customers with service, recognition or points rather than continuing to offer sale prices as an incentive to shop their stores. It is this price strategy that has hurt many retailers.
Staying loyal to a loyalty program may get harder for retailers and consumers alike, but it's important to consider the long-term benefits these programs can offer.
The fact that so many programs are being offered doesn't mean that loyalty programs are no longer effective. It just means your loyalty program will have to be that much better."
Marcie Sayiner is a research consultant and Michael Szego is a consultant at J.C. Williams Group, with offices in Toronto and Chicago.