Customer Loyalty Programs
Simple Steps to Success
The customer loyalty program boom seems unstoppable. Every month, Marketing departments from retailers in every industry launch their own customer loyalty program. This is no surprise—after all, this is not only an excellent way to collect data, but also to make shopping more emotional for the customer through personalized communication.
Recognizing Customer Value
First of all, a company should ask itself how profitable new investments really are. What costs does reaching a goal entail? Companies can answer this best when they know their customers’ value. Defining this figure is often tricky to do, especially when it comes to existing customers—which is why many companies focus on new customer acquisition. For example, when a new customer buys a car, the result is relatively easy to measure. Whether the same customer buys another vehicle from the same manufacturer ten years later, however, is often difficult to tell—even with properly managed CRM!
“It is five times more expensive to acquire a new customer than to keep an existing one.”
– VNR Verlag für die Deutsche Wirtschaft AG
Because new customer acquisition requires much higher investments compared to retaining existing ones, customer loyalty programs are becoming increasingly popular. When a company is aware of its customers’ value, then it should set strategic goals to drive active customer loyalty and also provide the special service associated with it. With the clarification that these goals bring, it is relatively simple to develop a customer loyalty concept for use on the customer journey.
Developing and Implementing Customer Loyalty Concepts
Defining company-specific goals is fundamental for the successful development of a customer loyalty concept. As the name suggests, the goal of customer loyalty programs is to bind customers to the company. An increase in customer loyalty, though, may bring with it further strategic goals that differ depending on the company. Examples could be:
- Increasing sales values through higher purchase frequencies and shopping cart values
- Acquiring new customers through the recommendations of existing satisfied customers
- Keeping existing customers
- Raising product, brand, or company awareness
If these goals can be defined, then it’s time to develop a suitable customer loyalty concept to drive them. Your concept should be based on both your objectives and the target group. To get off to the right start, step one of your strategy should be to define what exactly you want your customers to be loyal to. Is it a product, sales channel, brand, or the entire company? When Management has determined the goal, it is then relatively easy to develop a suitable program. A company can choose between a wide range of programs and measures, each focusing on a different mix of objectives, target groups, and purpose. Generally, it is based on one of these open questions:
- What does CRM data reveal about our customers and how can we use it for targeted approaches?
- How will we obtain further customer data and then successfully use it in our systems?
- How does a customer loyalty program fit into our corporate strategy and philosophy?
- What measures has the competition taken and what measures are appropriate for our target group?
- What services and support should be offered and over what period of time?
- What price are we willing to pay and what are our goals?
The Different Types of Customer Loyalty Programs
There are only really three different types of customer loyalty programs, each combining their own mix of loyalty (bonus programs), emotion (personal approach), and rationality (price/service offers).
The most common customer loyalty program is through the use of bonuses, designed for both on- and offline use. A simple example of an offline program is the collectible cards, distributed at the baker’s or café. After a qualifying purchase, you receive a stamp or sticker on the discount card. Once a pre-defined number of purchases have been made, the customer receives a bonus—perhaps a free coffee in the case of the café or a check over of your glasses at the opticians. One kind of bonus programs are the single-partner programs issued by one or a group of companies. Multi-partner programs, on the other hand, can have an issue but offer loyalty bonuses to selected partners beyond that.
Examples: Lufthansa Miles & More program, McCafé® collective pass, bonus cards from the bakery or hairdresser
- easy and inexpensive to implement
- are also suitable for smaller companies
- with offline bonus programs, companies usually cannot collect meaningful customer data
- making personalized offers only partially possible
If Marketing values a more personalized customer approach, it could run its bonus program via a customer card, usually in a credit card format. This system offers a choice of storage media thanks to a barcode, magnetic stripe, or chip—through these, the company can clearly identify the customer making the purchase. This has the advantage of being able to address the customer individually through the customer card and at the same time receive market-relevant data. One possibility here is the principle that Payback uses. Here, an external company acts as the publisher of a partner bonus program. Regardless of the way the customer card is used, today you can see more and more companies using a web-based form of the customer card instead of a physical customer card, or at least a bonus program app for customer loyalty.
Examples: “Deutschlandcard”, “Mein Globus” customer card, “Mein Denn’s” customer card, “Payback” card
- enables individual
- personalized approaches
- makes personalized offers possible, collects valuable data on purchasing behavior
- mostly elaborate programs that require elaborate design
- large databases necessary for the utilization and analysis of data
- data protection and data security must be guaranteed, high costs
Customer clubs are a special form of customer loyalty programs. Through a customer club card, club magazines, and club events, customers in open and closed clubs are provided with an offer that goes beyond the company’s services. The members of the club must be offered a special benefit and clear advantages over non-members. The feeling of exclusivity and individual approach usually leads to an increase in customer loyalty. In addition, granting the customer access to an exclusive club frequently leads to a change barrier. They will likely not defect to the competition so rapidly because of the higher effort and possible costs involved in doing so. Nevertheless, a customer club must be consistent and worthwhile for the customer. If they feel that their expectations are not being met, this can easily cause long-term damage to the company’s reputation.
Examples: IKEA Family Card, Douglas Beauty Card, Media Markt Club, Pampers Club
- higher customer identification with the brand
- the possibility of personalized approach and offers
- high exclusivity
- high investment required for setup and operation
- sometimes high entry barriers (e.g. membership fee)
- only for larger companies with an existing CRM database and IT resources
Coupons and Discount Stamps
The consumer goods segment often uses coupons and discounts. Usually, they turn up on packaging or in consumer magazines. Whereas classic coupons and discount stamps only serve to reward loyal customers, you will now also find many promotions where the customer has to register on a specially designed website to redeem a discount or a gift for the points they collected. This type of measure is mainly used to expand awareness and develop new, regular customers. The focus of such time-limited actions is to collect customer data and establish a broader customer loyalty program, test new programs, and uncover the willingness of existing customers to participate.
Examples: 5 € discounts on your next purchase, 10% discount on your next purchase in the online shop, free drink on your next visit, 2 for 1
- suitable for companies of all sizes
- quick, inexpensive, and easy to implement
- good for intermediaries/producers who cannot implement any other customer loyalty program (e.g. food producers)
- with “simple” coupons it is not possible to collect customer data
- no data on purchasing behavior
- mobile couponing is more complex and expensive
Platforms, Individual Campaigns and Magazines
In addition to the aforementioned types of customer loyalty, there are a variety of tools and measures across all marketing channels that the Marketing department can use to drive customer loyalty. Examples include internet platforms used as online magazines, one-time collection and cashback campaigns, or offline magazines that are sent to existing customers. Personalized dialogue and advertising letters, newsletters, and all kinds of events can also be used. These measures serve not only customer loyalty but also, of course, new customer acquisition.
Example: Dallmayr Beans & Bonus, Real’s digital loyalty brands, Penny’s loyalty points collection booklet.
Choosing the Right Measure for Customer Loyalty
In order to find a suitable customer loyalty program, companies should ask themselves a few questions that can help their decision-making:
- What goals should the selected program meet?
- Who is the target group and what needs and expectations does this target group have?
- What financial and human resources are available?
- Do we have a suitable database and other IT resources?
- Does cooperation with other companies bring us additional advantages?
Customer Involvement as a Brand Ambassador
Using the customer for customer loyalty is a move that should not be overlooked. As a rule, one trusts the experiences and recommendations of an acquaintance or relative more than the advertising promises of a company. Therefore, each company should take advantage of a buyer’s multiplier role and the potential of referral marketing. This is possible, for example, by awarding collection points or discounts for writing a review.
Controlling Customer Loyalty Programs
Only carefully planned and executed controlling ensures long-term success of customer loyalty programs. Just as important as precisely formulating targets is to imperative check the degree of achievement and to regularly optimize programs to ensure they can be reached. Measuring the success of customer loyalty is extremely complex and difficult to implement in practice. After all, success is only achieved in the medium to long term, so it is time-delayed in relation to the investment, which must be made immediately. In addition, customer loyalty can usually rarely be attributed to a customer loyalty concept but is due to many different factors. As a result, many customer loyalty programs, especially cost-intensive customer clubs, often fail due to a lack of controlling.
Linking NPS® and customer loyalty measures
Good controlling is therefore indispensable for the success of customer loyalty programs. The collection of customer feedback is often used for this purpose. At zenloop, for example, the Net Promoter Score® is used to evaluate customer satisfaction. If you look not only at the NPS® itself but also at the holistic system, its usefulness for the analysis of customer loyalty programs becomes quickly apparent. Choosing the right points along the customer journey to get feedback allows you to use the insights gained to help choose a company’s customer loyalty program, measure its success, develop the customer loyalty concept and optimize demand.
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Customer Loyalty Programs: Important Marketing Tool or Useless Cost Trap?
Measures for customer loyalty can be found in all kinds of variants. But with all the loyalty cards, bonus programs, VIP customer clubs and discount brands, the customer will surely ask about their benefits from joining in with these programs. A study by Roland Berger Strategy Consultants shows that customer loyalty programs are not only a popular marketing tool, but are also the most important factor in the marketing mix. Customer loyalty programs are therefore seen as the most important marketing tool, and it can come as no surprise that 64% of entrepreneurs plan to increase their customer loyalty activities. Not to forget: in order to ultimately ensure long-term success, a company’s loyalty plan needs detailed analysis, conception, and continuous controlling.