Customer Retention Programs: A few Simple Steps to Success

May 7th at 9:18am by Susan Levermann

The boom in customer retention programs seems unstoppable. Every month, marketing departments the world over and from every industry launch their own customer loyalty program. No wonder – after all, they are not only an excellent way to collect data but, through personalized approaches, also make shopping more of an emotional experience for the customer. In order for a company’s loyalty program to succeed, they require both critical analyses of different concepts and ongoing scrutiny. Especially popular are customer cards, which are now increasingly being demanded by management.

Recognize the Value of the Customer

For every potential investment, a company should first ask itself how profitable it is likely to be. What’s the price to pay to achieve a defined goal? To do this, every company needs to be aware of the value of its customers. However, for management, it appears to be expensive to maintain a relationship with customers who have already used the company's services. In addition, success is difficult to measure and nearly always delayed. This is why many companies focus on new customer acquisition. When a new customer buys a car, this success 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, despite properly managed CRM.

"Acquiring a new customer is five to 25 times more expensive than retaining an existing one."

– Harvard Business Review

As new customer acquisition requires much higher investments than retaining existing ones, customer loyalty programs are increasingly popular. If a company is aware of the value of its customers - and therefore the special service required to drive active customer loyalty - then it is necessary to set strategic group targets and goals. From these, the customer loyalty concept can develop along the customer journey.

Holistic Customer Relationship Management through Target Group Segmentation

In order for marketing to design efficient customer loyalty goals, and, based on them, suitably targeted customer loyalty concepts and programs, a deep understanding of the customer is required:

  • What are their needs and requirements?
  • How and where can they be reached?
  • How can their loyalty be increased?

This data can be collected using the same programs that are also used to bind customers. After evaluation, a company can then use this information to divide its customers into target groups. For example, if all customers are to be integrated into the new customer loyalty program, a holistic customer loyalty program such as Payback may be suitable. The discrete selection of special customers, as practiced in many exclusive clubs, is also worth a second thought. Classification is also possible according to purchasing behavior. In this way, reward and special support can be earned by registering, purchasing, or paying a contribution. The medium can be one of many. Should customer cards or rather collectible cards be issued? Will there be an app or its own website? These and many other factors should be discussed with the marketing department, and relate to the target you hope to reach.

Strategic Objectives of Customer Loyalty Programmes

Generally, it can be said that defining goals is crucial for success because it is the only way to measure and optimize marketing. Economic and psychographic goals are pursued by binding customers to the company or brand.

  • Economic objectives:
    One of the leading economic goals is company growth through the increase in sales. This can be achieved by increasing the purchase frequency as well as by the increased willingness of individual regular customers to refer your service or product to others. The aim here is to acquire new customers through recommendations from existing ones. Customer loyalty also positively influences the efficiency of sales. This results in reduced customer support, management and control costs, increases sales and therefore profit per customer through cross and up-selling, as well as increased purchasing behavior. Another important objective is to increase the economic security of the company. These include contractual agreements that bind customers, as well as increasing customer loyalty through positive influence.

  • Psychographic goals:
    Increasing the awareness of a product, brand, or entire company is one of the psychographic goals of customer loyalty. In addition, increased customer loyalty improves customer trust and therefore the image of the company. If a company is aware of customer loyalty as a success factor in the marketing mix, it should invest a share of the marketing budget inappropriate measures and define the goals with regard to the overall strategic business objectives.

Develop and Implement Customer Loyalty Concepts

If the goals that customer loyalty should achieve are defined, then it is necessary to develop a suitable customer loyalty concept. This should be based on the objectives and the target group. For the right strategy, it is important to define first what the customer loyalty reference object should represent. Is the focus on a product, sales channel, brand, or the entire company? If management has chosen a strategy, it is easy to develop a suitable program. Depending on the objectives, target groups, and purpose, a company can choose between a wide range of programs and measures. As a rule, it can be based on the following questions:

  • What customer data are available to us in CRM and how can we use it for targeted approaches?
  • How will we obtain further customer data and how will we successfully use it in our system?
  • How does a customer loyalty program fit into our corporate strategy and philosophy?
  • What measures has the competition has 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?

Types of Customer Loyalty Programs

In most cases, three different types of customer loyalty programs are used, which rely on different mixes of loyalty (bonus programs), emotion (the personal approach), and rationality (price/service offers).

Bonus Programs

Most customer loyalty is maintained through bonus programs. The choice of suitable instruments and measures for such tasks appears to be almost endless. This allows bonus programs to be designed on and offline. A simple example of an offline program is collectible cards that are distributed at the baker's or café of trust. As a rule, you will receive a stamp or sticker on the discount card every time you make a purchase. Once a pre-defined number of purchases have been made, the customer receives a bonus - usually a free coffee in the case of the baker or a check over of your glasses at the opticians. The disadvantage of analog collectible cards is that the company cannot collect any data about the customer and their purchasing behavior.

If marketing values a differentiated customer approach, it should run its bonus program via a customer card, which is usually designed in a credit card format. This system offers different storage media thanks to a barcode, magnetic stripe or chip, through which the company can clearly identify the customer making the purchase. Such cards have the double advantages of being able to address the customer individually and at the same time provide market-relevant data.

One possible design of bonus programs is a single-partner program issued by a single company or group of companies. Multi-partner programs, on the other hand, can have an issuer but offer loyalty bonuses to selected partners beyond that. This approach is that of, for example, Lufthansa's Miles&More program.

Another possibility is the principle that is used by Payback. 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.

Couponing and Discount Brands

Discount brands and coupons are often used, especially in the consumer goods segment. They can usually be found on the packaging or in commercial 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 retention program, to test new programs and the willingness of existing customers to participate in them.

Customer Clubs

Customer clubs are a special form of the customer retention program. 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 change to a competitor so quickly because of the higher effort and possible costs associated with it. 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.

Platforms, Individual Promotions, 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 retention. Examples include Internet platforms that are 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 retention but also, of course, new customer acquisition.

Drivers of Customer Retention

The above-mentioned customer loyalty programs usually work due to economic or psychological ties. The customer binds himself to the company because he hopes for special advantages or because he has built an emotional bond with a product or brand. In addition to these voluntary causes, many companies use contractual and technological ties, which are called involuntary causes. This includes, for example, the conclusion of a mobile phone contract with a predetermined term or the purchase of suitable printer cartridges from the printer manufacturer.

Involving Customers as Brand Ambassadors

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 for referral marketing. This is possible, for example, by awarding collection points or discounts for writing a review.

Controlling Customer Retention Programs

Only carefully planned and executed controlling ensures the long-term success of customer loyalty programs. Just as important as precisely formulating targets is imperative to check their degree of achievement and to regularly optimize programs to ensure goals 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, making it time-delayed in relation to the investment - which must be made immediately. In addition, customer loyalty can 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 cost control.

Linking NPS and Customer Retention Programs

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 means you can use the insights gained to help choose a company's customer loyalty program, measure its success, develop a customer loyalty concept and optimize demand.

Customer retention Programs: Important Marketing Tool or Useless Cost Trap?

Customer loyalty programs can be found in all industries. But with all the loyalty cards, bonus programs, VIP customer clubs, and discount brands, the customer will surely ask about the benefits they bring. 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. This is why 64% of entrepreneurs plan to increase their customer loyalty activities.

Not to mention: In order to ultimately ensure long-term success, a company also needs detailed analysis, conception and continuous controlling.

Susan Levermann

Content Marketing Manager