An eternal proverb in business is that a satisfied customer will keep coming back for more. Not only that, retaining an existing customer costs a lot less money than the acquisition of a new one.
Evolution of loyal marketing
Early loyalty marketing started out with premiums offered to customers that encouraged them to return. In the 18th and 19th centuries, brands offered tokens, certificates or tickets that customers could exchange for other items in-store, effectively offering them a discount. By the end of the 19th and well into the 20th century, stamps – the most famous among them S&H Green Stamps, followed by Green Shield in the UK – replaced tokens. Green Stamps could be collected from for purchases at select retailers and redeemed for products from a catalog.
Individual brands and retailers wanting to engage with their customers led to the creation coupons printed on top of packaging that could be redeemed. Betty Crocker started with these so-called box tops in 1929 but it was Kellogg’s offers and tie-in with their cereal boxes since 1909 that inspired so many brands to follow suit.
The modern loyalty program can be traced back to American Airlines’ frequent flyer program that was set up in 1981 and sparked off an entire industry. Since then, frequent-usage points or miles for airlines, hotel, car rentals have become so ubiquitous that the phrase ‘card-carrying member’ has entered the lexicon. In the UK, one of the first in-store rewards cards backed by a chain was Sainsbury’s Homebase Spend & Save card in 1982.
Credit cards have also allowed customers to accumulate points, and it seems like every major retailer has set up a loyalty card (or rewards or advantage or points or club card) that imitates a credit card – with a magnetic stripe – that either offers a better price or points for a purchase made in-store. This ubiquity has led to customers not being very ‘loyal’ at all.
Frequent flyer programs, which involve the management of tiers, rewards and redemption, in essence, moving millions along on their customer journeys to become top-tier members, are a complex and expensive exercise. In the US alone, companies spend a staggering US$2 billion on loyalty programs every year. Still, engagement is not high. The average US household has accumulated over 20 loyalty memberships and only uses a fraction of them. In the words of Hal Brierly, the man who designed loyalty programs such as American’s AAdvantage, United Mileage Plus, Hilton HHonors and Hertz #1 Gold, “Programs need to evolve toward a sustainable, profitable structure that’s still desirable for the customer.”
The cons of traditional loyalty programs led to the growth of a disruptive variant: membership programs. Unlike loyalty card programs, which are free to enter, customers pay for inclusion in a membership program. Book and music retailers usually go this route. Amazon Prime is one of the largest membership programs with more than 150 million members worldwide. One of the most successful examples is wholesale club Costco, which only allows members to shop, receive discounts and access special merchandise. The Dollar Shave Club, which allowed members to receive shipments of blades on a regular basis, captured a significant 15% market share in the short period of five years before it was sold to Unilever, and forced competitor Gillette to revamp its membership program. Membership fees increase commitment from customers. The predictability of repeat business and cash flow results in significant cost-savings to the business too, not the least from reduced marketing costs. Retailers can also target customers through better product selection and design.
Paid membership programs are particularly valuable as many of today’s consumers expect immediate gratification, even if they’re making their first purchase with a brand. In fact, two-thirds of consumers report that they’d join a paid membership program offered by their favorite retailer if the rewards were relevant, with that number increasing to 75% for younger consumers between the ages of 18-34.
Nikhil Naidu, Product Marketing Manager – Loyalty & Referrals, Yotpo
Cards themselves are being increasingly replaced with apps as eCommerce and digital payment infrastructure take off. Nowadays, mobile-optimized apps that use near-field communications are gaining ground. Even Cracker Jack, which included a novelty prize in its boxes of caramel popcorn starting 1912, announced in 2016 that the prizes would be replaced by nostalgic games that could be downloaded onto its app via QR code.
Things to consider for a loyalty program
Once the domain of majors, now even a smaller player can run a sophisticated loyalty program. Here are a few takeaways gleaned from the successes of the best loyalty and membership programs out there.
Simplicity is key
Keeping the adoption process easy and simple is the key to getting customers on board. Pop-ups, freebies, discounts and reminders on your website can remind them to join. Ask only for information that is really needed. Once aboard, they should easily understand what their status is, what their points are and what their potential rewards are. The Starbucks Stars app, one of the best apps optimized for mobile and through which purchases can be made, goes one further and acts as both a rewards program and payment method. The points system is simple too – US$1 gets 1 star. According to Bond Loyalty Report, 57% of consumers want to engage with their loyalty programs via mobile devices, but 49% don’t know if their programs have an app. Make the redemption process easy to navigate. And of course, make sure you don’t upset older consumers when you restructure programs either.
Loyalty programs need to reward devoted customers beyond just purchase. Don’t just reward new members, keep in mind existing members too. A tiered solution such as Sephora tri-tiered Beauty Insider program is ideal. Reward them for a variety of actions from sharing on social media to customer referrals. Customer engagement can support a retailer’s marketing, bring in new customers and grow revenue. Track loyalty metrics like churn, response and retention rates. The idea is to move them along on their customer journey as they interact with your brand and finally become advocates, and the rewards and incentives for them to do so should be commensurate, relevant and tailored.
The creation of an account for a customer to track lifetime sales also results in a rich vein of data that can be mined to understand shopping patterns and target them better. eCommerce-led businesses can take advantage of the data to come up with targeted sales and marketing for an audience of one. Furthermore, only 11% of loyalty programs offer personalized rewards based on a customer’s purchase history or location data, so there is scope for much more customization of incentives.
Repeat business from loyal customers might be key for businesses to persevere through and bounce back after the COVID crisis, and well-designed loyalty programs that go beyond points and are sensitive to their users’ needs during this difficult time as well as after are going to make it infinitely easier for them to support their favorite brands.
About BORN partner Yotpo: Yotpo, the leading eCommerce marketing platform, helps thousands of forward-thinking brands like Rebecca Minkoff, MVMT, Bob’s Discount Furniture, and Steve Madden accelerate direct-to-consumer growth. Yotpo’s single-platform approach integrates data-driven solutions for reviews, loyalty, SMS marketing, and more, empowering brands to create smarter, higher-converting experiences that spark and sustain customer relationships