As a business owner or marketing manager, what percentage of your time and resources is spent on trying to get new customers versus re-engaging existing customers? If you’re like a lot of businesses, you’re spending much of your time trying to acquire new business. After all, more customers equals more money, right?
Not necessarily.
Research shows that gaining a new customer is actually five to 25 times more expensive than keeping an existing one, whereas improving customer retention rates by just 5% can grow profits by 25%-95%. In fact, a Gartner study found that 80% of a company’s future revenue comes from just 20% of its existing customers, and 61% of small businesses reported that 50%+ of their revenue comes from repeat customers.
Why are Returning Customers so Valuable to Your Business?
Making the most of your existing customer base can be well worth the effort. There are a few key factors which underscore this concept:
- The 1000 Fans principle: Your core fans will generate more revenue than everyone else combined, simply because they love your products and always want more.
- Happy customers tell their friends: Word-of-mouth referrals are powerful! More than half (55%) of U.S. consumers recommend their favorite companies and brands to family and friends.
- Loyalty and positive feeling trump cost: People are willing to pay more for a positive experience. This may be a practical decision, or a primarily emotional one, but the research shows that 55% of customers will pay more for a good experience, and that emotionally connected customers are on average 50% more valuable than their brand-agnostic counterparts.
Given this, it might seem simple to tap into this valuable resource of the returning customer. Businesses often assume that if the customer is happy and has a good experience, they’ll come back.
However, the research shows that it’s not that easy. In fact, 87% of a brand’s existing customers don’t stick to that brand when it comes to buying a given product or service. So, how can retailers optimize their offerings and strategies to tap into the value of the return customer?
It’s all about customer engagement and loyalty triggers.
How to Optimize for Customer Loyalty
There are four key areas to focus on when it comes to encouraging customer loyalty:
- Ease and convenience: Make it easier to buy from you than from a competitor
- Customer service: Make it more pleasant to buy from you
- Offers, discounts, promotions: Make it cheaper to buy from you
- Personalization: Make it more personal to buy from you
These four areas come into play in a passive way when customers visit your physical store or website and find features like one-click checkout, easy returns and refunds, promo codes and free shipping, and friendly salespeople with personalized recommendations.
But passively waiting around for customers to come to you isn’t enough. In a world where around 543,000 new businesses are started each month, you’ll need to be actively connecting and engaging with your customers in order to keep them coming back for more.
This is where the concept of “loyalty triggers” comes in. These are features, benefits, activities, or communications from your brand to existing customers which encourage engagement and return purchases when they otherwise might not be looking to purchase.
According to a recent report by global IT provider Comarch, the most effective triggers, which maximize the likelihood of return business for retailers, are:
For businesses with a physical location:
- Proximity of store
- Opportunity to touch and buy the product on the spot
- Customer-centric and supportive service provided by in-store associates
- Accurate, individualized promotions and offers
For online businesses or any brand with an online store:
- Purchasing anytime (24/7)
- Next-business-day delivery
- Flexible return policy
- Accurate, individualized promotions and offers
These values vary in importance across different retail verticals and depending on whether you have a physical store and/or a website. For example:
- In the apparel niche, the ability to touch/buy the product (via a physical location) or a generous return policy (online) was significantly more important than for other verticals.
- Beauty and apparel have the highest overall retailer loyalty scores among consumers (50% of consumers consider themselves loyal to a particular retailer), and jewelry has the lowest (only 32% would say they are loyal to one brand). Home, DIY, and electronics scored in the middle (35-49%).
- Being able to experience and buy on the spot is most important across the board for any physical location, followed by customer service; whereas, for online shopping, being able to buy any time of day or night is most highly scored, followed by a flexible return policy.
What these features have in common are that they all reflect one or more of those four key areas: convenience, customer service, offers, and personalization. And perhaps more tellingly, regardless of whether you are an online store or a brick-and-mortar retailer, the common element is “accurate, individualized promotions and offers.”
Given that this is such a powerful trigger in incentivizing a shopper to buy, businesses need to find ways to take advantage of personalization and offers to drive new purchases from existing customers. This is where the concept of a loyalty program comes in.
FURTHER READING: Want some ideas on tailored suggestions for customers? Here are 4 ways to personalize your customer’s shopping experience.
Boosting Return Customers: Optimize Your Loyalty Program
One of the most common ways in which brands utilize loyalty triggers is via a loyalty program.
According to research by Accenture, 90+% of companies currently have some kind of loyalty program, and members of loyalty programs generate on average 12%-18% greater annual revenue growth than non-members.
By optimizing your loyalty program to reflect key loyalty triggers, you can improve returning customers’ engagement with your brand and increase the likelihood that they’ll continue to choose your business over your competitors’. Comarch’s research discovered that 74% of customers are more likely to return to a brand with a loyalty program (similar to Nielsen’s finding that, all things being equal, 72% of consumers worldwide will buy from a brand with a loyalty program over one without).
However, according to a study by CapGemini, a high percentage of loyalty programs are failing, with 53% of consumers stating that they abandoned at least one loyalty program within the last year. The key reasons for this are lack of reward relevance, flexibility and value (44%); a lack of a seamless multi-channel experience (33%); and/or customer service issues (17%).
In other words, these programs fail to address the four key triggers: relevant offers and personalization (lack of relevance and value), lack of a seamless experience (ease, convenience), and customer service.
For brands that want to get this right, the most important thing you can do is to understand what the customers themselves are saying about what they value in a loyalty program.
What Rewards Do Customers Value Most?
According to the Comarch report, when asked: “In order to make the loyalty program attractive for you: How important are ….”
- 86% said offers and promotions were “very important or important”
- 81% selected quality and quantity of the rewards shop
- 81% mentioned possibility to collect points
The rest were as follows:
- 61%: advantages such as previews and pre-selling of products
- 50%: to be part of the brand’s product development
- 47%: to be part of competitions and lotteries
- 43%: engagement: digital achievements and games
This illustrates the preference consumers have for loyalty program incentives that feature high-quality discounts and offers as a function of the program. That being said, Millennials scored competitions and games as important more frequently than older people, showing the importance of asking your specific audience what they prefer.
And across the board, the importance of relevance and flexibility in the offers and promotions is a key trend, again highlighting the importance of personalization to cement consumer loyalty.
How Do Customers Want to Receive Communications?
Comarch asked consumers how they preferred to receive brand communications in the following areas: general communications, receiving coupons, and identifying themselves as a member of the program.
Overall, customers preferred online communication, with 58% preferring to receive coupons via email/web and either use them digitally or print them out, compared with only 30% who preferred physical mailings. They also overwhelmingly favored the use of a physical loyalty card (88%) over other forms of identification (phone number/address or phone app).
How Customers Feel About Privacy
The higher the age of the customer, the more highly they value data privacy when considering whether to sign up for a loyalty program and how to interact with a brand.
Privacy is a key factor for all age groups, however, and the key factors that all customers care about include:
- Transparency: How does the company use my personal data? (94%)
- Understandable terms and conditions (94%)
- To be able to see what kind of personal data the company collects (91%)
- To be able to easily unsubscribe (91%)
- To be rewarded when I allow the company to use my personal data for marketing reasons (83%)
Customers need to trust your brand in order to feel safe sharing personal data.
FURTHER READING: Not sure how to forge a deeper connection with customers? Here are 5 high-impact ways you can build trust with shoppers.
And according to an IBM study, brand loyalty is actually a factor in how much data a customer is willing to share:
“For an average company, 38% of consumers are willing to share geographic data while 37% said they would do so with their personally identifiable information. When it came to trusted brands, these numbers spiked dramatically.”
More than two-thirds (72%) of those surveyed would share geographic data with a brand they trust, and 61% would share personally identifiable information.
In other words, trust is a huge factor both in terms of encouraging users to become a part of a loyalty program, and also when it comes to how much data they are willing to share.
Don’t Underestimate the Value of Emotional Connection
With all of this data, it can be tempting to approach your loyalty program from a place of “cold, hard facts.” But it’s also important to include strong brand values and a customer-centric approach in everything you do. According to a report published by Hiver, 34% of consumers feel that customer service should be more responsive and empathetic.
This isn’t so surprising when you consider what people really want on the most basic level: They want others (brands included) to care about them as individuals. A 2017 study by CustomerThermometer found that the top five reasons customers gave for feeling a connection with a brand were all related to “caring.” Consumers feel a connection with a brand when they feel that the brand:
- Cares about me
- Cares about the world
- Understands me
- Has an audience of people like me (my tribe)
- Makes me feel special
After all, as researcher Brené Brown states, "Love and belonging are irreducible needs of all women, men, and children."
If you can demonstrate to your customers that you genuinely care: about them, about the world, about your audience, then you’ll earn their ongoing loyalty.
Final Tips to Optimize Your Loyalty Program
- Research shows 57% of customers sign up for a program to save money, so prioritize money-saving rewards over other types of rewards.
- Consider using an app (or otherwise ensuring a seamless online-offline-mobile experience). More than half (60%) of consumers say they’re more likely to join a loyalty program that’s tech-savvy. Nielsen’s study shows that 67% of global program members say integration with a mobile payment system is important, so they can automatically earn and use rewards when they use a mobile wallet, and 69% are more likely to participate in a program with an app available.
- Offer flexibility. Around 80% of loyalty-program participants worldwide say that they value being able to earn rewards regardless of whether a purchase was made in store, on a website, or on a mobile device (81%) and to choose among several types of rewards (79%)
- Giving your members a “headstart” is shown to improve participation.
- For example, an offer to ‘get 10 stamps for a free coffee’ followed with, ‘when you sign up today, we’ll automatically give you 2 stamps’ is a more effective approach than simply ‘get 8 stamps for a free coffee’.
- Ensure that your loyalty program integrates with your point-of-sale system.
- Regardless of the details of your loyalty program, make sure that it covers the four key areas: ease and convenience, customer service, offers/discounts/promotions, and personalization.
Improving Your Loyalty Program to Improve Your Customer Lifetime Value
Have you tried running a loyalty program in order to incentivize returning customers? What did you learn? I’d love to hear more in the comments.
