The Advantages of Using Customer Loyalty Programs

New customers are exciting, but buyers who keep coming back to your brand are more valuable. Investing in customer loyalty programs is an excellent way to increase your revenue and sales, stabilize your finances and drive down your customer acquisition costs. The best part? Loyalty programs can work wonders for companies of any size — from the smallest boutiques to multinational corporations.

The Benefit of Investing in a Great Customer Loyalty Program

Customer acquisition should begin with a monthly budget set that many companies break down into a certain dollar amount per-customer to spend on advertising.

Let's say that your brand spends an average of $30 per lead (an interested buyer) which would put you right around the midrange of spending for new customer acquisition, according to data from SurveyAnyplace.

If each customer only buys from you once, that means that your investment into their acquisition is eating into the profit you should be seeing from sales. Your $100 purchase is suddenly only worth $70 in revenue to your company. What if you could get them to buy once more, come back regularly or refer their friends and family to your store? These are the reasons why customer loyalty programs are so effective and so popular with larger brands. But it's time for small companies to get a piece of the returning customer pie.

How to Get Customers Coming Back for More

Because customer loyalty programs touch every facet of your business, they're a significant investment in both time and money. In order to ensure success from the program, make sure that your tactics are focused on the customer experience, and that your key performance indicators (KPIs) accurately measure progress. This is one marketing style that shouldn't be put on autopilot or left to run without supervision. A recent study by Accenture found that customers are more fickle with their loyalty than ever — especially when it comes to outdated programs that miss the communication mark. In fact, 77 percent of customers say that they retract their loyalty more quickly than they would have three years ago.

The best way to design an effective loyalty program is to offer benefits that appeal to a variety of interests. Here are three of the most popular, and why they work:

1. Discounts and Promotions: This objective benefit is an incredibly effective way to hook customers into initial repurchasing. This may come in the form of member-only sales, gift cards that are distributed through a points system or even giveaways. The latest trend to hit loyalty programs is free shipping after a certain dollar amount spent.
2. Personalized VIP Services: Personalization is always a great idea for boosting sales, and there's even more potential when it comes to loyalty programs. Use the data that you already have about your customers to offer special rewards for repeats. For example, you can offer discounts on items that they've already expressed interest in, a personal shopper to help them or access to priority customer services or events. Give your customers the sensation of being part of a club, and show your appreciation by getting to know them.
3. Early Access: Many enjoy the feeling of being ahead on trends and experiencing special privileges. Offering early access to products and services is the most straightforward option for brands that already have a loyal following waiting for each release, but it is by no means limited to them. If you're a small company or you're just building up your loyalty base, it doesn't mean that you have to start your own collectibles line — access to new components works just as well. For example, a software company could make beta testing of new features available to their members.

Measuring Loyalty Program Effectiveness

Tracking customer loyalty programs used to be quite difficult, but now that most data is stored electronically, it's simply a matter of tracking the right KPIs. While specific data points may vary based on your brand's specific program, there are four that every company should track:

1. Registered Loyalty Program Members
2. Reward Redemption: This metric will help you track how many members are actively using the loyalty program.
3. Churn Rate: An effective loyalty program will increase how frequently customers return to your site.
4. Customer Lifetime Value: Are members of your loyalty program spending more over time?

By tracking these metrics, you'll be able to measure just how effective your loyalty program is — this will give you an understanding of your overall ROI as well as the information needed to tweak your offerings to optimize your marketing over time.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.