The e-commerce industry has revolutionised the way consumers think and purchase items. People love to shop online for all the convenience and benefits e-shopping brings with it. Consumers can shop anytime and anywhere for everyday or luxe products, save fuel cost, avoid traffic jams, and bypass crowded payment queues. The list is just endless. On top of that, a good customer loyalty program — that is simple to access — keeps the customers motivated and hooked for a substantial period of time.
The old patterns of consumer behaviour do not hold true in today’s digital age. So a customer loyalty program, that is constantly evolving according to millenials’ demands and industry trends, is definitely the way to go. A successful loyalty program depends on how effectively the consumer data is studied. With the right approach and proper discipline, a set of new benefits excites customers to shop at a reasonable cost. The old benefits, that are no longer serving any purpose, are eliminated from the program.
A game-changing loyalty program not only leads to an increase in sales but also results in new customer acquisition and better reputation for the business. A better brand image is definitely a good sign for overall business operations.
According to studies, it is the idea of a reward that makes most customers happy. The idea of saving money only comes after that. Since any great loyalty brings with it new customers and ups the sales, it helps the brand to reduce marketing costs to a great extent. On top of that, existing customers are far more likely to buy from the same brand again and again. Therefore, to keep them loyal is far more handy than to target new customers. Also, since these customers are already familiar with the company’s products and services, they are more cost-effective to serve! Reduction in cost to company and honest feedback are the two things that a business can rely on their loyal consumer base for.
Although many e-retailers understand the concept of customer loyalty fully and how important it is, many of them are lacking in effort for a sustained loyalty program. So there seems to be a disconnection. Still others don’t keep an accurate tab on how these programs are performing, even after they have been set into motion. The idea is to recognise the prime market and construct a plan that makes new customers loyal and keeps the loyal ones excited and looking forward to the brand’s new products. This has also proven to be helpful in beating competitors — that serve the same products and services — thereby gaining an edge over them!
Businesses operating in mature markets have a unique dilemma- they have to constantly look for innovative ideas to stay close to customers and differentiate themselves from competitors. The proverbial sword of low margins and fixed costs hangs over their head. And there’s also the threat of the low-price players. When price cannot be a differentiator, companies have to look for other differentiators.
One such advantage can be offered through customer loyalty programs. They don’t just discourage existing customers from switching stores, but also give businesses an edge during a price war. When done properly, loyalty programs can generate up to 20% of a company’s profit. No wonder, US companies spend around $25 billion every year on loyalty programs.
How did Loyalty Programs Start?
A lot of research conducted around the 1970s indicated that suppliers who formed a better relationship with customers tend to have ‘better customers’. Further research also indicated that better customers bring better business. It slowly began as a marketing strategy for small and medium businesses that used their database to monitor and manage customer behaviour.
Modern Day Loyalty Programs
There are plenty of loyalty programs, but most of these can be slotted into two different categories; Standalone and Coalition.
The most common loyalty membership today is the standalone program where customers get rewarded for doing business with the company that offers the program. Points can be redeemed only within the range of products offered by the program owner.
More than one company participates in this program. Customers are rewarded for doing business with all the participating companies. Loyalty points can be redeemed within all the products offered by the participating companies.
How do they compare against each other?
There are advantages and disadvantages associated with both these programs. Benefits of the coalition program include;
Helps attract new customers
Companies participating within the coalition program get to share and thereby attract new customers. And that too at just a fraction of the cost normally incurred on marketing and advertising.
Costs and risks are shared
Costs to set up and operate the program are shared between participants. This also applies for risks if the program fails to take off.
Ideas and practices can be shared
As partners, businesses get to share their ideas and practices through promotions. The organizing contractor often arranges meets to discuss promotion strategies and ideas.
Disadvantages of the Coalition Program Include:
There’s a reason why coalition membership programs aren’t as popular as their counterpart. The greatest disadvantage lies in the fact that they leave the customers confused about which brand to choose.
Difficult for brands to maintain individuality
Although brands are being packaged together, they’re also competing against each other. They have to struggle to maintain their individuality.
Unclear information on customer database
The customer database is the most important factor in deciding promotions and allotting budgets for the program. This database is controlled by the coalition promoter who doesn’t disclose it to avoid misuse. But without knowing and analyzing customer behavior, companies have to devise their own mechanism to derive customer data.
Problems during redemption
In a typical coalition based loyalty program, different kinds of brands may participate. Customers who’ve collected reward points cannot redeem them as they wish. This is because the redemption value of different brands would be different, and it would be low for high end brands.
Advantages of Standalone Programs:
If retaining customer loyalty is the main focus of a reward program, then standalone is the best.
Program can be identified with a single brand
Customers need not be confused about choosing from multiple brands. They can identify the program with a single brand, thus making brand promotion an easy task.
Exclusive access to customer database
Unlike coalition programs, companies choosing a standalone program have exclusive access to customer database. This helps them analyze their promotion strategies and even budget accordingly.
Consistency in strategizing and marketing
The program is designed exclusively for the participating brand. The company has complete control over every aspect including the rules and regulations related to the program. They even get to control communications related to the program. This ensures consistency and reliability.
What do customers want?
The problem with any good customer strategy is that every company wants to copy it. Almost every company wishes to or has already launched a program. Sadly, most of these fail miserably; not because of a fault with the concept, but because it isn’t based on careful judgment. Every loyalty program should include;
Rewards that customers can relate to
The reward program should offer instant rewards and not expect people to wait for a long period until the points can be redeemed. Customers are attracted to a program for rewards, but only temporarily. In the long run, what matters is that the effort taken to maintain relations with the customer.
Never forget the ultimate aim, i.e. to sustain customer loyalty
Rewards are undoubtedly the end result of every program. But they shouldn’t be the ultimate motivating factor. It is about maintaining customer’s loyalty and preventing him/her from switching stores.
Program suited for different segments
The program should be customized for people in the targeted category. It should identify their needs; study their purchasing behaviour, etc.