Topic overview

Customer loyalty schemes

Barista handing a customer a coffee with a big smile

The high cost of bringing in new business compared to retaining existing clients is undisputed, so increasing your customer retention can significantly boost bottom-line profits. And yet many firms are missing a trick when it comes to building customer loyalty.

In a competitive marketplace where customers find it easy to switch supplier, loyalty schemes are an effective way to increase customer retention and improve your profitability. If you want to build a loyal clientele, keeping the customer satisfied isn't always enough. The fact that your customers are satisfied doesn't stop them from taking their business to a competitor who offers them something extra.

To increase loyalty, you need to recognise and reward your best customers. A loyalty scheme can be used to incentivise and delight your most valued customers. That in turn can do wonders for your profitability. It is essential to also concentrate on customer care though and making sure you offer a top service. A loyalty scheme alone won't be enough to retain customers if they get better service elsewhere.

The advantages of loyalty schemes

Loyalty initiatives allow you to focus on your best customers and improve customer satisfaction levels. Loyal customers buy more and are often willing to pay more, which boosts your cashflow. By increasing loyalty, you can increase profitability and extend the time they place their business with you.

Loyal customers are also good for your business because they become your best advocates. They recommend you to others, saving you marketing costs. A loyal customer's endorsement is more powerful to their friends and family than any advertising campaign.

Devising the right loyalty scheme

Customers like loyalty schemes because they feel they are getting rewarded for giving you their business. So your scheme needs to offer customers something they will appreciate. However, it should also be devised with profit in mind.

Remember that you're trying to reward customers for behaving in the way that you want. Focus on specific goals. For instance, are you looking for repeat business or do you want your customers to spend more?

The rewards you offer to regular customers can vary from fixed discounts to extra goods or prizes. A hairdresser, for example, could offer a simple card scheme whereby customers get a free treatment for every ten visits. A mail order firm may offer a discount for bulk orders.

Above all, the scheme should be simple to use and the rewards should be attractive and attainable. If customers have to spend a lot to get a small gift, they will be insulted. At the same time, make sure you can recover the cost reasonably quickly.

Getting to know your customers

The data generated by a loyalty scheme can also be used to improve your bottom line. Loyalty programmes put the spotlight on customer behaviour. They can show you your best clients - and highlight your worst.

It can be more profitable to lose bad customers than to gain new ones. While your best customers may be bringing in the lion's share of your profit, your worst customers - bargain-hunters that spend little and only buy discounted goods - can actually cost you money. Your loyalty scheme can significantly improve this scenario by rewarding customers and actively dissuading the worst.

Loyalty schemes can also be used to win back lapsed customers. These customers are much easier to win over than cold prospects. They know you and you know them, their buying history and where and how to reach them.

The data generated by a loyalty scheme can offer other valuable insights. It can highlight defection patterns and can also help you improve your product range and stock selection. Knowing what your best customers frequently buy helps you choose which lines to stock - and which lines to expand.

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