If you’ve heard the phase, “buy 10, and you’ll get the next one for free...“ Congratulations! You are a victim of the customer loyalty program. But are these loyalty programs effective? Let’s find out.
What is customer loyalty program?
Contrary to popular belief, we believe the first loyalty program originated in the 1700s in the US.
American premier retailers would give out exclusive copper tokens that could be redeemed in the future in exchange for certain products. These copper tokens had a flair of luxury to them, but as the years progressed, businesses realized how expensive it was to manufacture these tokens.
So, in the 1800s, businesses moved on to the stamp card, making the Green Shield stamp the first official retail loyalty program. Green Shield awarded stamps for purchases at select stores, and a culmination of these stamps could later be redeemed for purchase.
We can see the impact the Green Shield stamp card had on businesses to this day since this continues to be a popular method for fostering brand loyalty. The drawbacks of the stamp card? What if customers lost them?
This led to the introduction of box top coupons in the 1900s- with Betty Crocker leading the pack. While a stamp card was an additional piece of paper you had to carry with you, box top coupons were printed directly on the package. How likely are you to forget something if you saw it everyday? That’s what the box top coupon aimed to accomplish. But is cutting the coupon out of the box really feasible, or would it lead to more frustrations from customers? Retion of coupons.
We also saw the emergence of the Frequent Fliers’ program by American Airlines in the late 1900s. Businesses regard this program as the first full-scale loyalty program of the modern era. With this, we also saw the emergence of card-based programs. Since in-store loyalty with cards is much easier to track than stamps or branded currency.
How are loyalty programs designed currently?
Since we’re moving less towards going in-stores to redeem points, and shifting towards online purchases, there’s been a shift towards how businesses carry out their loyalty programs. Now they are carried out through email or through mobile apps through a point system.
And customers aren’t only awarded after they’ve made a purchase. Even sharing a post via social media or referrals can give a customer points. The possibilities for acquiring loyalty points for customers are endless.
While this is all great… it does beg the question -
Do customer loyalty programs actually foster loyalty?
Businesses have recognized that it’s way better to retain an older customer, than it is to acquire a new one. And while the idea of nurturing older customers through rewards seems promising, the execution often falls flat. In fact, we’ve actually seen a lot of companies pull the plug on their loyalty programs.
Remember the Subway’s Sub Club cards that gave you a free sandwich after 8 sandwiches?
Or when eBay offered their Anything Points program to customers living in the U.S?
Or when Australia's Coles supermarket rewarded stock owners with merchandise discounts of up to 7.5%?
What do these programs have in common?
They have all been revoked, and the list keeps on growing.
While rewarding your customers is great, you can’t give something for nothing. You have to still keep your business’ goals in mind.
How to gain customer loyalty?
Loyalty doesn’t have to be bought. Sometimes, all you need to do is be there for your customers. Whether that means being visible in person (not the most feasible), or being visible online. Expand your customer base by being visible on the platforms your customers are available on. Whether it’s WhatsApp, LINE messenger, WeChat or Facebook, you have to be visible.
However, it isn’t enough to be visible on these apps. You also have to be responsive. Whether a customer reaches out to you at 2PM or 2AM, you have to respond. Consider implementing an always-on chatbot to support your customers regardless of the hour.
Every time your customer interacts with your brand, you have to treat them like a rockstar. Offer great service every time and you’re guaranteed to transform your customers into superfans.
Once you have the basics down, you can start to build on your loyalty programs.
If you’re offering your perks to anyone, it can have an adverse effect:
When building a customer loyalty program, you should build a program that the HBR refers to as a convex reward structure, where the greater levels of spending leads to greater benefits.
This also prompts customers to make additional purchases. As a business, your aim is to win shares in your customer’s wallets. Instead of customers making purchases from other brands, you have to find a way to ensure they concentrate on your business.
A business that succeeds at this is Sephora, a French retailer for beauty and personal care products. They house products from different brands to support all customers (leading to a greater share in the customer’s wallets!) Every time you make a purchase with Sephora, you gain a point per dollar spent. When customers collect these points, they can redeem them by purchasing a product, or they can upgrade and enter another tier of their loyalty program.
Each tier brings more benefits. With Sephora, the range of redeemable products increases, and each choice of samples you get with your purchase increases. The rush of wanting to upgrade coupled with the greed of wanting access to more products pushes customers to buy more products from Sephora. It’s a great model to follow when building a loyalty program.
While the redemption of points for purchase gives customers a rush of dopamine, it’s a feeling that fizzles out quickly. What sticks with a customer is a feeling of being valued. Personalize every interaction with your customers. Create profiles for your customers and keep important dates like birthdays in mind. A simple “happy birthday” message coupled with a discount on a product your customer’s added to their cart is enough to make a customer feel special on their special day.
Communication is key
The best way to foster loyalty is to make a customer feel like they’re being cared for. Address their queries in real-time and offer a personalized experience with Live Chat.
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