Customer loyalty programs remain key to capturing consumer attention and commitment.

By Brenda Silva

Long gone are customer loyalty programs with physical punch cards that promised great discounts after making a certain number of purchases. In today’s marketplace, it’s not enough to offer a customer savings program equivalent to a rotary phone when your competition offers Bluetooth and beyond. In order to compete in the current consumer loyalty arena, companies need to find a way for their brand to stand out from a crowd of competitors who are also looking for a sales commitment from new and existing customers.

In the same way that companies are looking for brand commitments from their customers, the same companies must also demonstrate a commitment to their customers. One of the most important ways to create and maintain brand loyalty is for companies to demonstrate an understanding of the needs and wants of their customers, and offer loyalty programs that meet those requirements. By doing this, a loyalty program can incentivize customers to continue with their purchasing preferences, ultimately creating a win-win scenario for both the company and the consumer.

Reaping Loyalty Rewards

In its simplest description, loyalty programs are designed to increase the value of customer relationships, as well as company revenue. A study by AC Nielsen showed that 60 percent of consumers consider loyalty programs an important factor in their buying decisions, and they spend 46 percent more on average with businesses that have loyalty programs available. With this in mind, the question for businesses remains: How do you design a loyalty program that will prove successful for your bottom line?

According to Reneé Andrew-Lewis, director of sales at KickBack Rewards Systems (KRS), located in Twin Falls, Idaho, “Properly designed loyalty programs help retailers make their good customers better customers. For a loyalty program to be successful, it must be easy for customers and cashiers to understand, and you must have the right value proposition. If the program is too complicated to understand and customers receive little value from it, they will not participate. You must also offer proper training to your cashiers upfront, and plan to continue training throughout the life of your program. If your frontline employees are not ensuring customers receive their rewards, the program will not influence consumer buying habits.”

She continues, “During a retailer’s first full month on the loyalty program, KRS takes a base reading of consumer buying habits. We measure how often their customers are coming in, how much they are spending, and how much they purchase. Each month thereafter, we monitor how the loyalty program is influencing customer behavior. Opportunities and shopping occasions differ by industry, so these numbers would be very different for a florist versus a restaurant or convenience store.”

Adding to Andrew-Lewis’ comments, Jennifer Thorndyke, co-founder of Loyalty Gator, located in Toronto, Ont., reports, “When Loyalty Gator launched in 2010, we weren’t seeing as many small businesses utilizing comprehensive loyalty rewards programs for their customers. Big airlines and franchises were taking advantage of incentive programs but for many small businesses, it was the paper punch card to buy X and get one free or plastic VIP cards relying on spreadsheet entries with limited data collection ability.”

She goes on, “At its core, a loyalty program rewards customers for actions, spending, referrals, or other desired behavior. Merchants utilize these programs in different ways to show appreciation for their customers, attract new prospects, and also gain insight into their patrons’ preferences and spending behaviors. A good loyalty program will allow you to collect customized customer profile data, as well as specific transaction info so you can customize a loyalty program that is engaging for your customers.”

Changes in Loyalty Programs

The value of a loyalty program begins when a business starts getting customers signed-up for the program, which ideally, should be the first time a customer walks into a store. It’s important to keep in mind that a well-designed loyalty program is going to add value to every new or existing customer, and keep each one eager to remain a member of the program. Statistics on customer acquisition show that it costs six to seven times more to acquire a new customer than it does to keep an existing customer, yet both are just as important to the success of a loyalty program.

Considering some of the challenges faced by loyalty programs of the past, technological advances have made today’s loyalty programs more business- and customer-friendly.

Andrew-Lewis points out, “When KRS began providing loyalty program solutions for retailers 20 years ago, most programs could not fully integrate into the point-of-sale (POS) systems. Point-of-sale systems were just not set up for this. Retailers had to use dial-up, credit card terminals to award points and club punches. While they were able to tell how much customers were spending and how often they were coming in, they were still unable to see what products customers were purchasing. This functionality was a step up from their old paper punch card programs but not ideal.”

She continues, “Today’s programs fully integrate into the point-of-sale system allowing retailers to provide instant discounts to customers based on their buying habits and product preferences.  Rewards can be unique to each customer. For instance, retailers can award specific customers bonus points or a free item on their birthday. The ability to send the right offer to the right customer at the right time significantly impacts consumer buying habits. This type of targeted marketing results in a more personalized user experience that customers appreciate.”

Thorndyke adds, “Today, we see cardless programs and loyalty apps, more customization options for merchants, and more communication with their customers… essentially, smarter loyalty programs. When you’re able to gather specific customer data and provide relevant communications, you’re ultimately bringing a better shopping experience to your customer. The paper punch card was encouraging the customer to return but all you really knew was that John liked coffee. Imagine instead, knowing that John has a cat so pet-friendly plants would be important to him. Or that Jane purchases festive arrangements in the wintertime so she would be a great guest to invite to your next holiday wreath workshop – and tell her to bring a friend! Inviting members to pick up a free rose on their birthday adds something special to their day (maybe they’ll even grab a couple smaller ticket items at the check-out as a gift to themselves while they’re there).”

She reports, “Merchants are no longer strictly offering incentives for purchases either, how we are rewarding customers has shifted. Beyond the ‘Point-per-Dollar,’ we’re looking to offer rewards for customer surveys, attending events, referring a friend, or following our page on social media because these actions are all helping our business grow. Garden centers and florists have really gained traction with posting seasonal items, beautiful plants, and gardening/care tips on their social media pages because the customers can see and shop from home – which has been increasingly important during the last year and a half.”

Thorndyke continues, “It makes sense that these retailers would benefit from growing their social audience to keep engaging with customers even from their homes. So we are seeing an increase in retailers asking to award points for customers that like/follow their Facebook/ Twitter feeds etc. Today, you can find a loyalty program software that connects with your existing POS systems or payment processors, automating customer transactions and saving time. For example, when collecting payment from a customer in your Square system, Shopify store or Details Flowers software, the transaction can be sent over to Loyalty Gator to add that transaction within the customer’s loyalty account.”

Summing up, she says, “We’ve certainly come along way from the paper punch cards and today’s technology is always bringing new possibilities for loyalty program providers. I also love to see that merchants are getting really creative with fun and unique ways to utilize their own customer rewards programs, so it’s very exciting to think about what we will be seeing next!”

Statistics Prove Success

The main objective of every loyalty program should be increasing the frequency of customer visits, which translates to program members increasing their spending over time. Research on the topic has shown that loyalty program members not only spend more when they visit, but that they also visit stores where they are members 20 percent more than non-members who visit the same stores.

When asked about statistics that prove loyalty program success, Andrew-Lewis offered the following five stats from convenience store loyalty programs that are managed by KRS:

  • Top-performing retailers have captured 35-45 percent of all transactions on their loyalty programs;
  • Customer frequency of visits have increased 38 percent on average;
  • In-store tickets have increased 15 percent on average;
  • Average monthly fuel gallons purchased have increased by 19 percent,
  • Recent visits have increased by an average of 47 percent (customers dramatically shorten their time between visits).

In agreement with Andrew-Lewis that the most successful loyalty programs have statistics to prove their success with sales and customers, Thorndyke points out that:

  • Businesses can increase revenues 25-100 percent by retaining just 5 percent of their customer base;
  • Customer spending is 46 percent higher with companies that offer reward card programs;
  • Twenty-eight percent of customers are extremely likely to increase visits to businesses where they are a member of a loyalty program.

She adds, “There are many stats related to how loyalty programs increase spending, increase traffic, and attract new customers. While results will vary (depending on the industry, incentives offered, etc.) merchants will typically see best results with the following practices:

  • Ensure your loyalty program is easy to use, accessible, and convenient;
  • Rewards need to be attainable (John will disengage with the program if he’s collecting points for five years before finally earning his free coffee!);
  • As the front line, your staff needs to be informed and excited about your program;
  • Create customer awareness in-store, via social media, website, newsletters, etc., and highlight your loyalty program features (it’s always nice to add a few bonus points for new members who sign up);
  • Try to encourage customers to opt-in to communications from you;
  • Create custom fields to gain customer insights and use these for personalized communications;
  • Track which promotions are most popular and the rewards most selected by your customers, so you can make adjustments to your program to reflect enticing options.”

Thorndyke sums up, “Don’t forget to grab an email address (or phone number) so you can remind your wedding clients ahead of their 1st anniversary (and 2nd and 3rd) to add flowers to their upcoming anniversary celebration. I know a few people (including myself) that would appreciate this notification each year!”

Ultimately, a loyalty rewards program can be successful if it’s designed to offer what your typical customer wants. Helping the customer understand the monetary value of every reward they receive often makes the program even more valuable to consumers. However, retailers should also keep in mind that customer loyalty isn’t always about giving away items for free.

Rather, loyalty programs are really about encouraging more customer visits where customers spend more money per visit, which allows the business to afford the costs of the items rewarded. When a loyalty program proves financially beneficial for customers and retailers, both are likely to receive continued rewards.