Run a small business? Then you hopefully know the value of keeping existing customers happy.Here's how vital it is. According to an Econsultancy report, 70 percent of business owners say it's cheaper to retain a customer than acquire one. And those existing customers typically spend two-thirds more than new clients.Customer loyalty, then, is worth its weight in gold. So let's take a look at customer loyalty programs, the value they can add to small business and how to get them right.
What is a customer loyalty program?
A customer loyalty program rewards customers who make frequent purchases. Rewards might come in the form of free goods, coupons or reduced prices on third-party products and services, such as kitchen appliances or holidays.
How do I create an effective customer loyalty program?
The big boys do it with ease. But how hard is it for a small business to create a successful loyalty program? Here are our tips.
1. Keep things simple
Too many businesses make cashing-in rewards points harder than hopping up Everest while blindfolded: ‘22 points equate to one pound, and ten pounds gets you 25 percent off any purchase in our next sale'.
This sequence is a mistake. Don't make it hard work for your customers. You're rewarding them, not forcing them into an extra-curricular math class.Points systems are the most popular type of loyalty program, but they don't work for every kind of business. They're best suited if you make frequent, short-term sales, for example, because you're a retail business.
2. Use a tiered system
If you run a more upmarket business, with higher-priced goods or services, such as a hospitality business, a business consultancy or an insurance company, you might find that a tiered customer loyalty program works better.
Offer smaller rewards just for joining the program. Then encourage repeat business by offering more-enticing rewards as customers climb the loyalty ladder. Rewards easily attainable get around the issue of people forgetting to redeem their points because too much time has passed between purchase and redemption.
Tiered programs add a social dimension to your rewards program. They give customers who spend more a higher status by giving them access to exclusive perks. This is great motivation to keep chasing points. Who wouldn't want to be a Starbucks Gold Level member and enjoy free hazelnut syrup or extra shots of espresso?
3. Learn from Amazon Prime
We can learn a lot from Amazon Prime… yes, Amazon Prime – the loyalty program that has the temerity to charge customers for the privilege of doing business with the online retail giant.
In this case, though, the fee of £79 a year or £7.99 a month is justified and has a particular function.Cart abandonment is a major issue in online retail. According to the Sale Cycle blog, it's currently running at over 75 percent in some industries. One of the main reasons for abandonment is customers realising the true cost of their purchases when taxes and shipping have been applied.Becoming an Amazon Prime member – which you can do on a 30-day trial basis if you're a new customer – offers several perks. Apart from faster delivery, or being able to choose your delivery day, you can bypass the above purchase barriers and complete your shopping with no nasty shocks.This type of fee-based customer loyalty program works best with businesses offering frequent, repeat purchases. It could also work for B2B companies that provide regular deliveries to customers.
In some industries, customers with a social conscience might place more value on non-monetary rewards.For example, Ice is one loyalty card scheme that rewards people for buying environmentally friendly goods and services, such as local produce, train travel and solar lighting. Tui and JoJo Maman Bébé are two planet-conscious businesses that have signed up to the program.
5. Form partnerships
Forming partnerships to generate customer loyalty can help grow your small business. All it takes is a good grasp of your customers' everyday needs.Let's imagine you sell vitamins and supplements. Because your target demographic is the health market, you might consider a mutually beneficial arrangement with a sportswear company.
Giving your customers relevant value outside of your usual offering shows that you care about them and understand them. You'll also expand your empire by tapping into your partners' clients.
6. Be generous
It pays to be generous. Nobody likes to feel they've simply been duped into spending more money.For example, Tesco Clubcard generally offers reasonably good loyalty rewards, but the retail giant slipped up when partnering with Cosmos Holidays.
The BBC's Watchdog Daily website reports that customer Robert Coles was looking to book a family holiday and logged on to the Clubcard rewards site. However, when he also checked the price with Cosmos, he found it was cheaper to book directly with Cosmos than to use his Clubcard.One of the most-generous schemes is Boots Advantage. Carry this card and you'll enjoy the equivalent of a handy cashback rate of four percent. You'll also collect one point for every pound you spend at Boots Opticians. The store also often runs ‘double points' promotions.
Make your loyalty offering so good that it makes no sense not to join.
Alternatives to customer loyalty programs
On the flip side, UK supermarket chain Asda doesn't run a loyalty program. Owned by US giant Walmart, which also has no rewards program, Asda is the second-largest supermarket company, behind Tesco. Instead of a loyalty program, Asda firmly believes in offering customers a ‘great multichannel retail experience'.
Executives say that the chain focuses on basics instead: quality, price, convenience and service. Alex Chrusczcz, Head of Insights and Pricing, has his explanation of how Asda is building customer loyalty:He says brands should, "Aspire to treat customers equally, or you'll create a fractured brand and shopping experience. If you have someone paying one price and another customer with a coupon paying a different price, the perception of the brand is becoming fractured. Make sure it's consistent."
He adds, "Be pragmatic regarding technology and analytics. They aren't a silver bullet. Use these tools and combine them with the experience of your team."This philosophy seems to work for Asda. Perhaps the lesson here is, if you're going to swerve the loyalty program, make sure your service offering measures up.
Tips on how to measure the success of your loyalty program
It's all well and good implementing your customer loyalty program. But all competent small business owners will know how important it is to measure its success. You can learn from the big companies. Here are some of the metrics they look for.
Retention rate
Customer retention rate shows how long you keep your customers. A successful customer loyalty program should grow your customer base. One way of checking for retention rates is to run an A/B test using program members and non-members to establish how effective your scheme is.
Customer churn
Customer churn is the rate at which customers leave your company. What you want is ‘negative churn' – customers doing the opposite of leaving, that is upgrading or buying more. If you track only one metric as part of your loyalty program, make it this one, and certainly if you're running a tiered system.
Net promoter
Net Promoter, or Net Promoter Score, is all about customer satisfaction. It uses a scale of 1-10 to measure how likely customers are to recommend your business.How does it work? Anyone responding with a nine or ten is called a Promoter. These people will buy more, stay customers for longer and make plenty of word-of-mouth referrals.Anyone in the zero to six bracket is a Detractor, and less likely to purchase or recommend. Responses of seven and eight are Passives. You calculate the Net Promoter Score by subtracting the percentage of Detractors from the percentage of Promoters.
Effort
If you want to focus on a metric that measures actual customer experience rather than raw emotion, then the Customer Effort Score (CES) might interest you. This metric asks customers how much effort they had to make to solve a problem with the company.An important measurement when you consider that a Harvard Business Review study found that nearly half the customers who had a bad experience with a company told ten people or more. The research came up with two critical findings for businesses' customer service strategy. Firstly, ‘delighting' customers is overrated. It doesn't build loyalty.
However, reducing how much effort customers have to make to get a problem solved, does. Secondly, acting on this can improve customer service, reduce costs and decrease churn.This provides a good case for your customer loyalty program to address customer-service issues such as response times, shipping costs, faulty products and telephone resolution.
Get to it
So, now you know not only how to create a customer loyalty program that works for your small business but also how to measure its success. All that remains is for you to put it into action. Best of British.
