As the cost of customer acquisition skyrockets, it is increasingly important to focus marketing efforts on retaining existing customers.
In fact, it can cost five times more to attract a new customer than to retain an existing one. Yet many small business owners are so focused on acquiring new customers that they neglect programs for existing customers that are much more cost-effective in increasing sales and profitability.
Customer loyalty programs (often called rewards programs) are becoming increasingly important in markets that are price sensitive or have similar products and services. These programs are run by most large companies, and about half of all Americans are now members of at least one such program.
The drugstore chain CVS Corp. alone has signed up 32 million “ExtraCare” memberships. And the world’s largest movie theater company, Regal Entertainment Group, rewards frequent moviegoers with free food and other discounts.
Loyalty programs are also important for small businesses. Businesses with successful customer rewards programs have enjoyed increased sales, reduced marketing costs, and the accumulation of valuable information. Not surprisingly, data collection is at the heart of these programs. A wealth of information is captured when customers sign up for the program. Data is then collected through surveys and during transactions.
By understanding your current customer data, you can uncover business opportunities, better target your customers, and pinpoint the exact needs of different customer groups. If you are a retailer, you can even use this information to stock your store with exactly the goods that are in high demand.
And once you know the preferences of your best customers, you can build marketing campaigns that target prospects with similar characteristics.
5 Tips for Building a Customer Loyalty Program
1. Choose the right rewards
Physical rewards are often less expensive and give you a bonus to everything that’s tied to your business. Let’s say you own an ice cream shop and you want to reward customers who buy at least five ice cream cones. Giving away the sixth free ice cream is a better option than giving away an unrelated gift, like a discounted movie ticket or even cash, because the sixth free ice cream option is less expensive and more memorable to customers. It also gives you real monetary value—the cost of a free ice cream is only 25 cents to you, but customers see it as a gift worth $2.25.
2. Tempt customers
For greater effectiveness, tell customers what they can get. This creates excitement and entices them to make a purchase in order to earn the reward. You can also use this reward program to encourage customers to try other products or services. For example, your ice cream shop could reward customers with a double-decker sundae if they buy a dozen. This reward will encourage customers to try higher-priced products.
3. Reward your best customers
Offering rewards that increase in value based on how much your shoppers pay you is a great way to motivate your best customers. The profits come primarily from converting low-value customers into high-value ones, while avoiding the pitfalls of other types of rewards programs that tend to attract customers who buy low-margin items.
4. Bonus upon membership registration
Rewards programs offer immediate incentives to sign up. Another method is to give customers a small bonus upon signing up. And some retailers attract customers right before they leave their stores by giving them a gift upon checkout or printing a sales receipt.
5. Evaluation of results obtained
Set goals for your program and continually monitor results. Measure the increase in usage of your products and services, the number of transactions involving loyalty program participants, and the growth in your subscriber base so you can adjust and build your program effectively.
Rewards programs offer immediate incentives to sign up. Another method is to give customers a small bonus upon signing up. And some retailers attract customers right before they leave their stores by giving them a gift upon checkout or printing a sales receipt.
DDDN
