Many of the so-called loyalty programs in operation today don’t really develop loyal customers at all; rather, they create “frequent” customers. Loyal customers do more than just visit your business more frequently than other customers; they are your businesses’ best marketing tool and your biggest fans! They want your business to do well, and they ensure that you’re there for them when they need you by sending more business your way. Besides bringing their own business to you, they encourage others to do the same.
These loyal customers are the most valuable assets businesses have, and yet many loyalty programs provide these customers with the same standard treatment every other customer receives. Good loyalty programs, rather than “frequent customer” programs, recognize and value customers for their loyalty, rewarding them for more than simple patronage. And by keeping its best customers happiest, businesses reap their own rewards through several channels of business growth.
Below are 15 key business benefits of properly implemented loyalty programs. We recommend you evaluate each one to determine how well your loyalty program is providing each benefit:
1. Retain Existing Customers: Not only do loyalty programs provide tangible incentives for continued patronage (via earned points, etc.), programs collect customer data that allows a business to better meet the needs of its individual customers. This provides for more targeted and customized service, making the consumers more likely to remain customers.
2. Acquire New Customers: While it should not be the central focus of any loyalty program, acquiring new customers is essential to any business and should be a benefit of your loyalty program. How effectively your program attracts new customers will depend on how exciting and how valuable the rewards seem to the target audience. Use your program data to determine demographics of your most loyal customers; then target prospective customers with similar demographics in acquisition campaigns.
3. Move Customers Up to Higher Tiered Rewards Levels: Build into your program the ability for customers to “graduate” to higher rewards when certain thresholds are met. This will encourage lower spenders to increase their spend in order to move up to better rewards brackets.
4. Filter Out Unprofitable Customers: It can be more expensive to retain bad customers than it is to acquire new ones. Customers who only purchase during times of sales and discounts can cost you money rather than increase sales. Design your loyalty program to reward better customers without rewarding those just watching for the bargain buys. Professor Philip Kotler’s adaptation of the Pareto Principle states that while the top 20% of your customers generate 80% of the profits, the bottom 30% of your customers eat up 50% of the profits generated by the 20%. Ensure your program is only rewarding the customers actually bringing in business.
5. Recover Orphan Customers: Salvaging former customers can be infinitely more effective – and much less expensive – than acquiring new customers. Discover what it takes to win back old customers and target this group with “We’ve Missed You” campaigns. Then ensure their new experiences with your business are positive and meet their needs.
6. Increase Customer Lifetime Value (CLV): It’s easy to get discouraged or underestimate a customer’s value when you are viewing their transactions in isolation. Look instead at the bigger picture. Determine what your best customers bring in through lifetime patronage and focus on that when interacting with them. When your customers are valued not simply for one purchase here and there, but for their lifetime business with your company, their loyalty – and their lifetime value – will increase.
7. Target Your Best Customers: Best Customer Marketing (BCM) involves spending more time, energy and resources on your best customers in order to maximize the ROI. Use your loyalty program data to determine who your best customers are, then recognize and reward them.
8. Build Relationships: Always remember that customers are people too. When your program is focused on the “human” aspect of customers, it will go further toward building customer relationships, which in turn leads to improved loyalty – and profits.
9. Create Advocates: Advocacy is one of the highest forms of loyalty a customer can show. They are so satisfied with your products and services that they feel compelled to share their experiences with friends and family. And any good marketer will tell you that word-of-mouth marketing is far more effective than any amount of promotional material.
10. Adjust Pricing Levels: A good loyalty program can help develop solid pricing structures. If customers are happy purchasing products at a particular price, why discount it? You can also use your loyalty program to study the effects of prices changes (e.g. what customer segments’ changed their buying habits when the price changed?).
11. Respond to Competitive Challenges: By monitoring customers’ purchase histories when new competition opens nearby, businesses can quickly and accurately identify what customers defect to the competition. These customers can then be enticed back with customer-specific incentives, special offers and even direct contact.
12. Select Product Lines Effectively: By knowing your best customers’ buying habits, you can more accurately predict which products lines to keep in stock, which to expand and which to discard entirely.
13. Plan Merchandising Optimization: Again, monitoring customers’ purchase history can allow businesses better determine which inventory items need to be ordered and when, as well as more strategically place merchandise on the sales floor.
14. Reduce Promotional & Advertising Costs: Targeted marketing efforts, through loyalty program data, allows businesses to zero in on specific customer segments, to reach the right customers with the right message at the right time.
15. Selecting New Business Locations: Your loyalty program provides you with valuable details on your customers’ demographics and geographics, allowing you to choose new business locations that would be the most profitable for you and beneficial for your customers.
Segmentation increases the relevancy of marketing messages, which can result in higher open and click-through rates, as well as stronger sales. When connected to different lifecycle marketing stages, marketers can more effectively message their customers to produce a better customer experience and stronger results, and increase retention rates.
Understanding which channel and what message consumers need is more important than ever. Segmentation helps you differentiate customers in your database so you can develop more relevant and impactful marketing tactics.
Lifecycle marketing is one of the most common segmentation approaches used today. For example, if customers in your database haven’t made a purchase in the last 12 months, they would be added to a reactivation program to incent additional engagement before they go dormant. To enhance a reactivation program, marketers might overlay a value-based segmentation using historical data to understand which customers to focus on to re-engage them. The more robust the segmentation, the more able you are to send tailored messages.
Choosing the right segmentation method depends on the data available and a clear understanding of marketing objectives. The most common segmentation techniques today to consider are:
RFM Segmentation: This helps companies that are looking for an inexpensive and simple solution to drive marketing communications based on the recency, frequency and monetary value of customer transactions.
Demographic Segmentation: This approach is ideal for when demand for a company’s products/services is influenced by characteristics such as age, income and home ownership.
Behavioral Segmentation: This technique groups consumers based on similarity of purchase behavior or affinities.
Attitudinal Segmentation: Businesses segment the market based on how attitudes and needs influence purchase behavior.
Value Segmentation: Marketers can define segmentation based on value place by customers on products.
As you get into trigger campaigns, like abandoned cart or browser behavior, the response rate starts to increase. When you add in lifecycle messaging, you get a higher response rate. Each layer adds an additional conversion rate and leads to a more successful marketing strategy with greater ROI.
Source: Database Marketing Guide, April, 2012. Author, Judy Loschen.
How have you used customer segmentation in your marketing efforts? What types of segments have you implemented?
In what ways has marketing segmentation influenced your customers’ experiences with your business?
Their story is who they are, what they’re about and why they work for you. Their story will help your dealership be more human. Being human will get you more business, earn you more referrals and create untold amounts of customer loyalty.
Why is humanity important you ask? Why is oxygen important? Both are imperative, the former becoming even more so the more we move towards a customer-driven economy. People want to do business with people. They want to do business with people they like, know and trust… with people, with humans. Are you human?
By becoming more human you give your customers a reason to like you, a way to know you and allow for the creation of trust.
Here’s an idea for showcasing your humanity: allow your employees to tell their story. What I mean by that is let them create videos and share with the world who they are, why they work for you and what kind of place the dealership is. This gives the people who obtain service at your dealership insight into who the woman that changes their oil is, who the guy is that fixed their starter and why they both love working at your dealership.
Don’t stop there though! Every employee should be given a change to tell their story. How many kids do they have, how long have they lived in the community, where did they go to school and why are they working at your dealership. The idea behind this is that you don’t want your customers to just to do business with ABC Motors, but with Becky and Mark, Ryan and Samantha.
Remember, the difference between traditional advertising and social media is that traditional advertising is all about the marketing of the business, where social media is all about the marketing of the PEOPLE of the business. In other words, it’s time to market your humanity. Why? Because people want to do business with other people, not with a faceless machine.
Source: PersuasiveConcepts.com, April, 2012. Author, David Johnson.
How have you empowered your employees to share who they are with your customers?
When you receive reviews from customers about specific employees that helped make their experience more enjoyable, how do you reward these employees?
How do you encourage your employees to go above and beyond traditional service to create positive, memorable interactions with your customers?
A couple of weeks ago, J.D. Power and Associates released a report titled “Beyond Satisfaction: J.D. Power 2012 Customer Service Champions—Brands That Deliver Service Excellence to Maximize Business Results.” The report concluded that consumers prefer brands with excellent customer service and don’t always focus on the lowest price. Auto related brands identified as “Champions” include Cadillac, Jaguar, Lexus and MINI.
Why is customer satisfaction important? J.D. Power finds a very strong link between levels of customer satisfaction and levels of customer recommendation and intent to repurchase. The report also finds that brands that provide exceptional customer service tend to consistently employ these specific practices:
2. Understanding their customers and offering the right products through the right channels in ways that truly resonate with them.
3. Being consistent in branding and delivery of the service experience, particularly across various channels and customer touch points.
For more information on the J.D. Power and Associates report, you can download the “Beyond Satisfaction” report here.
How can these three best practices be executed in your auto dealership or retail store? By empowering your employees, sending relevant and targeted communications and ensuring that you have a strong branding message. That is, you should be able to explain to customers why it’s better to buy from you instead of your competitor. Then, make sure every employee is trained on the branding message and knows how to properly greet and treat every customer.
What processes does your store have in place to deliver excellent customer service?
Are your employees empowered to make decisions and resolve customer complaints?