As brands continue to evolve and develop more complex, meaningful relationships with their customers and the wider public, the highly influential concept of Customer Loyalty gains more and more relevance.
As customers yourselves, you too have most likely experienced the powerful psychological effects of well-considered loyalty strategies directed to you by the brands you love - and the negative reputational outcomes that can occur when no steps are taken, or poorly planned schemes are rushed into place.
So, customer loyalty's creation and careful maintenance can be the difference between potential market dominance and a gentle slide into obscurity.
Based on the data we've been exposed to, businesses need to have a Customer Loyalty strategy and schemes in place to compete effectively in today's competitive landscape.
Below is a short overview of the best ways in which to create and maintain meaningful customer loyalty. We list some of the strategies that, when applied to various businesses, radically redefined their approach to Customer Acquisition and Retention - resulting in reducing the costs associated with the former and maximising the latter's value.
What is Customer Loyalty really?
It may seem self-explanatory, but how people define 'Customer Loyalty' varies greatly. The different perspectives can influence management outcomes. Simply put, Customer Loyalty is the relative strength of the tendency for a customer to consistently choose one vendor instead of another (Dick & Basu,1994).
Customer Loyalty is determined by a wide variety of factors, including brand perception, loyalty initiatives, and competitor action. Tactics can be utilised to create and enhance loyalty in ways that are quite complex and scalable over time.
The main approach to creating loyalty is by offering personalised incentives for customers who exhibit repeat business signs. The most compelling motive, and the one that makes up the majority of Customer Loyalty initiatives, is the price.
Suppose you can identify customers that show signs of loyalty to your brand via repeat purchase or interaction. In that case, you can then target and exploit this by offering them ways to consume your product or service for less money.
Ok, but how does this help my bottom line?
We understand your hesitance. It seems counterintuitive to begin offering discounts and financial rewards to customers, as it follows that your per-customer profit margins may be lower. And it's possible that the implementation of these systems into your customer relationship management systems alone could be costly and labour-intensive.
We're happy to report that, done correctly, this is rarely the case. Here's why.
Customer Lifetime Value' (CLV) refers to the total monetary value of a customer to a business over the relationship's length. It is a figure that is determined by the extent to which a business successfully retains its customers. It has been shown that in many cases, the potential profit of retained customers is higher than the profit derived from new customers when acquisition costs are included.
The 'Pareto Principle', a rule of distribution stating that roughly 80% of effects are derived from 20% of causes, is relevant here. The same distribution can often be found amongst the relationship between businesses and loyal customers. The minority of customers produce the majority of your revenue.
That isn't always the case, but through a specialised audit of your per-customer profitability and average customer life-cycle, along with other related key metrics, the relevance and potential value of Customer Loyalty initiatives can be determined.
So, it seems that committed, loyal customers offer more value to your business than many one-time customers due to marketing-related acquisition costs. The million-pound question is... what are the actual techniques used to create loyal customers?
Customer Loyalty Strategies
We know a little bit about that in what we do.
Fortunately, there are various strategies and techniques proven to establish loyalty amongst your customers, increasing their value to the organisation over time. Here are a few of our favourites.
#1 Loyalty Programs
Loyalty programs are a type of marketing strategy that encourage customers to continue exchanging with a business by offering tiered, personalised financial incentives or rewards (Sharp et al.,1997).
Think of Tesco's Clubcard scheme. It is a membership-based system where its recipients can earn 'points' every time they spend at Tesco. These points gradually build up over time with continued spending. They can then be converted into vouchers which can be spent in-store.
The popularity of loyalty programs in the world of digital commerce is only increasing in these times of economic uncertainty. It's clear why - customers who join loyalty programs save money.
And suppose your customers are financially motivated to continue doing business with you. In that case, the small loss in profit margins is further reduced by the customer no longer doing business with your competition. Loyalty schemes, therefore, represent a clear competitive advantage.
More so, having access to the pool of data that your customers will provide when part of the scheme can be invaluable. Future decisions about your product marketing can be better informed.
But don't take it from us. Sir Terry Leahy, Tesco's former CEO, said that the Clubcard scheme was ''the single biggest factor in the success of the company'' (Winterman, 2013). How's that for a testimonial!
#2 Discount Strategies
Discount strategies are carefully devised campaigns that offer a limited-time reduction in prices for your product or service. They are easier to implement than loyalty schemes. They can be instrumental in summoning a large amount of demand in a short period.
Discount campaigns are simple to perform, but the correct calibration of discount strategies relates to profit margins, the discount percentage, and break-even points. All these factors must be carefully considered if it is going to meet your business's needs adequately.
There are alternative solutions than offering a simple price reduction on your goods or services that, depending on the context, may suit your business's needs better. Offering cashback discounts or rewards for repeat purchases is sometimes a more appropriate path depending on the type of business and demand level.
To learn more about how to set up Cashback Discounts that works for your business, read our earlier article.
With the right digital tools at your disposal, discount strategies are a great, low-commitment technique that is proven to inspire your customers' loyalty that can be run frequently throughout the year.
#3 Utilising a Customer Loyalty Network Like OMG
The final strategy is perhaps the most powerful if we do say so ourselves.
As specialists in Customer Loyalty, we are well-positioned to determine the potential success and subsequent monetary reward from working loyalty schemes into your business.
Making use of an already established network of customers is a fantastic way to supercharge your loyalty initiatives and create value-maximising lifetime customers.
Not only do we have a fast-growing network of active buyers who love discounts, saving, and rewards, we also have a range of specialised tools to adjust Customer Loyalty strategies on the fly.
Our free tools for merchants allow you to track, measure, and calibrate loyalty schemes and discount strategies all in one place.
You can create dynamic discount campaigns, easily distribute limited-time promotions, and offer personalised rewards or cashback to your most valued customers, ensuring their business for years to come.
As if it wasn't simple enough, you'll be happy to know that our loyalty solutions are absolutely free without the need for any new hardware or training.
Interested? Join our waiting list here.