It's time to Optimise Your Retail Loyalty Program

As a business owner or marketing manager, what percentage of your time and resources is spent on trying to get new customers versus re-engaging existing customers? If you’re like a lot of businesses, you’re spending much of your time trying to acquire new business. After all, more customers equals more money, right?

Not necessarily.

Research shows that gaining a new customer is actually five to 25 times more expensive than keeping an existing one, whereas improving customer retention rates by just 5% can grow profits by 25%-95%. In fact, a Gartner study found that 80% of a company’s future revenue comes from just 20% of its existing customers, and 61% of small businesses reported that 50%+ of their revenue comes from repeat customers.

Why are Returning Customers so Valuable to Your Business?

Making the most of your existing customer base can be well worth the effort. There are a few key factors which underscore this concept:

• The 1000 Fans principle: Your core fans will generate more revenue than everyone else combined, simply because they love your products and always want more.
• Happy customers tell their friends: Word-of-mouth referrals are powerful! More than half (55%) of U.S. consumers recommend their favourite companies and brands to family and friends.
• Loyalty and positive feeling trump cost: People are willing to pay more for a positive experience. This may be a practical decision, or a primarily emotional one, but the research shows that 55% of customers will pay more for a good experience, and that emotionally connected customers are on average 50% more valuable than their brand-agnostic counterparts.

Given this, it might seem simple to tap into this valuable resource of the returning customer. Businesses often assume that if the customer is happy and has a good experience, they’ll come back.

However, the research shows that it’s not that easy. In fact, 87% of a brand’s existing customers don’t stick to that brand when it comes to buying a given product or service. So, how can retailers optimise their offerings and strategies to tap into the value of the return customer?

It’s all about customer engagement and loyalty triggers.

How to Optimise for Customer Loyalty

There are four key areas to focus on when it comes to encouraging customer loyalty:

• Ease and convenience: Make it easier to buy from you than from a competitor
• Customer service: Make it more pleasant to buy from you
• Offers, discounts, promotions: Make it cheaper to buy from you
• Personalisation: Make it more personal to buy from you

These four areas come into play in a passive way when customers visit your physical store or website and find features like one-click checkout, easy returns and refunds, promo codes and free shipping, and friendly salespeople with personalised recommendations.

But passively waiting around for customers to come to you isn’t enough. In a world where around 543,000 new businesses are started each month, you’ll need to be actively connecting and engaging with your customers in order to keep them coming back for more.

This is where the concept of “loyalty triggers” comes in. These are features, benefits, activities, or communications from your brand to existing customers which encourage engagement and return purchases when they otherwise might not be looking to purchase.

According to a recent report by global IT provider Comarch, the most effective triggers, which maximise the likelihood of return business for retailers, are:

For businesses with a physical location:

• Proximity of store
• Opportunity to touch and buy the product on the spot
• Customer-centric and supportive service provided by in-store associates
• Accurate, individualised promotions and offers

For online businesses or any brand with an online store:

• Purchasing anytime (24/7)
• Next-business-day delivery
• Flexible return policy
• Accurate, individualised promotions and offers

These values vary in importance across different retail verticals and depending on whether you have a physical store and/or a website. For example:

• In the apparel niche, the ability to touch/buy the product (via a physical location) or a generous return policy (online) was significantly more important than for other verticals.
• Beauty and apparel have the highest overall retailer loyalty scores among consumers (50% of consumers consider themselves loyal to a particular retailer), and jewellery has the lowest (only 32% would say they are loyal to one brand). Home, DIY, and electronics scored in the middle (35-49%).
• Being able to experience and buy on the spot is most important across the board for any physical location, followed by customer service; whereas, for online shopping, being able to buy any time of day or night is most highly scored, followed by a flexible return policy.

What these features have in common are that they all reflect one or more of those four key areas: convenience, customer service, offers, and personalisation. And perhaps more tellingly, regardless of whether you are an online store or a brick-and-mortar retailer, the common element is “accurate, individualised promotions and offers.”

Given that this is such a powerful trigger in incentivising a shopper to buy, businesses need to find ways to take advantage of personalisation and offers to drive new purchases from existing customers. This is where the concept of a loyalty program comes in.