Customer loyalty isn't what it used to be. In fact, research company Access Development reported that 79% of customers would take their business to a competitor within a week of experiencing poor customer service, while the estimated cost of customers switching their choice of businesses due to poor service is $1.6 trillion. Keeping this in mind, how can businesses strengthen their customer loyalty in a world where customer sentiment is constantly shifting and consumers have more options than ever before of where to spend their money?
Chris Luo, VP of Marketing of loyalty technology company FiveStars, believes that "from our experience, almost all retailers who generate some kind of repeat business have the opportunity to boost their ROI and profitability by increasing the retention of their customers. For fast casual restaurants, as an example, oftentimes 60% of customers never come back after their first visit."
Retention - as Luo points out - is essential in maintaining customer loyalty. But many questions remain as to why customers aren't being loyal. Are customers not returning due to bad customer service alone? Or are customers not returning because there are other options? Or possibly, however, are customers not returning because they have been given another reason to dismiss a specific business, including the possibility of preferring a competitor? Whatever the reasons are, one thing is for certain... customer retention is vital in sustaining a healthy business.
Customer Loyalty Realities
As a consumer myself - which of course, you can relate to - I know I make purchase decisions everyday based on a variety of factors. Among them include their proximity to my immediate location, as well their customer care and overall in-store experience. If all of these are positive, I lean towards their effort in keeping me loyal... because after all, I know there are a tremendous amount of other places I could spend my money nowadays. Preferring to shop local, I also consider this... and almost always end up somewhere that provides a loyalty program, as well.
Loyalty programs are proven to increase customer lifetime value by up to 30% or more by increasing visit frequency, increasing spend per visit, and winning back lost customers," explains Luo.
Winning back lost customers, keeping customers loyal and helping to impact future spending decisions are all strong factors in why loyalty programs are influential to customers... and important for businesses to have. Starbucks, Ulta, Caribou Coffee and Sephora are among those merchants who already have loyalty programs in place, but interestingly some of the biggest brands out there do not. Among them? McDonald's. News recently emerged that McDonald’s is developing a loyalty program in the U.S., which will be built upon the chain’s smartphone app released in 2015. As Nation's Restaurant News first reported, "McDonald’s USA president Mike Andres said that the program could be a big sales driver for the Oak Brook, Ill.-based burger giant."
Based on what Andres shared at a UBS Global Consumer Conference in early March, it sounds as if this loyalty program will be strongly based on past consumer purchases, as well as designed to offer loyalty during a specific time-frame to help drive more immediate sales. But this model doesn't work for everyone. Various loyalty programs exist nowadays, with many small businesses still leaning on punch cards for their frequent visitors while more and more businesses depend on technology to help them manage customer loyalty. Either way, the goal is the same... to capture more customer attention, and specifically, more consumer dollars. As for some favorite programs that currently exist? Luo shares his thoughts on a few that others may be able to learn from.
Mac Cosmetics:
"I really like what MAC Cosmetics is doing. Like Sephora, they are rolling out an interesting 3-tier rewards structure that provides elite privileges for higher levels of spend. These elite levels provide strong incentives for repeat purchases and then drive ongoing engagement since the spend to access each level has to be renewed every year. From our data, we've seen that merchants with multiple tiers of rewards are generally more successful than those that have--usually we speculate because with multiple tiers you can really engage the true VIPs and drive out-sized impact in that group, which often drive over 80% of revenue," shares Luo.
Starbucks:
"Starbucks had a very strong loyalty program that rewarded customers who prepaid for their visits. They leveraged two very strong loyalty program levers - prepayment and points per visit. We've seen that prepayment can increase return visits by up to 50%. Point per visit incentives can drive 20% increase in visit frequency among regulars as well. However, they weren't taking advantage of how rewarding points for spend can also be an additional driver by increasing the average ticket size. After they make this change, I expect that overall Starbucks revenue will increase by 3 to 5% overall," states Luo.
Finally, whether your business is big or small, it's important to consider how you strengthen your own customer loyalty. To help, consider what makes customers come to your business in the first place. Is it out of convenience - such as a gas station being positioned in a prime location - or is your business more destination based and customers come specifically for a certain product or service? Identifying the existing strengths of your business, as well as identifying the existing weaknesses, can help you identify a loyalty program that may be right for you.
