Do you have a customer loyalty program in your store? According to the Gartner Loyalty 2018 research, only 44% of retailers offer loyalty programs. I’m frequently asked about customer loyalty, so it seems like a good time to discuss why loyalty programs have become necessary and how to create a great program that gives you a competitive advantage.
Do I really need a loyalty program?
I would argue yes! Volumes of research show the important role customer loyalty programs play in customer retention. Most of you compete every day with grocery and pharmacy chains, and almost all of them offer loyalty programs. The good news: There are still a lot of poorly run programs that don’t truly create loyalty. So you have a great opportunity to design something personal and differentiate yourself from the big box stores.
Here are some important statistics to consider:
Customer retention statistics: Gartner points out that attracting new customers costs between five to 25 times more than keeping an existing one; repeat customers spend 33% more than new customers; and 80% of your future profits will come from just 20% of your existing customers.
Consumer engagement statistics: 52% of customers will join a loyalty or VIP program; over 70% of millennials and pre-millennials are members of loyalty programs; and 82% of Gen X is active in at least one loyalty program.
As you can see, these programs are expected by the younger generations, but additional research shows that most of these programs miss the boat. Create something fun and exciting, and you will set yourself apart.
What impacts consumer loyalty?
So, what differentiates between a successful and unsuccessful loyalty program? Well, it’s not really a big surprise. It turns out that knowing your customers, catering to their needs, and making them feel special makes a giant difference.
In fact, 66% of Americans view the customer experience to be as important as quality or price in the retail interaction, and customer service to be as important as product quality and price when making a purchase.
Spoiler alert: Most of you are already creating loyalty whether you have an official program or not. How do I know? Because an industry analysis by Boehringer Ingelheim showed independent pharmacies number one (compared to chains, clinics, mass merchants, and grocery) in all three of the survey’s customer satisfaction categories: filling of medications, convenience, and wait times.
Since you are already well on your way to a successful customer loyalty program, let’s look at a bit more research before I make a few suggestions.
If you’re like most of us, you belong to at least one loyalty program that doesn’t impact your loyalty. In fact, 65% of consumers admit they actively engage in fewer than half of their loyalty programs, and 41% with fewer than a quarter. Additionally, studies show that consumers are less likely to engage in loyalty programs that treat everyone the same. One-size-fits-all programs, fail at tailoring rewards to products and services important to the individual. Instead, they offer discounts on products the person doesn’t purchase, and they don’t differentiate between various customer categories. I’ll talk more about that later.
And one last important survey result (I will use this in my recommendations below): Over 60% of consumers feel that receiving surprise gifts or discounts related to the things they purchase is the most important attribute of a loyalty program. Let’s build a program.
How do I build a successful customer loyalty program?
As an independent business owner, you have an opportunity to make a connection with your customers in ways most chains cannot. While there definitely is a portion of the population that buys solely on price, it turns out they don’t represent the majority. In fact, long-term loyalty is typically earned by creating relationships, both personal and transactional. A good loyalty program addresses both.
No more statistics!
The first step in creating a great program is differentiating your customers. For the most part, they fall into one of three categories: those who are not price sensitive and shop with you for convenience; those who are price sensitive but will shop with you due to convenience; and those who are loyal for nonprice reasons.
Most of you can identify the people in the third group, so I’ll address them first. These are typically the people who come in to say hi. They’re the ones whose families have shopped with you for generations. They know you and have a personal connection. Your loyalty program needs to respect them with a personal touch. Create a special loyalty level for these people. Make the name something special. Be creative. Make it fun. Make it a special club! Send a handwritten note periodically. Give them something free. Offer them a coffee while they wait. And make sure you train your new staff members about these people and how important they are to your business! A great loyalty program acknowledges these people in a very special way, differently from everyone else.
The first group, those who aren’t price sensitive and shop for convenience, need a bit of an incentive to shop with you for products they can also purchase at other convenient locations, like the grocery store. These people are likely buying much of their OTC (over-the-counter) and HBA (health-and-beauty-aid) products at the grocery store where they shop once or twice a week. As you create your loyalty program, you should not only reward them with discounts and rewards for the things they purchase, but also attempt to expand their basket with incentives to purchase OTC and HBA items they don’t normally purchase. Your goal with this group is to expand the size of their baskets when they get to the counter.
The second group, price sensitive and shopping only for convenience, is usually identified by their unwillingness to join your program. Design your program to offer them an incentive to come back and purchase the same item or item category again at a discount. If they bring the coupon back, offer them an immediate discount on their entire purchase (not just the coupon) if they sign up for your program. These people need immediate rewards to get them interested in becoming loyal.
While this may sound difficult, good loyalty software can do all of this easily. A great loyalty program is less about software and more about creativity and excitement. You and your staff must buy into your program and make it fun for your customers. People love surprises, and the best programs keep the surprises coming! Most importantly, great programs increase both sales and profits. CT
Brad Jones is founder, president, and CEO of Retail Management Solutions. He can be reached at bjones@rm-solutions.com.