THE CLARUS Blog

What Does the Pareto Principle Have to do With Loyalty?

What’s an Italian economist got to do with customer loyalty?

Pareto was an Italian economist who, in 1906, noted that 20 percent of the population in Italy owned 80 percent of the property.

Well Signor Pareto concluded that his 80/20 ratio could be theorized to pretty much everything … yes, especially business. It means that 80 percent of your sales comes from 20 percent of your customer base.

Why not think of customer loyalty in the same way?

The bottom line (excuse that terrible financial pun!) is that your loyal customers are worth the most to you, period. They are the ones that spend the most money and shop the most.

Together with the fact that your acquisition costs are considerably lower than acquiring a new customer, the 80/20 Pareto Principle should always be at the forefront of any loyalty program.

The uptake of the traditional type of loyalty program (free and points based) is slowing down simply because the “collect points now and redeem later” model is too much of a long-term game.

Traditional loyalty programs offer little, if any, differentiation and train consumers to wait for discounts and coupons.

Most consumers never end up using the points and the cards sit either in the back of your purse or wallet, or at the bottom of a drawer.

Simply put, in today’s “we want it now” society, consumers are happy to pay upfront for a suite of benefits they can use immediately.

 

Is the Prime Subscription Model Contagious?

One just needs to look at Amazon Prime to see this model work in the flesh. With Prime in mind, consider this fact: Prime members spend more than twice as much as non-Prime members.

If eight years ago a CMO proposed to his or her board that the brand’s top 20 percent of customers pay a monthly or annual fee to have access to their loyalty program, that CMO would have most likely been laughed at.

But now retailers are tripping over themselves to have an Amazon Prime type of program.

Provide your best customers with a suite of premium benefits and they will continue to shower your brand with their loyalty … and, of course, their hard-earned cash!

 

Why Premium Loyalty Can Become Part of Your Customers’ Lives

Premium loyalty comes under various guises.

There are terms out there like “subscription loyalty,” “fee-based program,” and “pay to play loyalty,” but premium loyalty encompasses it all–a premium set of paid benefits, designed for your best customers.

No two premium loyalty programs are alike.

But the lowest common denominator for getting it right is that the program needs to be embedded in the fabric of your customers’ lives.

Get this right and not only will you keep your 20 percent engaged, but the 80 percent one-off customers will have a reason to join your top 20 percent.

 

Lululemon Looks to Loyalty

At the end of 2018, Canadian athletic apparel retailer Lululemon started testing a premium loyalty program that charges members $128 annually.

Given the highly impressive results, officials for the athleisure brand plan to expand the test into additional markets, possibly at a higher membership price point.

Successful loyalty programs combine transactional and experiential benefits to create differentiation. And Lululemon officials realize this.

Competition is heating up in the athleisure market and Lululemon’s program satisfies that emotional need to shop smartly by offering benefits like free shipping and a pair of pants or shorts.

The program also awards members curated events and workout classes. Those are the experiences that are more memorable and unique to Lululemon, satisfying an emotional desire for exclusivity. These kinds of experiences become so valuable to customers and often become a part of their daily lives.

Members of Lululemon’s premium loyalty program embrace the exciting benefits and sense of exclusivity. Lululemon officials have tried to engage customers with a Prime-like program focused on a mix of transactional and experiential benefits.

 

Make Your Best Customers Better

Focusing on your top 20 percent of customers (who typically account for about 80 percent of your sales) should always be a priority for any brand.

Retailers need to differentiate themselves and a premium loyalty program provides a competitive edge.

A premium loyalty program allows retailers to enjoy more engagement, more order frequency, and higher AOV, in addition to collecting valuable data about their best customers.

These types of programs target your best customers and make them exponentially better and more valuable to your brand.

If your top 20 percent of customers account for 80 percent of your revenue, wouldn’t you want that 20 percent to become even more valuable?

Are You Ready to Go Premium?

If you want to become a 24/7 presence in your best customers' lives, it's time to get started.