THE CLARUS Blog

Why Loyalty Programs Are More Important Than Ever

Customer loyalty is one of the hottest topics for brands today.   

You read and hear about loyalty program launches and revamps almost weekly. Yet, there are many brands that still rely on their legacy loyalty programs.   

The truth is that loyalty is harder than ever. In fact, 68% of consumers say their loyalty is more difficult for retailers to maintain than ever before. 

That’s because consumers have more choices than ever making it easy for them to find anything they want, at the best price, right from their phones. 

And that’s why it’s critical that brands differentiate themselves. But the sunsetting of cookies on the horizon makes collecting valuable data on your customers even tougher. 

Here are five reasons why loyalty programs are more important than ever and can help your brand overcome all these challenges. 

 

A Great Loyalty Program Can Help You Reach New Customers Organically

A loyalty program can help your brand attract new customers and acquire new lifelong members. 

And it can grow organically because when you have customers that love your brand, they talk about it and the word spreads. Online reviews and referrals from friends are critical in attracting new customers to your brand. 

Consider 83% of consumers trust personal recommendations more than any other form of marketing. Referrals generate twice the sales of paid advertising, according to McKinsey. 

Research suggests that referred customers are more loyal, more profitable, and have lower churn rates than non-referred customers. 

Word-of-mouth advertising occurs among people and social posts. These loyalty program members can become brand advocates and people tend to trust what friends and family say over advertisements. It’s a much deeper and more organic connection. 

Also, this is significantly less expensive than traditional marketing and trying to compete with all the clutter out there. We see so many advertisements all the time, especially on social media. 

What’s a more powerful marketing tool for a brand? An ad? Or a passionate evangelist talking about your brand? 

If you’re giving your loyalty program members a ton of value and convenience through your program, this word-of-mouth advertising will happen. In fact, some loyalty programs gamify and incentivize referrals, offering rewards to members who invite new shoppers or post about brands on social media. 

Loyal, satisfied customers are one of your most powerful marketing tools. 

While customer acquisition can be expensive, a great loyalty program will work for you when your members spread the word to family and friends. 

 

Loyalty Programs Lead to Higher Customer ROI

It costs up to five times as much to acquire a new customer compared to the cost of retaining a current one. So, focusing on retention can be a wiser, less costly business decision. 

Loyalty programs increase purchase frequency, AOV, and engagement. 

Retained customers who are program members are crucial for brands because they buy more often and spend more than new customers. They like your products and services and keep coming back for more. 

As a result, program members are more valuable to your brand. Also, happy customers are proud to refer your brand to family and friends. 

And if you can provide loyalty program benefits faster, it leads to instant gratification for members and makes for a more profitable program.  

Ninety-four percent of premium loyalty members shop with that retailer at least once a month. 

Retailers that offer loyalty program benefits sooner see more frequent shoppers: Most retailers (86%) who offer benefits within the first week say their loyalty program members shop at least once a week — that number drops to 63% for those who offer benefits within the first month.  

If you can get a consumer to join your program, future communications are easier and less costly as well. But with cookies going away, how can you collect the right data to communicate effectively?  

 

Loyalty Programs Are a Great Way to Collect Customer Data

As brands prepare for third-party cookies to disappear by the end of 2023, collecting customer data and insights will become even more important. 

Two types of data will be invaluable to brands: First-party and zero-party.  

First-party data is data that your company owns and is collected directly from your customers as they interact across your website and various brand channels. This data relies on acquiring consent from customers, such as when they fill out a form to download a whitepaper or agrees to have their browsing behavior tracked when visiting a website.  

Zero-party data is when customers willingly give brands opinions on various parts of the customer experience.  

This data helps brands leverage key customer insights. But what’s the best way for brands to collect this valuable data? 

When a customer becomes a member of your loyalty program, some of the data your brand can collect includes demographic information (name, age, gender, location), household information (income, marital status, children, home market value), and personal interests (hobbies, charitable donor, etc.). 

You can also ask your members to participate in surveys in exchange for points or special promotions. It’s a great way to ask them what they love about the program or find out where it’s lacking so you can optimize the program. 

Armed with this type of customer data, brands can personalize offers, deliver relevant rewards, communicate with members more effectively, and re-engage old customers. 

As third-party cookies disappear, loyalty programs will become even more critical as brands pursue customer data collection. 

 

Your Loyalty Program Can Help Your Brand Differentiate

Eighty-eight percent of consumers agree that retailers could do more to earn their long-term loyalty. 

Many loyalty programs have a similar feel because they are one-size-fits-all. The challenge here is these programs tend to offer little in the way of competitive differentiation. 

You can differentiate your brand through data collected from an engaging, valuable loyalty program. Listen to your customers and identify their pain points. Let your loyalty program solve those pain points 

With third-party data going away for brands in less than two years, the time is now to cultivate customer data from your loyalty program. 

Brands can do this by offering a differentiated loyalty program. One with a combination of transactional and experiential benefits, along with enticing incentivized engagement, which drives positive customer behavior. 

Transactional loyalty is one thing, but experiential loyalty elevates the member experience and creates sustainable emotional connections between brands and consumers. 

This stands as an excellent opportunity for retailers to differentiate themselves through their respective loyalty programs. 

For example, Best Buy recently launched Totaltech, a premium loyalty program filled with great benefits and services. 

Totaltech carries an annual membership fee of $199.99 and includes hard-to-find holiday items. Totaltech helps Best Buy differentiate by offering benefits such as: 

  • Unlimited tech support from the Geek Squad 24/7/365
  • Up to 24 months of product protection with an active membership
  • Free delivery and standard installation
  • VIP access to dedicated phone and chat teams
  • Access to exclusive Totaltech member prices
  • Free two-day shipping
  • Extended 60-day return and exchange window
  • Everyday savings on repairs, advanced services, and more. 

When consumers join Best Buy Totaltech, they also are automatically enrolled in the company’s traditional loyalty program called My Best Buy, which allows them to earn reward points, shop exclusive deals, and more. 

Meanwhile, apparel and outdoor gear retailer The North Face has a very appealing and unique loyalty program called XPLR Pass. 

Customers can earn points with the XPLR Pass program in the traditional way on every purchase, and in some unique ways. Like attending The North Face events, checking in at certain locations, and downloading The North Face app.  

The program offers unique benefits like a members-only customer service line, members-only field testing for gear, birthday shoutouts, and gifts with purchases. 

 

A Loyalty Program Can Build Emotional Connections That Create Brand Advocacy

True long-term loyalty depends on creating emotional connections for your program members. 

Consider this impressive statistic: Consumers with an emotional connection to a brand have a 306% higher lifetime value. 

Transactional loyalty, in the form of discounts, draw customers to your loyalty program. Everyone loves a discount, but how about developing long-term loyalty with a customer? 

This is where experiential benefits make a dramatic difference. 

To create an emotional connection, add experiential benefits to your loyalty program that align with your customers’ lifestyles. Your customers will be drawn to your loyalty program if it offers exciting experiential benefits. 

Lululemon, for example, does a fantastic job offering both transactional and experiential benefits through its loyalty program.  

For an annual fee, members enjoy not only free merchandise and free shipping, but they also can take part in top-tier online and in-store fitness classes. These benefits capture the lifestyle of lululemon’s customer base and offer exceptional value. 

Consider 90% of consumers would choose a retailer whose premium loyalty program they belong to over a competitor that is offering a lower price. 

Combining transactional and experiential benefits allows loyalty program members to experience more of your brand and create emotional connections and advocacy. 

Building true loyalty requires brands to offer unique incentivized experiences that aren’t available anywhere and add significant value to their lives. 

 

Prioritizing Your Loyalty Program Helps Customers Prioritize Your Brand

Because loyalty is harder than ever, your loyalty program must be better than ever.  

Since consumers have infinite choices, having a differentiated loyalty program should be a priority for your brand to be successful and elevate yourself from the competition.  

A good loyalty problem can solve your issues around customer data, your ability to differentiate, create emotional connections, acquire new customers, and generate higher ROI. 

And that’s why loyalty programs are more important than ever for brands to differentiate themselves against their competition and attract and retain members. 

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