THE CLARUS Blog

With a Shift to Profitability Over Growth, How Can You Maximize Existing Customers?

This article was originally published in the “How to Overcome the 5 Biggest Retail Challenges of 2020 with Premium Loyalty” eBook.

 

The strategy for many companies in recent times has been fast growth at all costs – including putting profitability at the back of the line.

Some newer brands have grown tremendously and gained market share, but lately, there have been concerns around sustainability.

Brands like Uber, Lyft, and Peloton have recently performed poorly in the eyes of investors making shares trade below their IPO price.

The focus of investors is shifting from growth to profitability.

 

Growth at What Cost?

Retail currently finds itself in a tough position. Margins are getting thinner from higher costs, tariffs and required investments, including traditional loyalty programs.

While growth is still important for the long-term success of any company, the spotlight on profitability is shining brighter. Profitability is an indicator of sustainability.

Even Amazon, whose profits were hit or miss for its first couple of decades, has had four consecutive quarters above $1 billion in profit.

Amazon’s focus has moved away from just acquiring more customers and growth at all costs to maximizing growth from existing customers. So how can you leverage your premium loyalty program to increase profitability?

It all comes down to strengthening relationships with your existing customers. New customers aren’t the only key to growing profits.

Retailers have to prioritize investing in existing customers and focus on retention efforts. That’s where premium loyalty programs can really shine.

It can cost five times as much to attract a new customer than to retain an existing one. And increasing customer retention rates by 5% increases profits by 25% to 95%.

The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is 5-20%.

 

Premium Loyalty is About Giving More to Get More

Traditional loyalty programs are often seen as margin killers. These programs are essentially giving away discounts, but not building true loyalty.

A successful premium loyalty program focuses on maximizing the engagement with your best customers. These programs are so valuable that customers are willing to pay to be a part of them. Amazon Prime, CVS Health and REI Co-Op are all great examples.

Since these programs can offer exponentially better benefits, consumers engage more regularly.

The top 3% of customers spend 3x more on average than other customers. More than half of all premium loyalty participants shop with that program’s retailer at least once a week.

With a premium loyalty program, there is no need to accumulate points for discounts later. The benefits are available 24/7, so members tend to engage more often and spend more when they do.

This means more store visits, more website transactions, and more touchpoints with your customers. For retailers, this is a prime opportunity to create more loyalty moments.

After all, loyalty isn’t just about a single transaction. Getting a customer to sign up for a loyalty program isn’t creating loyalty. It’s just one loyalty moment.

You must execute consistently across every moment that customer is going to come in touch with your brand.

That means in-store, on your website, on the phone, on social media, and the list goes on.

Brands that get this right are the ones that are going to be the most successful. Those are the ones that are going to build better relationships with their customers.

And existing premium loyalty program members can recruit new customers for free. In fact, 84% of consumers are likely to recommend a retailer to friends or family when the retailer offers a premium loyalty program with benefits that are valuable.

All these things help cut costs and can ultimately make a company more profitable.

 

Delighting Your Best Customers Leads to Profitability

Remember, a loyalty increase of 7% can boost lifetime profits per customer by as much as 85%, and a loyalty increase of 3% can correlate to a 10% cost reduction.

RH, the upscale, home furnishings company, is a great example of a brand that transformed from a promotional model to a premium loyalty model. The RH Members program is helping to boost profitability.

In fact, it provided 95% of the company’s core business and reduced inventory year-over-year by 30%, or $225 million by streamlining operations.

CVS has found similar success with CarePass, which costs members $5 per month (or $48 per year) for several benefits including free delivery on prescription medicines and 24/7 phone access to speak live with a pharmacist.

Those in the program were found to spend 15 to 20% more than before they were members.

So, identify your VIP customers, involve them in your premium loyalty program, and focus on nurturing those relationships by providing transactional benefits every time they shop and unique experiential benefits that add value to their lives.

 

To learn more about the biggest retail challenges of 2020 and how to overcome them, download the free eBook here.

How Premium Loyalty Can Help You Overcome The 5 Biggest Retail Challenges of 2020 [eBook]

 

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