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The Benefits of Customer Loyalty Plans

You have probably noticed that online and brick and mortar businesses want you to join their customer loyalty clubs. There are tangible reasons that businesses promote these programs. Effective loyalty programs serve several key purposes but, most importantly, when businesses do it right, loyalty programs affect the bottom line in a big way.

Inc. Magazine recently delved into loyalty programs and why businesses are promoting them with such vigor. Inc. revealed that to get a new customer to buy costs businesses 5-10 times more than it does to get an existing or loyalty club member to purchase. To support the reasons for loyalty clubs, businesses have discovered that existing customers typically spend as much as 67 percent more than new customers.

But, there are other key components to loyalty clubs. The loyalty club offer requires the consumer to complete important personal information, including contact information. This information is neatly and confidentially stored in the company’s database.

Typically, each loyalty club member receives a bar-coded membership card. This card is used to redeem savings at checkout. When the loyalty club member’s card is swiped, the information about the purchase is stored and analyzed by the business. This information allows the business to know what products the member will continue to purchase. This helps the business plan its inventory so that it is fluid.

But, there is more to the loyalty card than helping with inventory projections. The card also helps establish demographics. Demographics are used to help marketing directors determine how, when, where and what they will advertise.

Inc. says that in the US, 75 percent of consumers have one loyalty club card. More than 30 percent have more than one card. According to a 2011 Colloquy Customer Loyalty Census, loyalty club cards have generated about $48 billion in perceived benefits. Astoundingly, one-third of that amount remains unredeemed. The loyalty is much stronger for consumers who have actually redeemed the benefits than it is for consumers with unredeemed benefits.

The bottom line is that some companies, like Starbucks, e-Bay, Amazon.com and several airlines provider excellent loyalty club programs. Others are not as dedicated to the system or do not take it seriously. Indeed, some loyalty clubs are used to gather information more than they are on rewarding existing users with benefits.

Loyalty clubs are not exclusive to the US. Businesses in the UK, Canada and many other established economies offer loyalty club membership.

What To Expect in the Future

In response to an increasingly mobile consumer, Forbes Magazine projects that the nature of loyalty clubs is about to change dramatically. Businesses realize that a great amount of business is transacted by mobile purchasers. This reality will force businesses to extend loyalty club membership to mobile buyers.

Many businesses were unprepared for the success of mobile devices. The fact is that many persons use their smartphones and iPads to accomplish many of the tasks they used to do on their desktops. Gamification or “the use of game-thinking and game mechanics in non-game contexts in order to engage users and solve problems,” has become a powerful force that smartphone users engage.

The effectiveness of Small Message Service (SMS) marketing is forcing businesses to design loyalty club apps that millions of smartphone users can use. The fact is that SMS marketing messages are received and read at a higher rate than any other type advertising. Where the consumers are is where loyalty clubs will be in the future.

Businesses that have solid loyalty clubs will raise the bar going forward. Forbes predicts that the increase in smartphone and iPad usage requires meaningful loyalty club apps. A high percentage of transactions are completed instantly via smartphones.

Keith Smith is the CEO of Big Door, a company that powers rewards programs for NFL.com and Adobe among others. Smith explained what will drive loyalty club providers in the future. “All these big brands that have existing reward programs are purchased-based or reward for purchases. Now they are starting to recognize that they need a digital layer that sits on top of these programs to reward customers for all of the actions that are taking place, whether it’s when they’re on social media or on the brand’s site. Businesses need a way to enable customers to register and login them in so they can tell the company who they are so that they can reward the customer and thank them for their behavior – and not just give them an extra cup of coffee.”

Loyalty Program Trends for the Future
  • The use of simple, clearly stated, points systems.
  • The implementation of tier system rewards with incentives for referrals.
  • VIP benefit programs with an upfront fee.
  • Use of non-monetary incentives like promotional coupons and discount codes.
  • Use of partner-related benefits that are all-inclusive.
  • Loyalty club game challenges.
  • Fewer loyalty clubs. Many businesses may waive loyalty clubs in favor of placing emphasis and steep discounts for first-time purchases.

Some shopping loyalty programs offer great value. These are the ones you want. However, make sure you fully understand the loyalty club agreement before agreeing to membership. Choose your memberships with forethought and care and you will be in position to save money on all types of purchases.

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