A customer loyalty program remains one of the biggest and most effective revenue drivers for many businesses. That’s because loyal customers are the best customers – especially if they are rewarded for their loyalty. 75% of consumers say they are likely to purchase from the same brand again after receiving an incentive.
Considering other statistics on customer retention, it’s easy to see why customer loyalty programs are such a big sales generator. Existing customers are 3-10 times more likely to purchase a product as opposed to a cold lead. The probability of an old customer buying a new product is over 50% compared to a new buyer. The former also spend 33% more than the latter. What’s more, robust loyalty programs are a way for brands to extend their relevance beyond the point of purchase, through partners and other links.
However, building an effective customer loyalty program is harder than ever before. Why? Because before the Internet, consumers didn’t have a 360 degree perspective of brands. Brands could hide their negatives and only focus on the positives. Today, consumers have a lot more visibility. And so brands need to see themselves through the customer’s eyes before they can calibrate themselves correctly.
The Hard Questions Consumers Want Answered
A customer loyalty program is only an effective revenue instrument if it is well thought through. Prior to creating a customer loyalty program, marketers need to put themselves in their customers’ shoes and ask the following questions – and then answer them honestly.
1. Are the brand and its value proposition directly or indirectly relevant to me?
A value proposition is all about delivering the right brand messaging to your prospects. A brand has to be relevant to the customers in order for them to even
consider having a relationship with you.
It’s amazing how often brands misidentify their target, or try to establish a relationship with a consumer where the relevancy and alignment simply isn’t there. If you’re not relevant to a consumer, they are not going to engage. Period.
This isn’t to say that relevancy isn’t a subtle thing. In many cases, you could have time-sensitive relevancy. A brand may not always be relevant to customers. As a good example, hotels are only relevant to them when they’re traveling. But most of the time, when customers are not going on trips, hotels are not relevant. The key is to understand how your relevancy functions so you can determine the consumers you want to target.
2. What do I get for doing business with the brand?
What a customer receives in exchange for doing business with a brand is crucial. Consumers are talented at assessing the rational set of benefits and features that a brand provides.
These benefits and features are what make customers want to engage with a brand, purchase from them, and use them. And so it’s everything from “Does the product perform the way I need it to perform?” to “Is the product available to me on a relatively convenient basis?”
Consistency in delivering these benefits is essential to any loyalty program. When Hilton Hotels launched the Honors Program, the product had a high level of inconsistency. The last thing a consumer wants is to think they’re booking a Hilton, only to arrive and find that they’re actually in a motel. This sort of inconsistency and damaged expectations created the level of segmentation that exists in hospitality today, where today Hilton has multiple different brands.
The key here is understanding, in an empathetic way, customer expectations. What do they want? What are they expecting? Consumers will show loyalty, but only if they feel they are being respected and getting what they paid for.
3. How do I feel about doing business with the brand? How does the brand make me feel about being a customer?
Customers’ feelings are, of course, entirely subjective. But marketers must take them into account when designing a customer loyalty program. Consumers aren’t cold-headed analysis machines. They want to receive rational benefits for doing business with the brand. But they also want to feel good about doing business with the brand. This is what cognitive scientists call both hot and cold cognition.
How customers feel about a brand is more important than ever. In today’s business climate, younger Gen X, Millennials, and Gen Z consumers comprise the bulk of buyer demographics. Feelings perhaps weren’t as big of an issue for Boomers and older Gen X consumers. You went to the store and bought what you needed. But today’s consumers see the brands they select as part of their identity. Their choices are ethical and emotional, not only functional.
Today, marketing messages focus on positive human aspects, such as joy, patriotism, bravery, and beauty. The same is true with loyalty programs. Each purchase or action invokes a positive emotion. One study showed that 70% of emotionally loyal and engaged customers spend twice as much on brands they are loyal to. Simply put, an effective customer loyalty program makes its customers feel emotionally comfortable as well as materially rewarded, which results in higher profits for the brand.
4. Does the brand share the same values as me?
Again, for the emerging demographic of buyers, values matter in a way that they didn’t use to. According to a recent report on consumer culture, 83% of Millennials say it’s important to buy from brands that share similar beliefs and values.
Consumers are increasingly avoiding brands that they feel do not share the same values as them. If they view brands as socially irresponsible, or think that they aren’t showing concern for society as a whole, they will react very badly. For some consumers, values become the overwhelming criteria for brand choice. For others, values become a reinforcing criteria. Either way, the values matter.
If companies fail to connect with their consumers on a value level, brands can hurt themselves by being perceived in a way that alienates them from their target buyer. They could make the best product in the world, but if the consumer thinks that they are misaligned with their values, they may take their spending power elsewhere.
For example, when Adidas launched its new line of footwear made of recycled trash from the ocean back in 2015, almost everyone in the industry was skeptical. Five years and 11 million pairs later, Adidas continues to produce sneakers from marine plastic and debris. The sports company attributed this success to consumers who share their belief in the preservation of oceans through recycling.
5. Do I belong – or can I see myself belonging – within the brand’s community of other buyers that use the brand?
People who shop at Lululemon know that their fellow shoppers probably also value fitness and wellness. People who shop at Patagonia know that their fellow shoppers probably also like outdoor activities, and share their environmental values.
Humans have an innate need to be with others who share certain similarities and affinities. This extends to consumers. There are subcultures, cultures, interests, and affinities stored within those massive databases and membership ranks that lend themselves to communization – where you can build communities within your buyer base.
In Maslow’s Hierarchy of Needs, once we have satisfied basic physiological and social needs and sense of social belonging, we then need to move toward craving self-esteem and self-actualization. Loyalty programs have always played a strong role in driving these top two rungs. Loyalty programs have the power to help people develop identities that bolster their sense of self.
Community membership presents a throng of benefits customers want to capitalize on. Members of NikePlus, Nike’s elite customer loyalty club, enjoy exclusivity, access to special products, omnichannel experience on various platforms, and dibs on unreleased merchandise among other shopping perks.
If your loyalty program can offer a community where members feel appreciated and like they are part of a community, customers want to be a part of that community. It helps them distinguish themselves as individuals with unique and carefully developed personal characteristics.
Go Forth and Build Loyalty
When building a customer loyalty program, if you take time to consider these five questions, you will put yourself in a powerful starting spot. To create a loyalty program from the ground up, business goals aren’t enough. The program has to be built with your customers’ perspective, mindset, and consciousness at the forefront of your thinking. This is the key to rethinking loyalty in our modern age.