How to Start a Customer Loyalty Program

Your little enterprise has grown for the past three years that it’s been operating. You recently surveyed your customers and found that the number of unique customers has consistently increased by 11% on average for each of those years. You’re growing your team as well. Your most recent move was to beef up your marketing team to try to push your branding to the next level and maximize the use of digital marketing platforms. You’ve also budgeted for software and advertising.

Your marketing head discussed with you the concept of implementing a loyalty program to encourage customers to continue patronizing your products and services. You gave the thumbs-up. What should you expect from such an initiative? How will it impact your business?

The Loyalty Programs Market

By 2021, the estimated value of the loyalty programs market will be $201 billion. This is due in part to the surging behavior of consumers to shop online using smartphones and other mobile devices. The number of Americans shopping online in 2019 is 224.1 million, which is expected to balloon to 230.5 million by 2021.

Your Loyalty Program Options

buying from a grocery store

Loyalty programs are designed by business owners to encourage customers to continue to buy their products and services. The goal is not only to make them buy but to have them return as repeat customers. There are three types of loyalty programs:

  1. A program providing discounts or perks. Sometimes these are referred to as points program. Coffee shops offer your 5th drink for free if you buy four drinks. Airlines give you points for your miles, and those points can then be used to get a seat upgrade.
  2. Program based on relationship. Brands entice customers by creating a link through content. NikePlus membership is an example. There are no discounts, but based on your profile, you’re provided with contents and updates (e.g., news, videos, ads about the latest product, etc.) related to basketball.
  3. Paid Membership. Customers want the VIP feel. And they are ready to pay for that premium. AmazonPrime is the best example of a loyalty program based on membership with a fee. One of the benefits of AmazonPrime is free shipping on a purchase. Unlike the points system by an airline, however, which is based on your miles, members of AmazonPrime get the same perks regardless of their purchase amount. Amazon generates $1,500 per year on average from Prime customers, while non-Prime customers spend only $625.

Based on these models and if you’re a small to medium-sized, some version of the discount or perks program might work for you. But also remember that this model works best on business where customers buy frequently and on a short-term basis. You would likely buy more coffee drinks in a month than you would several cars in your lifetime!

Nike can afford to have the relationship type of program because a) it’s such a big and global brand, and b) their customer base is also huge. NikePlus has more than 100 million members. Nike is interested in creating a community and being connected by providing content. Amazon is the same, a big brand with a global customer base.

Ultimately, customers come back because you have an excellent product and you provide an excellent service, which makes customers feel special. Make sure that these essences are captured in your loyalty program.

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