For most marketers, a great measure of success is new customer acquisition. But we must remember that it is equally important, and often less expensive, to make sure your existing customers are happy. In fact, it costs a business between 5 and 25 times more to acquire a new customer than it does to sell to an existing one. Not to mention that existing customer spend is 67% more than new customer spend.
In short, customer loyalty pays off. Businesses need to think about what they are doing to keep their customers coming back. In this post, I’ll dive into five examples of companies that know how to build customer loyalty and the programs they’ve created to grow retention.
What is a customer loyalty program?
Loyalty is not just a phase; it’s in every phase of the customer journey. Customer loyalty programs often offer benefits to customers who make repeat purchases. A loyalty program may give a customer free merchandise, rewards, coupons or advanced access to product releases.
So how do you convey enough additional value in a loyalty program to keep your customers coming back? Here are some ideas that have proven to be a success for other companies:
The Point System
The point system is one of the most common loyalty programs out there. Members earn points that translate into some type of reward. Often, those rewards take the form of discounts or freebies once a customer collects a certain amount of points.
One of the first loyalty programs I ever joined was the REI Member Dividend program. When you become a member, you’re essentially investing in the success of the organization. You receive a share of the co-op’s annual profit based off your annual REI purchases. Essentially, the more you spend, the more you earn.
So if you’re an outdoor enthusiast who spends money on gear anyway, why not receive additional perks? And when the snow finally arrives, you have that extra $50 (that you forgot about) to spend on a new ski jacket.
Sephora speaks the language of its audience. Who doesn’t love free beauty products?
Sephora’s Beauty Insider reward members receive perks after they attain certain spend levels. Every dollar spent earns the member one Beauty Insider point, and shoppers can redeem points for beauty supply items at checkout. Other benefits include free shipping, a free makeover, and highlighting the benefits of using the mobile app to stay connected for even more rewards.
For a one-time fee, customers are relieved of any inconvenience with a VIP membership program. The key to these customer loyalty programs is providing enough value to frequent shoppers to make them feel like the program is really benefitting them.
Living in a small mountain town, I have to say that Amazon Prime is my favorite and most utilized loyalty program. Amazon Prime is a VIP program with an annual fee that lets customers bypass common purchase barriers. For example, free two-day shipping to all Prime members.
Amazon was smart by identifying factors that cause customers to stop doing business with them and creating a solution to address those obstacles. This type of program is most applicable to businesses that thrive on frequent, repeat purchases.
Amazon has mastered this for ecommerce. Analysts estimate that Amazon loses $1 billion to $2 billion per year on Prime. But the company makes up for it in increased transaction frequency. Prime members spend an average of $1,500 on Amazon.com purchases a year, while non-Prime member spend an average of $625 a year. How might you apply this model to your ecommerce business?
To truly understand your customer, you must understand their values. Shared value programs have a huge impact on whether a customer will be loyal to a brand.
Your customers may find more value in non-monetary rewards. Brands such as TOMS provide value to their customers in ways other than dollars. In so doing, they provide a unique opportunity to connect with their audience in meaningful ways.
The TOMS Shoes one-for-one program is dedicated to providing resources to communities in need. For everything item purchased, TOMS helps a person in need. The program first started with TOMS donating a pair of shoes to a child in need for every pair purchased, but it has now grown to help ensure access to clean water, improved maternal health care, and supporting other organizations such as the Wildlife Conservation Society.
Patagonia customers understand that Yvon Chouinard backs the company’s talk with action. The company donates a portion of its revenue to environmental causes and uses recycled “Fair Trade” certified, organic material in its clothing. Not to mention it is one of the founders of the Sustainable Apparel Coalition, a group of companies that has promised to reduce its environmental footprint. These are just a few of the non-monetary values that resonate with Patagonia consumers.
It seems that the company’s message has built an audience of environmentally conscious and upscale consumers. They like the idea of buying a product that is made by an environmentally friendly company in a sustainable manner.
The genius behind Patagonia’s marketing came from a 2011 Thanksgiving ad campaign titled “Don’t Buy This Jacket.” The ad talked about the cost to the environment for making one of the company’s best-selling fleece sweaters and asked consumers to reconsider before buying the product and instead opt for a used Patagonia piece. Because of this, the company saw its revenue grow about 30 percent in 2012 followed by another 6 percent growth in 2013.
As with any marketing initiative, you must be able to measure your success. One method to analyze your customer loyalty program is to track customer retention rate. This metric indicates how long customers stay with you, and it should grow over time if you’re running a successful loyalty program.
Negative churn is another great metric to track. As opposed to customer churn, which is the rate at which customers leave your company, negative churn means even if you’re losing customers you’re still making more money each month because of additional spending from existing customers. It helps offset the natural churn that goes on in most businesses.
Overall, customer loyalty programs are a great strategy to retain customers and keep returning consumers coming back and spending money. What are your favorite customer loyalty programs? Post them in the comments below!