Top 4 Benefits of Loyalty Programs

Give your business an edge in the current market by unlocking the potential of loyalty programs

Harwin Kaur

MarTech Blogger | June 23, 2023


Businesses often get swept up in the pursuit of new customer acquisition to boost brand awareness, expand their customer base, and drive up sales. While these are important goals, it’s equally important not to overlook the value of existing customers. It has been proven time and again that loyal customers contribute just as much, or even more, to a company’s overall profitability. 

Bain & Company, theorizes that a small 5% rise in customer retention rates can result in a significant 95% boost in overall profitability. This highlights the crucial importance of prioritizing the retention of existing customers for businesses that aspire to achieve long-term success and maximize their profits. This raises the question: how can businesses develop strategies to hold onto these customers? The answer is simple – implementing a loyalty program. 

However, before diving into the manifold advantages of such programs, it’s crucial to understand what a loyalty program is.

What are Loyalty Programs?

A loyalty program aims to cultivate repeat business by offering incentives such as discounts, reward points, or exclusive perks. Through this, businesses encourage continuous customer engagement with their brand. To create an effective loyalty program, businesses should prioritize customer preferences in their marketing efforts. This approach enhances customer satisfaction and builds long-term relationships, providing a competitive edge. Customers feel valued as they receive personalized rewards for their spending, making them more likely to pledge loyalty to the brand.

The term “loyalty program” is broad and can be customized to fit a business’s needs and preferences for its customer base. However, certain types of loyalty programs have been widely adopted with a proven track record of effectiveness. These include: 

  1. Points-based systems where customers redeem points earned for rewards such as discounts, free products, or exclusive experiences
  2. Tiered programs which allow customers to move up through different tiers based on their level of engagement with the brand, with each tier offering more exclusivity and valuable rewards
  3. Game-based programs where customers can engage with the brand to earn rewards by playing games or completing challenges 

Effective loyalty programs often adopt a hybrid system that combines different types of the above engagement tools and rewards to offer a more diverse range of benefits to customers. 

By implementing a loyalty program, businesses can leverage the fundamental factors that drive customer loyalty. A study by Bond Brand Loyalty found that loyalty program members are 70% more likely to spread the word about a brand than non-members. The proof is clear as day (or in this case, the statistics). Not only do customers receive rewards for promoting the business, but they also organically perform acquisition marketing on behalf of the business! 

Key Benefits of a Loyalty Program 

Now that we’ve established the significance and value of loyalty programs for businesses, let’s delve into some of the top benefits of implementing one.

◉ Cost-Effective Strategy 

Acquiring new customers typically involves investing a significant amount of resources in marketing and advertising campaigns to generate potential customers. This can include activities such as email marketing, paid search ads, and social media campaigns among other forms of promotion. Conversely, retaining existing customers entails providing them with a positive customer experience, personalized communication, and loyalty rewards to continue doing business with the company. 

Research shows that acquiring a new customer can cost 5-25 times more than retaining an existing one, depending on the industry and customer segment. Additionally, existing customers are more likely to make repeat purchases, refer others to the business, and spend more even during economic downturns. Therefore, boosting customer retention rates through loyalty programs can be a cost-effective strategy for businesses.

◉ Build a Customer Base that Values Your Brand Beyond Price

Customer loyalty programs help businesses differentiate themselves by connecting with customers’ emotions and offering a more personalized experience. Businesses can build a strong bond with their customers by gathering and acting on feedback, constantly communicating, and focusing on curating a pleasant customer experience, which demonstrates their value for the customer’s opinion. Giving customers that extra attention a personalized experience is particularly important in today’s market, where the ease of being able to compare prices between competitors has given rise to customers that are more price sensitive than ever. 

By appealing to customers’ emotions through customized rewards and recognition, businesses can build stronger bonds with their customers who feel appreciated and encourage repeat purchases. Loyalty programs encourage customers to become less price sensitive and focus more on the curated experience provided by the business. This will allow them to recognise the brand’s value and nudge them to pay a premium, thus giving the business a competitive advantage.

◉ Acquire Valuable Customer Data

An often-overlooked benefit of loyalty programs is that they provide businesses with an opportunity to gather valuable data about their customers. By tracking customer behavior and preferences through the program, businesses can gain insights into their customers’ purchasing habits, preferences, and interests. This information can help businesses tailor their marketing strategies to better meet the needs of their customers.

Additionally, the data gathered through loyalty programs can help businesses identify patterns or trends in customer behavior over time. This information can be used to make more informed decisions about future product development, pricing, and other relevant business strategies.

◉ Build Loyal Brand Ambassadors

Loyalty programs help to unlock the power of existing customers and turn them into committed brand ambassadors. They transform an average customer into a business’s most valuable asset – one that can spread the word about the brand and its products to their trusted network. This generates more revenue for a business through word-of-mouth recommendations than any advertising or marketing campaign can. 

Advocacy is the most powerful marketing tool. A loyalty program assists in creating a network of advocates that will not only stick with the business but also actively promote it. By providing incentives for referrals, a business can demonstrate the value it places on existing customers while attracting new ones. 

Factors to consider

Developing a successful loyalty program involves careful consideration of several areas: 

  • It is crucial to define the program’s primary objective, such as improving customer retention or driving sales. Setting specific and measurable goals will help to design a program that aligns with your business objectives.
  • Determining the program’s type is essential, whether it will be tier-based, game-based, or a hybrid, and make decisions regarding rewards in advance. This includes defining how customers can earn points or advance through different stages, as well as establishing clear guidelines for redeeming their rewards.
  • To ensure the success of your loyalty program, it is important to focus on effective promotion. Consider carefully strategizing your communication and marketing efforts to deliver a message that emphasizes the program’s benefits. This can be achieved through utilizing a range of marketing channels, including social media and email to create awareness and actively encourage customer participation.
  • Lastly, it is critical to consider setting a sustainable budget to ensure stability and avoid loyalty debt. This can be done by evaluating the estimated costs associated with implementing the loyalty program and calculating the expected return on investment. 

In conclusion, executing a well-designed loyalty program is crucial in allowing businesses to curate and expand a fiercely loyal customer base for sustainable success. Personalizing and tailoring the program to match the needs of its target audience is the key to its effectiveness.  

Consider starting your journey to a robust loyalty program with The Perx Platform, that promises to supercharge user acquisition and enhance customer retention rates. Request a demo today to witness all its unique features and functionalities, and explore how you can use them to your advantage!

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