The retail industry right now is a volatile environment, and its constant change is posing interesting challenges to those within. Some of the latest trends affecting the state of the industry include online channels, the emergence of small specialized or luxury retailers, and brands forgoing traditional retail channels and setting up their own custom sales outlets.
Furthermore, the way consumers interact with retail channels is evolving as rapidly as the pace of technology; the explosion of mobile devices demands that consumer engagement tactics embrace technological innovation like never before. There is only one long-term solution to this ever more competitive landscape: grow genuine, long-term consumer loyalty. Why consumer loyalty? Simply because it is surprisingly easy on the budget in the long-term, and it has the potential to greatly impact the purchase decisions of consumers. In fact:
- A Nielsen survey concluded that 84% of consumers are more likely to choose retailers that offer a loyalty program, and 59% report that they’re available where they already shop.
- 62% of consumers said they’d consider joining a fee-based rewards program if their favorite retailer offered one.
- About 76 % of all U.S. grocery retailers with 50 or more stores have a Loyalty program
Let’s take a look at the benefits of the loyalty program from the perspective of both customers and retailers, and then the ways in which you can implement a successful program.
From the Retailer:
Every retailer in the world wants new customers; however, in this desperation, they often end up spending 5 to 10 times more than the cost required to retain their existing client base. This demonstrates that focusing on engaging your existing customers could cost less and yield more benefits in the long term.
The success of the retailer heavily depends on the value the customer spends over his lifetime. A suitable customer loyalty program can dramatically increase Customer Lifetime Value (CLV) and ROI, by not only keeping them loyal but also by encouraging them to spend more.
Retailers can use these loyalty programs to shape consumer purchasing behavior. The valuable and high in-demand data collection at the end of the program can be utilized to create hyper-targeted marketing and advertising programs which could result in further cost savings.
Loyal customers are less price sensitive and they don’t mind spending more due to the increased perceived value of being able to do business with their favorite brands and retailer.
Also, they pass on positive recommendations about their favorite brands to their friends and relatives. This might trigger a word of mouth marketing on a very large scale.
According to recent research, 73% of the retail loyalty program members say they would recommend the retailer/program to their peers.
This will lead to the overall increased share of wallet since word-of-mouth marketing can be more influential than any other form of marketing.
From the Customer:
One interesting, yet often overlooked idea, is the fact that customers want to be loyalty. The state of being loyal is a state of simplification; they don’t need to fret over every purchase decision, or take extra effort worrying about where to shop. Most people crave patterns, order, and structure. Deep down, this is the core of why loyalty programs can be so powerful; when they do resonate, the impact is truly significant.
43% of the members associated with retail-based loyalty programs are very satisfied with their experience.
Another reality is that customers want to feel exclusive. While it is a natural human tendency to feel a sense of belonging, and togetherness with peers, the feeling of superiority to your peers can often feel even more powerful. Customers don’t just join loyalty programs only to receive good discounts, earn freebies and save money. Customers know they are receiving a preferential and exclusive treatment. Members-only products and services makes them feel special.
At the end of the day, rewards and incentives are the icing on the cake, and they can act as the final influencing factor to modify a behavior or inspire purchase. Customers tend to change their shopping and buying behavior by experiencing the real-time earning of rewards, and contextual relevancy is a common theme with contemporary strategies. Take the example of a coalition program between a retailer and fuel company; it is a perfect match for customers to buy groceries, and then redeem the just earned points for a fuel purchase on the way home.
An effective customer loyalty program is a both win-win for retailer and customer. A successful loyalty program is a combination of value, customer service and smooth implementation. The loyalty provider must ensure that every aspect of the program is deeply strategized, so as to empower the customers and simultaneously elevate the business of the retailer. Here are some best practices to consider when developing a program that is mindful of both the retail and the customer needs:
- Think beyond traditional rewards: while rewards are a necessary building block for loyalty programs, think of other ways you can inspire consumers to connect with your brand, whether through social, influencers, or events to celebrate their patronage.
- Work with flexible vendors: a good loyalty program will react spontaneously to shopper behaviors. Your loyalty providers must be able to tailor your program to social channels, digital & mobile trends, and must be able to do so efficiently.
- Up the ante on your data analysis: as discussed, Customer Lifetime Value is a mission critical ROI metric – the only way to assess this variable is to improve the quality of your data analysis so it can comprehend the ever-evolving complexities of modern shoppers. Having an exceptional front-end system for data collection goes without saying.