Do Customer Loyalty Programs Really Work?

If you're a looking at ways to achieve brand loyalty with your customers, you’re probably wondering “do customer loyalty programs really work?” Well, the simple answer is yes.

There’s no denying that customer loyalty programs are a highly effective tool for retaining customers and also attracting new customers.

However, it is important to look closer at customer loyalty overall.

Psychologist Joel Weinberger defines loyalty as "an emotional concept that causes a person to make decisions based on feelings or emotions."

Therefore, one of the biggest mistakes that businesses make is assuming they can ‘purchase’ their customer’s loyalty, or that brand loyalty can be instantly guaranteed simply by introducing a customer loyalty program.

It is vital to point out that customer loyalty does not grow overnight. It takes time and effort to build. Businesses cannot incentivise or ‘bribe’ customers into being loyal to their brand.

In fact, studies have shown that only 45% of consumers who participate in loyalty programs count themselves as being ‘loyal’ to that brand. While the remaining 55% said they would still be happy to purchase from a competitor.

This proves that customer loyalty programs cannot be relied on to create brand loyalty, and businesses shouldn’t expect or depend on them to do so.

So, you’re probably asking “..how do customer loyalty programs really work then?”

The key in building a strong and positive relationship between your customer and your brand.

Once a business has built a positive relationship with their customer, they’ll be more successful in generating customer loyalty.

Therefore, businesses need to focus on creating a caring and mutual beneficial customer relationships, in order to inspire customer loyalty and trust.

Studies have proven that customers who have a positive relationship with a brand will shop with them more often, spend more per transaction, be more forgiving when things go wrong, and also recommend the brand to their family and friends.

How to create great relationships with your customers

Customer loyalty programs are then a great way to reward your customers for their loyalty.

So although a loyalty program alone can’t guarantee how a customer will feel towards your brand, there are indeed many things you can expect from a customer loyalty program.

Here are some of the benefits of customer loyalty programs:   

1. They encourage repeat purchases

There’s no denying it, people like free stuff. Therefore it makes sense to provide a value exchange to reward customers for their shopping. This is likely to get them to come back in spend more if they are earning their way towards a special reward such as a freebie or discount.

And in case you didn’t know, repeat customers are incredibly valuable for your business. In fact, they spend 67% more than first-time customers.

2. They create a point of difference against your competitors.

Most things, especially in retail, can be matched these days. Price, service, location are just some of the factors that can cause a consumer to choose to purchase from one store over another.

However, one thing that is hard to match is an excellent customer loyalty program offer. You want your customer to feel as though they will miss out on the benefits of your program is they purchase from someone else.

When considering a purchase decision, you want your customers to think:

“Even though the product I want to buy is on sale at the shop down the road, I am going still going to purchase from (Your Brand) because I want to get my points and I know they appreciate me.”

3. They provide actionable customer insights.

Loyalty programs provide a great mechanism for businesses to understand their customers, generate insights and ultilize these insights. This point is particularly useful if your have a digital loyalty program or loyalty card app as the data is stored digitally, making it easily accessible and easy to interpret.

Whereas traditional paper punch cards do not allow business to capture customer data or behaviours (thus, do not provide any customer insights).

4. They make your customers feel special

Loyalty programs make your customers feel special and recognised, which further fuels their admiration and strengthens their relationship with your brand.

5. They encourage referrals

If your customers are loving your customer loyalty program, they are going to generate positive word of mouth to their inner circle (which is the best and most trusted form of advertising, and doesn’t cost a thing!).

This will then drive new customers to your business for you to start building great relationships with. Then the brand loyalty building process starts again.

Summary

Customer loyalty programs have incredible benefits for businesses, however it is important to realise that they take time and commitment to ensure that they are effective.

Customer loyalty programs also shouldn’t be relied upon as the only method to achieving your customer’s loyalty, however they can absolutely help you increase it.

It's important to remember that building customer loyalty starts with creating strong customer relationships in the first instance.

Given that customer retention can boost profits up to 95 percent though, the return on investment for your time and effort spent on nurturing your customer relationships to build brand loyalty will be well worth it.

Lance Walker, the CEO of Loyalty NZ, does a great job at discussing why customer loyalty programs for businesses are so important in the following Tedx Talk video:

https://www.youtube.com/watch?v=5EkiOwoLz-4