4 Advantages of Loyalty Reward Programs

One adage you hear time and again in business is that a repeat customer is better than a new customer. Why is that? Because repeat customers spend more money – 300x more! Retaining customers can help your company boost its profits up to 95%, however, having a customer buy from your business repeatedly, isn’t always easy to do. With so many options available to consumers, keeping your brand top of mind can be crucial to your business’s success.

How can you do that? By using a loyalty program to increase sales and customer engagement. With a loyalty program, customers are rewarded with something when they choose to shop with your company. Loyalty programs can be linked to a debit or credit card your business offers, making it even more likely for a customer to choose your company over the competition. In fact, when you market to repeat customers, there is a 60%-70% chance they’ll make a purchase. If you’re considering introducing a customer loyalty program, read on to learn more about the benefits of doing so, and the challenges you might face along the way. 

Advantages of Loyalty Reward Programs

In the U.S., the average consumer belongs to 14.8 loyalty programs, and more than 90% of companies offer a loyalty program. Reward programs can take multiple forms. Some examples of loyalty card programs include those from Target and Walmart. 

Target’s Red Card is either a debit card or credit card that gives shoppers a 5% discount on every Target purchase. The program also increases the return window for cardholders. Walmart’s loyalty card program gives shoppers 5% cashback when they use the card at Walmart.com or 2% cashback when they shop in person. The card also gives shoppers 1% back when they use it at other retailers.

Both programs give people an incentive to shop at Target or Walmart, making it more likely for them to become repeat customers. Other benefits of offering loyalty reward programs include:

1. Increased customer engagement: When a customer joins a loyalty program, they provide your company a chance to connect. If they sign up for a debit card that has attached benefits, such as the option of earning points or getting a discount on each purchase, they’ll likely want to know about other special offers and events going on with your company. 79% of consumers say loyalty programs are the reason they continue doing business with the brand.
2. Increased sales: Loyalty programs make shoppers more likely to choose your company over the competition. Once someone is a card-carrying member in a rewards program, they are more likely to purchase from you than from a company they don’t have a connection to. The customers who keep coming back to your company are the ones who are most likely to spend more when they purchase from you.
3. Eliminated price competition: Without a loyalty program, your company needs to do something to set itself apart from competitors. One option is to compete on price. But that’s often a race to the bottom. You can only reduce prices so much before you’re losing money on a sale. When you have something to offer people besides the best price, you can improve your company’s profits.
4. Increased word-of-mouth advertising: Word-of-mouth advertising is one of the most cost-effective and efficient forms of advertising out there. When a customer is satisfied with the benefits they receive from a loyalty card, they are likely to tell their friends about it, as 73% of consumers are likely to recommend a company that has a good loyalty program.

Challenges for E-Commerce Loyalty Programs

Loyalty programs for brick-and-mortar, in-person businesses have existed for years. The classic coffee shop punch card is a great example. Every time a person orders a drink at a cafe, they present their card. After they’ve received five or 10 punches, they get a free drink. The idea of receiving a free drink keeps them coming back. Plus, they get to enjoy the atmosphere of the coffee shop and the special attention that comes with being a “regular.”

Online, there aren’t really “regulars,” even though there may be repeat shoppers. Since everything takes place behind a screen, it can be more of a challenge to build up that sense of loyalty and get people to come back. Other challenges of online loyalty programs include:

• Program cost: In some cases, the incentives a loyalty program offers end up being too high. A popular incentive for online retailers is to offer free shipping to loyalty program members. But shipping tends to be expensive, meaning your company might need to find other ways to cut costs to continue to offer it.
• Getting people on board: Since people aren’t coming into an e-commerce shop the way they would a brick-and-mortar store, it can be more challenging to get them to sign up for a loyalty card. One way to overcome the obstacle is to include gentle nudges throughout the checkout process. For example, if the loyalty card offers a discount, a pop-up message can ask shoppers if they’d like to save on their purchase today. If free shipping is a perk of using the card, it can be listed as an option at checkout. If the customer clicks it, they can be directed to the sign-up page.
• Merging brick-and-mortar and online programs: Some companies that have a physical and online presence have struggled to merge their online and physical rewards programs. When the loyalty card is linked to a debit or credit card that a customer uses to make purchases, the problem is solved.
• Making the program stand out: One challenge brick-and-mortar and e-commerce companies have in common when introducing loyalty programs is finding ways to make them stand out from the rest. If every company offers free shipping, it becomes an expectation more than an incentive. If a 10% discount is common, it’s what people expect from a program. 71% of consumers say loyalty rewards programs are a meaningful part of their brand relationship, you’ll need to get creative and think outside of the box when designing a program to convince people to join.

Why a Customer Incentive Program Is Worth It

While your company might hit some bumps along the way, implementing a loyalty or customer incentive program is likely to be well worth the effort. One reason is that loyalty programs reduce customer churn or attrition. Customer attrition is the number of customers who stop purchasing from you. There are many reasons why someone might decide to stop giving you their business. They might have outgrown your products, or their tastes might have changed. They might have decided they disagree with your company’s values or they like a competitor’s product better.

Offering a loyalty program gives them a reason to stick around. Customers in loyalty programs are 62% more likely to spend more on your brand and 59% more likely to choose your company over the competition. Keeping your customers and encouraging them to send friends or relatives your way can cut your costs and increase your profits.