Loyalty Marketing Strategies Part 1

Critical Components

Loyalty develops by creating a positive emotional connection with a person (or brand) through a series of positive interactions or transactions. Over time interactions/transactions become a part of the normal routine and in turn nurture a positive relationship. That’s why companies for over 35 years have been fostering consumer loyalty through rewards and loyalty programs. The average American consumer belongs to seven rewards programs, and 70% of consumers are willing to join more programs.

Common rewards programs utilized by consumers:

• Hotels
• Airlines
• Retailers
• Gas stations
• Grocery stores
• Car rental agencies
• Credit card companies

Research reveals that over 50% of consumers surveyed modify purchases on a when-and-where basis to maximize loyalty benefits. Not surprisingly, respondents choose brands to optimize a specific reward programs value. Loyalty marketing, marketing to your loyal customers is the smartest strategy you can utilize for your business. Retaining an existing customer is far more cost effective than attracting a new customer.

Building and sustaining customer loyalty includes:

• Value exchange
• Emotion-driven brand loyalty
• Experience-driven brand loyalty
• Stimulus-and-response conditioning

The combination of rational and irrational elements in the context of broad-reaching economic factors like recession or the unemployment rate and personal factors such as a poor experience with a company representative, prove to be a dynamic mixture indeed.

Marketing Strategies to Increase Customer Loyalty

Marketers and retailers should focus efforts on integrating three core marketing strategies to increase customer loyalty. Marketers that operate programs integrating these strategies will see measureable increases in rewards program enrollment—and a better lifetime value from customers:

1. Limited-Time-Only Promotions – Attract customers with an effective promotional strategy (Acquisition).
2. Rewards for Purchase – Incentivize customers to repeat visits and increase average order value (Growth).
3. Points-Based Rewards Program – Enroll customers in a simple points-based retention/rewards program that builds tangible value (Retention).

The 3 Core Strategies in More Detail

Limited-Time-Only Promotions – Marketers continue to test various pricing and promotion strategies, for example the everyday-low-price strategy. Some experts believe the low price strategy is more effective than other pricing strategies because studies indicate customers want the purchasing process to be easy because the customer wants the product now. Customers are motivated to purchase when they believe the promotional price is temporary (limited-time-only). Additionally, customers are unsure when and if a desired product will be discounted in the future. Limited-time-only promotions are effective, however this strategy will not be successful for the long-term because a long-time bond between customer and business is not usually realized.

Rewards for Purchases – Recently one retailer compared a reward-for-purchase promotion against an instant-discount-at-the-register promotion. The reward-for-purchase strategy resulted in 14% increase in sales.

The promotion strategy was initially intended to increase store traffic by having the reward-for-purchase offer redeemed at the same retailer. This strategy resulted in customers performing one to two incremental store visits within 30 to 45 days of the initial purchase. The instant-discount-at-the-register promotion returned zero under the instant discount promotion offered at the register.

The additional store visits for the retailer led to an incremental 14% in revenue over the initial purchase (compared to 0% in the instant promotion). Breaking down the incremental revenue, 4% of the 14% represented additional out-of-pocket purchases made by customers. The remaining 10% was initially provided by the retailer to the customer as a Reward for Purchase that the customers spent back to the retailer at full value. Interestingly, more than 50% of the rewards were spent back at the retailer within 60 days of the initial purchase.

Points-Based Rewards Program – This strategy was also intended to generate two to three additional point-of-sale transactions. The additional generated revenue allowed the retailer to enroll customers in the retention/rewards program and increase program “stickiness”. Points-based rewards programs increase revenue when there are two factors present, an increased transaction frequency by customers and the recentness of customers having last made a purchase.

Implementing these three strategies can help your company attract new purchasers, increase your firms’ customer base, and retain and reward loyal shoppers.Tweet