Customer loyalty program for small & medium business?
We have been working with customer loyalty issues and exploring them here at Walmoo for several years now. We have been talking with a lot of small & medium business owners and have heard a lot of different opinions whether the company should or shouldn’t invest money in building long-term relationships with the help of customer loyalty programs. We have come to the conclusion that for every company loyalty should start with the notion that “I want my customers to feel welcomed, reward my loyal customers and improve relationship with them”. Unfortunately, more often we see the approach of “I should do something for loyalty, because everyone does it. They will come back more often if I give them my loyalty card with X% discount.”. We have prepared a series of articles that will explain the different aspects of customer loyalty programs. From tips & tricks that should be used to understand, measure and increase customer loyalty to some useful check lists and tools for being able to achieve that easier this series will cover everything you need to know. Let’s start with the basic explanation of concepts.
What is customer loyalty?
Customer loyalty can be defined as a customer continuing to believe that your organization’s product/service offer is their best option. It best fulfills their value proposition whatever that may be. They take that offer whenever faced with that purchasing decision. Loyal customers believe the products and services purchased from their supplier are superior to those of the competition.
This is likely to:
- increased share-of-wallet by encouraging a customer to buy more from one brand, and less from its competitors : this results in selling more units to that customer;
- up-selling to higher level products, so selling more expensive, higher value products: this results in the higher revenue from the customer for a constant number of products sold;
- cross-selling of products the customers doesn’t currently buy, so in addition to the products a customer already buys, the company sells different products to that customer as well;
- referrals in the form positive word-of-mouth where the existing customers give recommendations to buy the firm’s products to friends and associates, which in turn leads to sales.
However, the most important fact is that the customer returns because of the service he gets. And when he does there may be a bonus — a special offer for him, due to his loyalty. The aim of a customer loyalty program bonus is to establish long-term relationships. If the customer isn’t satisfied with the service in general, then most likely he will just make the best use of these offers. And as soon as your competitor offers him the same or similar offers, he’ll go there as well.
Many of us focus on new customer/user acquisition, even though it can cost 7x more than customer retention. A new customer is more likely to make just one purchase and leave. Existing customers with repeat purchases brings more money to the company, so it’s very important to build loyal, long term relationships with your customers.
Frequently, loyal customers are the ones who view their transactions as more than just business. They believe there is a relationship that is bigger than just the products or services they buy — this is especially true for small to medium businesses.
There are a lot of aspects to be considered. The simplest way to encourage loyalty is good customer service. As simple as that. The first step is to assign people in your company to customer support. All problems and issues should be solved. The customer should leave with the feeling that he can get help whenever he needs it. You do have to care about the customer — the person who has shown an interest by paying for your product or service. You really should welcome him with the kind if special attention that will win his loyalty towards your company and product.
What does your customer want?
He wants to be recognized and rewarded for his loyalty as a sign of gratefulness from business. The reward should be valuable, but that doesn’t have to mean money. So don’t focus only on that. Customer often appreciate a personalized approach. You need to collect and use as much data as possible to set up a good loyalty program. A lot of companies fail at this. Look at yourself. How many loyalty cards do you or your family have? How many do you actually use? Do you know the reason? Think about that and try to identify the reason.
Customers want to have a clearly defined and simple rules for participation, including what information and how they will give information. Is it a plastic/paper loyalty card, their name/surname, mobile number, or a mobile app they have to download? You have to figure out what fits the best with your business. This is particularly important for small & medium businesses as customers are very selective with loyalty cards to keep in their wallet and which apps to download. You’re competing with all those customer loyalty cards and apps. UNLESS you have a way to identify customer without. (Expect another article about Wamoo‘s top missions — the future of seamless customer identification / experience personalization). The timeframe for the campaign shouldn’t be too long to that you can keep the customer’s attention. And remember loyalty campaigns should be for existing customers. If you give the same reward to new customers, you will ruin the whole idea behind the campaign.
The winners when it comes to customer attention are companies that invests a lot of effort in researching behavior. They have a lot of information about the particular customer or customer group. They use it for personalized offers that motivate their customers to buy more and feel special at the same time. That’s what a good loyalty program is all about. Unfortunately, too often we see loyalty efforts that focus only on giving stuff away without a sense of purpose or any idea why.
We’ll cover how to build a good customer loyalty program in one of our next posts.
How should you start?
You will have to answer a few simple questions before you start:
- Do you need a customer loyalty program? Depends on your business type and customer visiting frequency. Think of a Spa where 99% of customers are visitors from the hotel next door, and may never visit again because they aren’t local. This may not be the best place for a loyalty program (Unless very short lived, think “Visit us at least 2x this week and get complimentary massage”). This business may want to consider gathering feedback to continuously improve their customer service and focus on marketing that advertises their presence instead.
- Exploration. Think of the customers that bring you the biggest long-term value. Focus on them. Think of what you want your customers to do and what their expected behavior is. This could be your customers visiting your store at least four times a month, or spending at 35EUR. Or it could be that you want your customers to choose to celebrate their Birthdays at your business. Think of the incentives and rewards that could be interesting for them: It could be cashback, a discount, free stuff, exclusivity, It could even be a specially branded limited gift, an event or something a partner business could offer. Look what your competitors are doing. Think about what your customer would appreciate. In fact, just ask your customers!!! Define the rules of the game — and make them interesting.
- When you have figured out the very basics you can go further and do the calculations. Figure out the amount of investment required. Pay attention to how much money from your margins you should invest and if you can afford this across your whole product range. Don’t get too lost in this. Just keep in mind that loyalty programs do come with a cost and that must be taken into consideration.
These are the very first things you should think about. Keep in mind that customers aren’t as passionate about your business as you are, so don’t expect too much. You can’t assume that they will spend a lot of time browsing your website, spreading the word of mouth about your business or study a complex reward system with too many options to choose from. To start off, better keep things simple. You will have heard “Less is more”.
You are unlikely to notice an increase of sales and engagement within the first week, month or even the first three months. Be patient. Gather data, learn to use the data, learn from the data, and improve and adjust your personalized customer loyalty program accordingly. That way you’ll achieve maximum customer satisfaction and build long-term relationship. It’s like karma — you have to give to get back. That’s how it works!
So this was very short introduction into the world of loyalty. Over the next weeks we here at Walmoo are going to be reviewing different reward systems, come up with some of check lists, share our experiences using real use cases — all for you to be able to prepare and implement your perfect customer loyalty program much easier. Stay tuned!
P.S. If you have any specific topic you would like us to write about please tell us! Contact us on firstname.lastname@example.org, send a message via Facebook page, or via any other communication channel you like!