When we think of loyalty programs, we primarily see them as a tool for boosting customer retention. However, recent market movements demonstrate that customer loyalty programs are as effective for customer acquisition. The idea of customer acquisition through loyalty programs may not seem obvious, at first. Yet, offering loyalty perks to customers show your commitment to them, as well as offering an advantage that attracts new customers over other brands without loyalty programs. Thus, part of the reason customer loyalty programs work for acquisition lies in branding, and the other part developing rewarding relationships between customers and brands.
Do customer loyalty programs work?
Google whether customer loyalty programs work and you’ll find everything from experts who contend that they’re the greatest thing since stretch socks to others who contend they’re a colossal waste of time. So, let’s take a step back to explore these programs.
Customer loyalty creates great value for a brand. Loyal customers make repeat purchases from the firm and commonly require fewer marketing costs compared with acquiring new customers. In fact, experts suggest that it’s 5 times more expensive to replace a customer than to keep your customers coming back. Repeat customers also commonly reflect a higher average order value than new customers. These benefits from customer loyalty show why companies rushed to develop customer loyalty programs in an effort to keep their customers happy.
Another aspect to understand about loyalty programs is the essential gamification of sales. By incentivizing customers to make more frequent purchases, purchase more, and use loyalty points, businesses take advantage of various aspects of human psychology that favor competition, a fear of missing out (FOMO), and reward-seeking behavior.
Unfortunately, loyalty programs became the shiny penny of the marketing world and soon everyone had one. In fact, recent stats show that 90% of businesses have some form of customer loyalty program, including 38% of small businesses. Seventy-two percent of consumers belong to at least 1 loyalty program and, on average, belong to 3. With numbers so large, the better question might be: Can I afford to not offer a customer loyalty program? For, while a loyalty program might not keep customers coming back (or, at best, result in customers who divide their loyalty among several companies offering loyalty programs), not offering one might cost you in terms of attracting new customers who see an advantage in these perks and will choose your competition to fulfill their needs if you don’t offer a program and your competitors do.
How customer loyalty programs drive acquisition
Incentivizing customers
Loyalty programs are not welcome bonuses or anything like that. In fact, it is quite the contrary. The purpose of loyalty programs is to appreciate and incentive long-time customers and build a relationship with new customers. However, there is a unique opportunity for customer acquisition here, as well. Lifestyle marketing plays a key role here since building a relationship with consumers in your particular niche not only helps you build a strong brand identity in that community but offers a way for brands to get to know their customers better by tracking their purchases.
Let’s take the example of credit card companies. Credit card companies offer one of the widest ranges of perks and bonuses to their loyal users. Through lifestyle marketing, they can appeal to the desires and aspirations of customers who want what they offer, not in their product, but in their loyalty program.
Another fine example is the apparel and sporting gear brand North Face. Anyone who is acquainted with the name of the brand knows that it stands for outdoor wear and active clothing. As a part of its customer loyalty program, North Face offers its customers a chance to visit exotic locations in the world, like the mountains of Nepal. By doing this, not only are they incentivizing the loyal customers, but also positioning themselves in the community of travelers and adventurers.
Incentivizing customers goes beyond offering token rewards. When you plan your loyalty programs so that they reinforce your brand positioning, customer acquisition and customer retention hand-in-hand.
Starbucks and customer loyalty
The biggest coffee chain in the world, Starbucks, has a standard yet effective way of boosting customer acquisition through loyalty programs. Starbucks gives loyalty points to all customers who order their coffee via the mobile app.
For customers, ordering coffee from a mobile app on their smartphones is more convenient. For Starbucks, it creates a great platform for monitoring customer preferences and trends, information that’s valuable in creating better offerings that support both customer desires and company growth. The data they get can then be used in marketing campaigns designed to drive customer acquisition. On the other hand, more and more people choose to download the Starbucks app, even if they do not visit it as often, in the desire for loyalty points.
North Face and Starbucks are not the only companies to do this so efficiently. Thousands of businesses of all sizes use loyalty programs to onboard new customers. Among other factors, it works so well because people always want to associate with a brand that values them for being loyal customers.
Identity marketing and loyalty programs
Identity marketing is a recent concept in marketing that focuses on treating the customer as equal partners. The underlying concept behind identity marketing is that we each choose an identity that sets us apart from the rest of the world, yet links us to communities choosing a similar identity. Identity marketing is not an end-all solution, but it fills in the gaps created by marketing focusing too much on demographics and geographics.
When we look at these types of data encompassing a region or age group, the implication is that the median preferences/choices made by some members represent the entire group. There is a big flaw in this assumption, as we already know. By focusing on the central tendencies within a demographic group, we leave behind the many variations within the group. For instance, a growing group of seniors representing the aging baby boomers isn’t a monolithic group. It contains active seniors who continue working, retirees, conservatives, liberals, grandparents, and surviving spouses. In contrast, lifestyles, the underpinning of identity marketing, capture these variations. Identity marketing aligns with the socio-cultural spirit of our era. Modern western society is known for its inclusivity and emphasis on individual rights, privileges, and oppressions. Identity marketing looks at customers as individuals in a group, not as groups.
Loyal programs are among the key tools for identity marketing because they help establish a bond between the customer and the company. They are a way of showing that the business values the loyalty of the customers. One of the key practices of identity marketing is to establish reciprocal relationships. By offering points and perks to customers, brands can establish this reciprocity.
Creating a community through loyalty programs
Humans, in the end, are tribal creatures and want to align themselves with a group of people. There have deep-rooted psychological reasoning and motivations for this, but it remains a fact no matter how much we focus on individuality.
Loyalty programs can invoke that same sense of community among customers if done right. If your loyalty programs have an element of togetherness and/or group activities, it creates a community-like bond among your customers. We can see this phenomenon in pop culture among celebrities. A closer-to-home example is demonstrated by brands on YouTube. When a content creator creates a brand for themselves on YouTube, they also create a community of fans who tend to share similar ideals and morals.
If non-media businesses take inspiration from these YouTube creators, they can also build a unique identity and a niche for themselves.
Customer loyalty programs leverage the power of the existing customer base to inspire and attract potential customers. At the core of it lies the idea of wanting an experience, not just a product or service. If you can provide that much-desired experience to the customers, customer retention and acquisition support each other.
Word-of-mouth marketing
More than 60% of marketers agree that word-of-mouth marketing is the most effective marketing channel. We tend to believe someone we know much more than someone who is paid to market or promote a product. Loyalty programs give a boost to word-of-mouth marketing by spreading the word of the perks and the benefits you offer from one customer to potential future customers. Even observing others use their loyalty cards acts as a tacit endorsement of the brand and stimulates users to apply for their own card. Word-of-mouth starts on a small scale yet grows exponentially with time.
Conclusion
Businesses that understand how to use loyalty programs effectively can solve the problems of customer retention and acquisition with a single solution. However, they cannot work in isolation. Loyalty programs can supplement all the other marketing efforts when you put thought into what perks you offer.
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