Heart & Sold: Can you buy customer loyalty?

There’s a strong link between loyal customers and your bottom line, but as Sue Hoban explains, rewards programs aren’t the only way to a shopper’s heart.

You’ve heard about the 80/20 rule, the one that says 80 per cent of your business is likely to come from just 20 per cent of your customer base. But did you also know it can cost seven times as much to attract a new customer than to keep an existing one? It’s a strong argument for putting in the effort to keep your customers loyal.

Loyal customers are, by definition, repeat customers. They are less price sensitive, trust you enough to buy more of your product range (even the more expensive items) and can be a great source of free advertising through positive word-of-mouth.

Malcolm Auld, business author and founder of the Sydney-based Malcolm Auld Direct agency, says rewards programs can be effective in attracting repeat business but they should only reward the best customers – not bribe the worst ones. And, he says, they should not
be done unless they can be automated to cut out burdensome operating costs.

“They can be enormously expensive and time consuming to administer and often they just end up as rolling sales promotions, so all you’re really doing is providing a discount to your best customers who may have paid full price anyway, or attracting the sort of customer who will only buy if there is a discount,” he says.

These days, the biggest driver for setting up a rewards program is as a means to find out more about your customers. Put simply: The dollars are in the data.

Tulay Mogadam, relationship marketing manager at Zinc brand promotion agency in Melbourne, says, “Today it is more about using a loyalty program as a platform to capture data about your customers, not just at the transactional level but at the behavioural level. That can then drive business decisions and allow you to target your customers in a more relevant and meaningful way, which is what consumers are demanding now.”

But whatever loyalty program you decide to use, the best advice is to start small and keep it as simple to deliver as possible.

CASE STUDY: TWO BLACK SHEEP

Ways to your customers’ hearts

1. Use your small business advantage

Some people think loyalty can’t be bought, it has to be earned. Small businesses have a big advantage in being able to build relationships based on rapport, trust and excellent customer service – without the need for a formal rewards program. Auld says one of the best ways to encourage loyalty is to “surprise and delight”. “Why not look at your database and send an unexpected gift to your best customers for the previous three or six months. Or you could say, ‘Happy anniversary, you have been doing business with us for five years, here’s a $100 voucher’. That will have a bigger impact than just looking at a points statement,” he says.

2. Punch or stamp cards

Any offline business could introduce simple cards, like coffee cards, to offer a discount or a free product or service when set spending targets are reached. These can be very effective in keeping customers coming back, providing the targets are easily achievable. But they won’t work unless the whole experience stacks up. “If you walk into a coffee shop and you’re getting bad coffee and bad service but, hey, you’re going to get your fifth coffee for free, that is not a correctly thought-through loyalty strategy,” says Mogadam.

3. Referral program

The best lead you can get in business is a referral from a satisfied customer, so instead of offering incentives across the board, why not reward your existing loyal patrons who can send more business your way? Turn them into ambassadors and you have a very good chance of attracting customers with similar tastes and preferences.

4. Gifts with purchase

Use this to bring in customers during slower periods or introduce them to new products and services. It may result in repeat custom but does not necessarily engender long-term loyalty. “I see this as more of a tactical sales promotion rather than a loyalty strategy, but it can be successful if it’s executed in the right way,” Mogadam says.

5. Points-based rewards programs

These revolve around the accumulation of electronic points, with free products, gifts or rebates on offer when set targets have been reached. They are best known through frequent flyer and supermarket schemes, but similar programs can be scaled to suit small business. They should be fully automated, so may require start-up investment in a database – the most important tool for a loyalty program – and an appropriate point-of-sale system to capture the right customer data for analysis. Funding must also be set aside to cover redemption costs.

6. VIP programs

This is a more targeted and arguably more cost-effective approach that recognises your most valued customers – that 20 per cent who account for 80 per cent of your business. It rewards them with extras not available across the board. Mogadam says this satisfies current consumer demand to feel valued for their business, but be careful in identifying who is rewarded as a VIP – you don’t want to alienate your other customers. 

CASE STUDY: SPARKLE CUPCAKERY

Quick win or long-term loyalty?

Offering crowd-pulling discounts may seem an obvious way to get shoppers through your door, but it’s no way to foster loyal customer relationships says Malcolm Auld.

“Once people get used to buying on a discount you can’t move them back up to buying at a premium,” he says. “Before you know it, you’re pulling the margins out of the business.”

One of the riskiest elements of discounting is that it can devalue the product or brand in consumers’ perceptions, says Tulay Mogadam. “Especially for a brand that has positioned itself as high quality and associated with excellent service, price discounting is just detrimental to what they’re actually offering,” she explains.

She points to a recent American Express survey which found 73 per cent of Australian consumers are prepared to pay 12 per cent more if they receive excellent customer service, up from 8 per cent last year. As she sees it, price isn’t the only thing influencing a customer’s decision, and small businesses can take advantage of that.

Your tech toolbox

Bulk SMS messaging
This is a great tool for alerting customers to incentives, sales and special promotions, to run competitions or even send birthday greetings. Telstra’s SMS Access Manager is an efficient, cost-effective way to communicate and get customers to interact with your business.* 

eDM (electronic direct mail)
The beauty of an eDM is that customers opt in to get emails, either through your website or in-store, so you know they’re interested. It’s a very efficient way to send updates on new stock arrivals, special events, etc. But don’t overdo it, as your emails can turn into unwanted spam. You can get yourself started at MailChimp.*

Smartphone loyalty apps
Mobile loyalty apps can work in a couple of ways. Some are used in place of loyalty cards, with points registered via smartphones at the point of purchase. Some of the best known in Australia are eCoffeeCard (www.ecoffeecard.com.au) and Beat The Q (www.beattheq.com). Others include Key Ring and Perth-based BEELoyal.

You can also use social media apps to drive foot traffic. With foursquare, you can claim a venue space, offer foursquare user specials, and reward your best customers.
Keep your antennae out for location-based shopping apps, too. The QuickerFeet iPhone app, developed in Sydney, lets shoppers set the ‘radar’ for deals in their area.

Don’t break anti-Spam laws
* When you send SMS or email to customers, by law you need the consent of each customer, you must clearly identify your business in the message, and you must include an unsubscribe function, so customers can opt out of receiving more messages.

  • Regarding Australian loyalty programs, you might want to mention another emerging one - http://mazecard.com.au Report this

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