November 16, 2018
Building Customer Loyalty
It used to be that walking into a retail establishment and being given some form of a discount, special offer, or free sample was a unique and appreciated moment. Merchants saw this as a legitimate method for building customer loyalty. Now, as customers, we expect a reward in return for our consistent business. We sign up for rewards cards, loyalty programs, email discounts, mobile coupons … anything for the extra savings. On the merchant side, this is all summed into the highly lucrative practice of building customer loyalty. But with big brands building customized applications, credit card loyalty programs, and more, how do small businesses keep up? How do we measure the return on investment on something as basic as a punch card? That’s what this resource will extensively cover. We’ll go through what some of the top brand loyalty programs look like, dig into data proof, and end with how smart brands have pursued building customer loyalty on a small budget.
Section 1: 7 Customer Loyalty Stats to Inform your Strategy
Okay, so you may understand the concept of customer loyalty … but is it really worth it for your brand? How can you benefit from more loyal customers — better yet, how do you know if your customers are already loyal? We ran an exclusive study of customer loyalty benchmarks from merchants with whom Thanx has delivered loyalty insights. The random sample size surfaces a number of interesting insights, and is comprised of the following: Let’s dig deeper into the seven major stats and what they say about customer loyalty in the modern buying world.
Stat 1: The Value of Your Top Customers
66% of sales come from top ¼ of customers
Stat 2: At-Risk Customers
69% of customers have not returned in the last 4 months
Stat 3: Customer Frequency
71% of customers visited only once in the past 6 months
Stat 4: Average Check By Location
+168% difference between average spend at a merchant’s best location vs. the worst
Stat 5: Repeat Customers By Day
68% of repeat customer visits occur only during certain days of the week
Stat 6: Repeat Customers By Location
78% of customers only make purchases at one brand location
Stat 7: 1-to-1 Customer Engagement
7–22% increase in frequency, just from 1-to-1 customer engagement
Section 2: How To Build Customer Loyalty
Step 1: Map out the customer experience.
The very first step to kickstarting your own loyalty marketing program means drafting what your experience should look like. This is layered into its own two steps. When building customer loyalty, think through the technology needs. Questions to ask yourself:
- Will customers be signing up through their phone?
- Entering an email address online?
- Will an app be involved?
- Will there be a punchcard?*
- Will a plastic card need to be integrated into the point-of-purchase?
- Do you need any additional hardware?
* In step three, we’ll review why a punchcard may not be the smartest choice here. While these questions don’t need to be finalized at this stage, you should begin visualizing what possible experiences could look like. Second, you need to decide what the purpose of the program is. There are a few different approaches to a loyalty experience:
- Rewards based program. In this experience, a customer is rewarded for purchasing from you repeatedly.
- Rebate program. In this experience, customers earn a monetary benefit for their own spending. For example, Foodler provides rebates on certain restaurants to incentivize spending on those restaurants. The earned rebate then brings customers back for more.
- VIP Program. In this experience, you’re helping your customers feel like true champions of your company. For example, Southwest’s A-List program. Southwest engages with their top 25% of business valuable customers in order to incentivize the behaviors they want to see: Customers spending at a more rapid rate but in return progressing more quickly in their points programs than other customers.
The technology and structure both go hand-in-hand in creating the ultimate experience you want for your loyal customers.
Step 2: Determine the goal of your program.
Of course, picking a structure for your loyalty marketing strategy is useless without understanding the end goal. Here are some example goals:
- Increase frequency. Some loyalty programs focus purely on amplifying the rate at which customers are purchasing. The traditional punchcard accomplishes this — by providing a reward after a certain number of purchases, you incentivize the customer to make repeat purchases.
- Gather feedback. This goal is most frequently seen in programs aimed at helping grow the business at large. Perhaps you’re a new merchant or a struggling merchant trying to better understand the customer, or you’re doing well but trying to puzzle together a new path to building customer loyalty. For example, Converse recently had an in-store campaign whereupon purchase, customers were prompted to fill out a survey online. Upon completion, giving Converse information about the in-store experience, customers were given a $5 coupon for a future purchase.
- Increase spend. Let’s say you have a consistent customer base, but you think you could earn more per customer. This goal entails building a program that encourages customers to take new risks or create new behaviors. For example, GrubHub spent dedicated resources to encouraging non-sushi ordering customers to try a sushi restaurant through their website. Sushi is a higher profit transaction for GrubHub, so creating that spending behavior within their existing customer base yields more revenue without the costs of new customer acquisition.
- Viral Word-of-Mouth. While not as measurable, some programs are aimed at simply trying to get your customers talking more about your business to those in their networks, ultimately helping bring in more customers. The customer Net Promoter Score (NPS) metric was created on the foundational concept that your best customers are those who love your business so much they’re willing to recommend it to someone else. This can result in beneficial future profits from a wider customer base.
Step 3: Choose a sign-up incentive.
You may create the best customer loyalty program to reach market … but why should anyone even sign up? Your next step is to pick a sign-up incentive, such as giving away a free cookie when a customer signs up for your program. In essence, a loyalty program is a deal with a customer. I’m going to give you elevated treatment in exchange for behavioral data that will help me increase business. In this case, the cookie is simply how you start that relationship.
Pro Tip: Build an opt-out, not opt-in, program
Many customer loyalty programs require a customer to continuously opt-in to your relationship through scanning a card, entering an email, or logging in somewhere. We don’t ask our partners to state their love every time we communicate, so why demand that from paying customers? Such actions have to be carried out tens of hundreds of time when ideally you want a much lower friction relationship. By investing in customer loyalty software, you can build a program where once a customer is in your program, they’re in. For example, with Thanx, customers have to intentionally opt-out. Once a customer is signed up, they don’t even have to open the mobile application. Every time the consumer pays with their credit card, the data is collected and the Thanx app will release a mobile push notification that serves a reward right to the consumer. This type of effortless relationship removes the possibility of loyalty fatigue, where consumers are tired of constantly being asked to carry around additional loyalty cards, enter personal information during check-out, or open up their phones while transacting. Thanx merchants see 89% long-term engagement of signed-up users (as compared to ~20% for traditional loyalty programs) because of this opt-out approach.
Step 4: How is data collected?
As hinted at earlier, a punch card doesn’t create true, measurable loyalty. While it lives as the traditional, low-tech approach, a hole-punched slip of paper doesn’t allow for useful or actionable data gathering. An online email sign-up program takes the lead generation approach where you can measure contacts created. An ideal situation is a customer loyalty program that continues to feed intel to your business over the long-term. It’s for this reason a mobile application is favored by brands looking to collect customer data while still delivering on the experience front. Having a more visual program with a complete backend system allows you to win back customers over their lifecycle. It gives businesses the opportunity to establish patterns of behavior and create ways to incentivize our audience. Learn More >>
Step 5: Decide what to do with the data
Collecting data? Excellent. Now, what will you do with it? Let’s say you start digging into transactional data, what will you do with that behavioral insight? Here are some example next steps:
- Winback Program. Let’s say you have established a behavior within roughly one standard deviation that a certain set of customers come in once every two weeks to your business. Well, if you fall out of that bucket, we could send you an incentive to bring you back in. For example, after a set period of not making a new appointment, Dellaria Salons sends a hefty discount on a future appointment to bring back their once loyal customers and hope to win them back.
- Timeshift. Let’s say you have a cohort of customers who come to your restaurant for lunch every single Friday. While you admire their consistent business, their devotion to your brand may be a ripe opportunity to turn them into a higher value customer. You may try giving them a deal to try dinner at your restaurant as dinner is a higher price point for your company. Another approach could be getting these customers in during a low traffic time, such as sending an email that invites them to lunch at your restaurant on Tuesday where you’ll have 2 for the price of 1 beers. This would help create a new behavior of coming in twice or week or simply create business on a day where business is typically low.
Step 6: Determine how to launch
You’ve taken a number of measures to excel at building customer loyalty. But once you understand the goal of your customer experience, map out the proper experience, match that with your process for data collection, and hopefully use some software (such as Thanx) to help get your program built … you’re ready to launch! There are few factors to consider here when planning your launch:
- How are you communicating the launch? How will customers know this program is available to them?
- How should your store set up for launch? Do any members of your in-store staff need to be educated on the program details?
- What kind of promotion will you invest in? Simply in-store? Should there be an announcement made to reach out to your existing email base?
Step 7: Continue supporting the program.
It comes without saying that a building customer loyalty isn’t a one-and-done technique. Instead, think of it as a customer retention program by thinking in terms of lifetime customer value (LTV). Every person you sign-up to your program is a customer you can interact with long-term; every additional sign-up can lead to huge value. Continue to support your program, check in on the data collected, and use it to improve and enhance the program.
Section 3: Loyalty Marketing Examples
Now that we’ve extensively covered and understand customer loyalty, we thought we’d share some creative loyalty programs to inspire your own execution. While most resources of this nature often show success programs, we’ll be sharing a display of programs that have and haven’t worked — but for the ones that haven’t, we’ll tune you into why to help us learn from just as much from customer loyalty mistakes as successes. Example 1: Buffalo Wild Wings Loyalty Program Example 2: Mixt Greens Loyalty Program Example 3: Dunkin’ Donuts Loyalty Program Example 4: Chipotle Loyalty Program
Section 4: Customer Loyalty Software & Tools
Well, that was a lot of examples! Even with all that insight in mind … are you worried about how to get started? What tools to use? How to do this on a limited budget? Don’t be. Here at Thanx, we’ve built a mobile application that allows you to build with us. Your customers and consumers can use the Thanx app to earn loyalty benefits directly from your business. Learn more about building customer loyalty with Thanx: