May 15, 2018
Why Customer Retention Programs?
The world’s most innovative brands have crunched the numbers, and they know loyal customers are the unsung heroes of your business: they spend more money per transaction, visit your business more frequently, and act as ambassadors for your brand by telling their friends about your business. That’s why customer retention programs will never go out of style.
Treating loyal customers with love isn’t just a nice thing to do; it’s hugely profitable: That’s why Bain & Company and Harvard Business School state that a 5% increase in customer retention can increase a business’s profits by as much as 95%.
However, most brands continue to pour money into expensive and ineffective customer acquisition campaigns, striving for those new customers while assuming their existing customers will come back. The reality? The cost of acquiring a new customer is 5x as much as the cost to retain an existing customer. Your money goes further when applied to customer retention initiatives — a lost loyal customer represents a huge hit to your bottom line and future earnings.
Ushering in a new era of customer loyalty programs
Despite the clear incentive to keep customers coming back, the actual task of creating a great loyalty experience has stumped retailers for years. We’ve had the punch card, the plastic swipe-card, the cumbersome process of typing in our phone number at the counter. None of these approaches have had the promised impact of creating true, long-term loyalty. This is why the foremost brands in the world have looked to technology to help drive their loyalty programs.
Technology as a love language
Successful loyalty programs connect with customers by using technology to create an effortless customer experience. In these cases, the loyalty program is integrated seamlessly into the customer experience. The more hurdles a customer encounters on their road to loyalty, the less likely they are to complete the jouney— and no real loyalty is achieved (what’s the point of a loyalty program where nobody sticks around long enough to reap the benefits?).
This is why the most innovative companies have found ways to create an experience that doesn’t inconvenience the customer in their quest for loyalty. Mobile, card-linked, and digital programs have been the choice for the world’s foremost retailers, and here’s how they’re doing it:
Starbucks leverages the immediacy of mobile
Successful loyalty programs connect with customers where they spend the most time — their mobile phones. The Starbucks app boasts at least 12 million active users, many of whom go as far as paying with their mobile phone in order to earn rewards from the coffee giant. Customers can see their progress in real-time on the Starbucks app, so they have complete visibility over their earnings. Starbucks is meeting customers where they are — which is, overwhelmingly, on their phones. Where other loyalty programs seek to change behavior and add steps to transactions, Starbucks is trying to save consumers time, even adding an option to pay for drinks beforehand and schedule pick-ups in store. The Starbucks app seeks to be of service to its customers, and as a result of its utility, people are happy to download it.
Key Takeaways from Starbucks:
1. Communicate via mobile
2. Your app must add value and create efficiencies for customers (like Starbucks’ “order ahead” feature)
Nordstrom gives customers the VIP experience
Nordstrom is known for delivering highly personalized, customer service — their legions of happy customers will attest to this. The Nordstrom loyalty program is an extension of that excellent experience. By signing up for a Nordstrom Visa, customers become eligible for a tiered reward system with offerings including free alterations, store credit, and private shopping events. Customers just pay as usual, albeit with the Nordstrom Visa, and they are automatically earning rewards. For a company that emphasizes a delightful customers experience, this is perfectly on-brand.
Because the program is card-linked, the retailer has access to credit card data and can award customers incentives based on their spend. VIPs — those who spend the most — are eligible for distinct rewards that aren’t available to everybody. This works in a myriad of ways, but the simplest one is that it’s aspirational: consumers want to spend more to achieve the most exclusive VIP benefits.
Key Takeaways from Nordstrom:
1. Card-linked rewards create an effortless experience
2. Visibility over spend means retailers can identify their VIPs
3. Delivering a differentiated VIP experience creates inventive for customers to spend more and become your most vocal brand advocates
Amazon uses customer retention program to drive incremental sales from their customers
Amazon’s loyalty program is such a value-add, customers actually pay for it. 40% of Amazon customers in the US are Prime members, and globally, Prime members are estimated to number almost 80 million. Prime offers its members two-day shipping and streaming services as a perk, and customers in return have shifted most of their online shopping to the e-tail giant: 49% of Prime members spend over $800 annually, while only 16% of non-Prime Amazon shoppers do. Even though the program is subsidized by users, it doesn’t pay for itself. Amazon invests heavily in this retention strategy because it increases customer lifetime value. They’ve even added a Netflix-style video streaming service as a Prime offering, just to sweeten the deal and keep customers engaged.
Prime is so effective because it creates efficiency for the user: instead of asking users to jump through hoops, Amazon prime promises fast shipping and an easy way for consumers to make purchases. Additionally, they just have to sign up once, and they get to benefit all year. Greg Greeley, Amazon Prime’s VP explains it like this: “We really wanted to make it easy for customers — the idea of, ‘make the decision once, and then for the year, you don’t have to think about it.” Effortlessness always wins when it comes to customer rentention programs.
Key Takeaways from Amazon:
1. Elevate the everyday experience. Free shipping was a luxury, but now it’s an everyday experience.
2. Don’t make consumers go out of their way. Once they get over the initial sign-up hurdle, it should be smooth sailing.
3. Customer retention deserves an investment. Adding value to a loyalty program is a great way to do this.
Customer engagement pays off — just ask the big guys
Starbucks, Nordstrom, and Amazon aren’t investing in customer loyalty just to be friendly — they understand the powerful impact loyal customer have on their bottom line.
Modern, mobile- and credit card-based loyalty programs provide retailers with the tools to make data-driven decisions effortlessly while delighting their best customers with a great experience. Starbucks keeps the loyalty experience mobile and gives coffee drinkers the immediacy they crave. Nordstrom encourages customers to use their Nordstrom Visas, and rewards their most valuable customers handsomely for doing so with gift vouchers and special events. Amazon creates a program that is low-friction and high-value, resulting in almost 50% of its customers paying for the privilege of joining (and spending more once they’re in). The world’s best companies are investing handsomely in customer retention. It’s time for smaller companies to take a hint before Amazon, Starbucks, and Nordstrom steal their customers… and keep them.