Here’s what you’re missing if you forgo a loyalty programme
A retailer’s loyal customers are also its most profitable, as with each year, they become less costly to advertise to and convince them to buy your products
Businesses have been known to implement loyalty programmes – or customer rewards, as some might call them – since at least the mid-80s. While it’s mostly associated with retail, it can be used by anyone who exchanges goods or services, from coffee shops to hairdressers.
Some detractors might like to tell you that implementing a rewards system will cheapen your offering, because you will ultimately be “giving something for nothing”, but that’s not the entire story. Your customers’ loyalty and attention is invaluable, because an unsure customer that floats between yourself and your competitors might choose to not shop with either of you – leading to no sale at all.
Retail analyst, Fiona McDonald, says: “There has been a drastic shift in the landscape of loyalty schemes since even before the pandemic, with loyalty and rewards schemes now a prerequisite for retailers.
“Digital disruption and new generational influences mean the nature of loyalty is changing. Ubiquity of loyalty schemes means engagement is high, but with more demand for personalisation, loyalty programmes will need to move beyond those fundamentals and create more ways to engage with customers.”
She adds: “Highlighting value whilst creating that personal connection is critical for retailers to keep customers from switching, in a time where the focus on value is at its peak.”
The staying power of loyalty programmes speaks of their potency, as more companies, not fewer, come up with their ways to reward returning customers. This is because a retailer’s loyal customers are also its most profitable, as with each year, they become less costly to advertise to and convince. Loyal customers must also really believe in your business, and so will bring you new customers unprompted through word-of-mouth.
However, loyalty programmes are quite misunderstood and often misapplied in practice, which might be why some believe they are a waste of time. When it comes to launching a loyalty programme, many retailers give consumers short-term promotional giveaways or ‘specials of the month’, which end up being more akin to a flash sale where just anyone can participate. Sales have their place in this conversation, but ultimately are not designed to build loyalty.
According to recent research by Durham University, online retailers in particular would benefit from prioritising the improvement of their customer experience to boost customer loyalty, over efficiency.
A loyalty programme can be the thing that accelerates the loyalty life cycle of your oldest customers, as long as you find ways to share value with customers in proportion to the value the customers’ loyalty creates to the company. In other words, first-year or second-year customers are not the same as decades-old devotees.
With this in mind, the goal must be to develop a scheme through which customers are continually learning about the rewards of loyalty, and hopefully become motivated to earn them. Achieving this sort of loyalty, which is measured in years, requires a strategic and sustainable approach.
Most shoppers hold memberships with between two to five loyalty programmes, with 14% holding more than six, according to Mintel’s 2023 Customer Loyalty in Retail Market report.
In 2023, Mintel found that supermarkets were the most effective at drawing in a loyal crowd, with Tesco’s clubcard and Sainsbury’s nectar being the most popular customer loyalty schemes. This is partially because the use of points and discounts are the most important when deciding to join a loyalty scheme.
If you want a customer to know about your loyalty scheme, you should highlight the features to them at every turn in order to drive that trust and reliance towards your brand.
Mintel’s latest report also found that a fifth of UK consumers have become more conscious as consumers, with a fifth saying they would stop shopping at a certain retailer if they disagreed with its values. This highlights the importance of building an emotional connection with your most faithful customers to help highlight what you stand for, while also highlighting extra value points and how these can help the consumer during difficult economic times.
Ultimately, consumers are looking for value, but this can cover many bases; it is not just about price. Some 80% of UK consumers told Mintel that they would like to see retailers update their loyalty schemes to offer rewards for sustainable practices also, such as donating unwanted clothes or recycling packaging. This way, you can demonstrate the value of their loyalty and mitigate their switching to one of your competitors.
In recent years, there has emerged an empty space in the customer experience as retailers and brands have instead opted for automation over human interaction. A successful loyalty programme cannot rise to the occasion if the shortfalls in the customer experience strategy are not addressed for the sake of maintaining competition with industry leaders.
Claire Agutter, the founder of IT consultancy, Scopism, says that a successful business hinges on creating “remarkable customer experiences” to remain competitive. This goes back to my earlier point; an unhappy or indifferent customer will go elsewhere. Therefore, the aim for customer satisfaction is to nurture their trust through an exceptional service delivery and a rewards structure.
