Are Loyalty Programs Just a Discount?
Customer retention is integral to the long-term success and sustainability of businesses in the salon and spa industry. As is customer frequency. In fact, a study by The Loyalty Effect indicated that building loyalty with 5% more customers would lead to an increased average profit per customer of between 25% and 100%. If that has you scrambling to evaluate your loyalty programs, you aren’t the only one.
At it’s core, a loyalty program is meant to stop clients from being promotionally promiscuous by offering better value targeted at their specific interests. But how effective is it? And how easy is it to evaluate?
The Case for Loyalty Programs
To determine the effectiveness of loyalty programs, it’s important to stand back and look at the whole mix. Often, the true benefits aren’t tied directly to your bottom line, hence why the true effectiveness of your loyalty program is notoriously hard to measure. When trying to justify your loyalty efforts, typically it’s easiest to point towards the indirect uplifts in various marketing metrics that ultimately contribute to the bottom-line.
The ultimate driver for a loyalty program is locking in the customer loyalty and driving the repeat behavior. Neilsen reported that 76% of surveyed respondents said they were more likely to shop a business that offers a loyalty program.
Data = Gold
How much do you currently allocate for research efforts at your company? Grocery stores are a prime example of how a loyalty program can drive intelligence and therefore benefit other areas of the company by understanding customer purchase behavior. A recent Loyalty360 webinar noted that 67 percent of U.S. adults would be willing to give companies access to basic personal information in exchange for better service or products. Some loyalty systems allow you to track behavior in new, interesting ways that standard point of sale systems don’t allow for.
All You Need is Love
You also have to consider the value of acknowledging customers on a personal level and catering to their individual needs. Research has found that 25% of customers feel frustrated when a business fails to recognize them as a past or current customer, so a loyalty program could be a good way to retain, develop and engage your customers and grow your value as a brand. Even the motion that you offer something to reward loyalty has emotional appeal.
While there are plenty of success stories, other businesses often fail to capitalize and essentially end up throwing discounts recklessly rather than driving meaningful actions.
Perhaps the biggest problem of these programs is their ineffectiveness at building genuine loyalty. One study found that only 17% of U.S. respondents said that loyalty programs were “very influential” in their purchase decisions. Another study found that even with a loyalty program, customers were still highly likely to do business with competitors.
Can’t fix ‘broke’…
What it really all boils down to is the customer experience. Even with a seemingly great loyalty program in place, your results will probably be marginal without a positive customer experience. If you lack a clear objective and only focus on loyalty, revenue or other goals without putting adequate attention on customer experience, you’re likely to waste both time and money.
Blind Leading the Blind
Effective loyalty programs take a lot of time, analysis and evolution to be truly effective. Personalization and automation are key for efficiently influencing behavior. Otherwise we are truly back to mailing coupons with the USPS. Tactics that tie into referrals, add-on sales, education and driving frequency are what truly make an effective loyalty program, not VIP discounts.
When you break it all down, there are a myriad of factors that ultimately determine how successful or unsuccessful a loyalty program is. If you’re able to retain a large percentage of customers and strengthen your brand, then the long-term profits should outweigh the initial loss. However, lacking foresight and haphazardly launching a loyalty program could be more trouble than it’s worth and create unnecessary headaches.
What’s your take on loyalty?