CUSTOMER LOYALTY

Interested in Loyalty Marketing? Start Here

by Emma Kimmerly

January 5, 2023


Most people think good marketing is all about courting attention at all costs. But this is a paradigm that doesn’t jive with every brand. After all, what if the attention isn’t good attention? And if it is good attention, what if that attention is too fleeting to leave a mark?

A more powerful paradigm is loyalty marketing. In loyalty marketing, you set your brand up for long-term success by looking for metrics that reinforce your brand and keep it at the top of your customers’ minds. 

According to McKinsey, customer loyalty isn’t guaranteed. About 30 to 40% of consumers frequently switch brands or retailers. This means that if you do court attention without emphasizing long-term loyalty, you’re still going to deal with problems like customer churn and low CLV (customer lifetime value). That’s where loyalty marketing comes in.

Jump ahead:

 

What Is Loyalty Marketing?

Loyalty marketing is a form of advertising or lead nurturing with the aim of reducing the churn rate of your customers. But let’s switch that definition to the positive. Loyalty marketing is all about keeping customers happy enough to keep buying your product or service.

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Take Cora, for example. They launched a referral program with Friendbuy with the simple premise that the more friends you refer, the more money you make. However, they instilled a sense of deeper reward with tiers that enhanced the reward as you unlocked new achievements. 

That’s a recipe for a relationship that goes deeper than business-customer. A customer who engages on that level becomes a brand advocate, and their long-term value is far greater than the average customer.

 

What are the main goals of loyalty marketing? 

Ever choose one store over another because of a loyalty card? “Just three more purchases,” you thought,” and I get a freebie.” Voila. You’ve experienced loyalty marketing.

It’s that ever-enticing prospect of getting the gold at the end of the rainbow that inspires customer loyalty. From the business’s perspective, the goal is simple. Keep the customer shopping with you. Because customers are about 5 times more expensive to acquire than to keep, this can generate ROI for your marketing that’s unlike any advertising campaign meant to introduce your brand. In loyalty marketing, the name of the game is getting customers to stick around.

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The trick? Loyalty can take some time to cultivate. It’s rare to find instantly loyal customers. Consider that about 88% of customers say they tend to start feeling the pull of loyalty after about three purchases with a brand. 

This is more of a rule of thumb than a genuine law of nature, of course. But it’s a good way to rethink your marketing: it’s not just the first interaction that counts. It’s every customer touchpoint along the way.

 

What types of businesses use loyalty marketing? 

You’ll be hard-pressed to find a business that would turn away loyal customers. Of course, any business would like it if customers kept buying from them. But there are specific types of businesses that might benefit especially from loyalty marketing, or turning long-term custom loyalty into their goals.

  • Young businesses (up to $1 million per year in revenue) are in the introductory stage, which makes loyalty hard to acquire. Your company may be up against behemoths like Amazon and Walmart. At this stage, the key is to build a reputation for quality. Consider incentivizing happy customers to leave product reviews, for example. Or create introductory offers to your services with a reduced cost, with the goal of driving long-term loyalty.
  • Mature businesses ($1-$5 million per year in revenue or more) shouldn’t rest on their laurels. With higher volume, your attention might go to reducing areas of friction that are getting in the way of more loyalty. For example, does your customer support get back to customers within 24 hours? If not, any customer who has a problem is probably going to question their membership the next time their subscription comes up. Ditto if you sell retail and need to convince customers to buy a new product.

 

Who is a loyal customer?

Customer loyalty isn’t some vague concept without a source. You can define it easily, usually by identifying the customers who provide the highest CLV in your business.

Variables like Net Promoter Score (NPS) evaluate customer satisfaction by having customers fill out surveys. In those surveys is a key question: how likely are customers to recommend your product or service to a friend or colleague?

Assuming a rating scale of 10, customers who rate 9-10 become “promoters,” or those who actively campaign for your brand on your behalf. 7-8 are considered “passives.” They may buy from you, but they’re not going to rave all about you at their next book club meeting. And finally, 0-6 are detractors. They may have purchased from you in the past. But if your brand comes up in conversation, their thoughts may first go to a bad experience they had.

Needless to say, you’ll want customers rating 9-10. But let’s look at some other ways to measure just who is a loyal customer.

 

How to define loyal customers for your business 

We don’t have mind-reading devices. But we can gauge customer loyalty based on the actions they take. And although there is no single variable that will always measure customer loyalty, you can define loyal customers with a combination of these variables:

  • Customer retention rate: Take the number of active customers minus new active customers over a time period. Divide that number by the number of active customers at the start of that time period. Multiply it by 100, and you’ve got a percentage that tells you how many customers “retained” in that period. 
  • LTV: The lifetime value of a customer. This is the average order value multiplied by the average purchases and average customer lifespan. This one helps you measure the impact of your loyalty marketing on the overall “loyalty behavior” of customers.
  • Churn rate: Take your lost customers over a time period divided by your total active customers. Multiply by 100 to get the percentage of customers who “churned,” or dropped away. If you launch a loyalty program and reduce churn rate, you’re on the right track.
  • Purchase frequency: Take the number of orders divided by the unique customers over a time period. Multiply by 100 to get the percentage. It’s not a direct measurement of long-term loyalty, but it clues you in to which customers trust you enough to keep coming back.

Finally, your NPS is the total percentage of promoters minus the percentage of detractors among the customers who answered your surveys. Keep track of all of these variables, and you’ll have a sense if you’re gaining or losing loyal customers each month.

We have an interesting guide on the different types of loyal customers and how to attract them to your loyalty program.

 

What drives customers to be loyal? 

Every customer is different. But not that different. After all, we all like it when brands please us by delivering exceptional product quality, customer support, or a convenient loyalty program that incentivizes us to return. But here are a few things to consider:

  • According to a McKinsey interview with McKinsey partner Jess Huang, “consumers are spending more and more time on their phones and various digital channels.” Customer loyalty programs that cater to this shift in consumer behavior are more likely to achieve the loyalty they’re after.
  • According to Hughes, the three Rs are the key: rewards, relevance, and recognition. If you can offer all three to a customer, they’ll probably feel a deeper connection with your brand.

Want to know more about building customer loyalty? Our recent guide on how to build customer loyalty will walk you through it step-by-step.

 

What Are the Benefits of Loyalty Marketing?

In a general sense, we already know that keeping existing customers is far more affordable than acquiring new ones. But let’s get specific about loyalty marketing and the benefits it creates for brands.

Take the example of Sephora. The brand has one of the most renowned loyalty programs in existence. The key: offering tiered rewards to people who continue to shop there. In other words, the more you explore your relationship with Sephora, the more likely you’ll get rewards at a higher rate.

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The result is a loyalty rewards program with some 25 million members. That’s consistent revenue the company can return to, time and again, with minimal churn and minimal dips. Any time there’s a new product to promote or campaign to launch, Sephora can always turn to its loyal customers and count on their engagement.

Or take another national brand, Starbucks. The company attributes 40% of its overall sales program to loyalty-based marketing and rewards programs. Their strategy is to award points for every dollar spent at Starbucks. People can, after all, get coffee anywhere. But when they know every purchase builds up towards a bonus, people are more likely to choose your brand over the one down the street.

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Read our breakdown of the main revenue-driving benefits of loyalty programs to see just how impactful it can be for your business.

 

How To Create A Loyalty Marketing Strategy

It’s tempting to take the examples above and recreate them at your brand. But you might work in a different industry. That means customers with different tastes and expectations. What works for a daily coffee purchase might not work for a product that people only buy once every few years, for example.

How do you set up a loyalty marketing strategy that suits your needs? Here’s what you need to know.

  • Define Outcome Goals. Why do you want to launch a loyalty program? This question should help you define the specific outcomes you want. Think in terms of key business objectives (more sales revenue? Lower customer churn?). Then use those objectives to determine the variables that best measure your success.
  • Define & Identify Your Loyal Customers. A loyal customer isn’t necessarily one who purchases from you twice. Depending on what you’re selling, you may define a loyal customer with a far longer-term relationship than that. Consider using specific actions to help define loyal customers. For example, a customer who renews a subscription for a second year might be your definition. Or a customer who leaves positive reviews online.
  • Prioritize Excellent Customer Service. Now it’s time to put your goals into action. Customer service is the name of the game here. The more your customers struggle with your brand every time they have an issue, the more they might question giving you their long-term loyalty. 
  • Outline Your Loyalty Program Strategy. A good loyalty program strategy won’t just inspire people to stay. It may inspire loyal customers to advocate on behalf of your brand, too. Statistics show that 73% of customers are more likely to recommend brands with good loyalty programs. Especially important here: decide what incentives you want to create. Will you create a tiered loyalty program? And what actions (like signing up to an SMS list, or referring a friend) will trigger loyalty incentives for your customers?
  • Plan Your Promotion. How do you get customers to take action because they love your brand? It’s the same logic as getting customer referrals: create incentives, automate those incentives using a platform like Friendbuy, and always deliver consistent quality at every customer touchpoint. That especially matters in customer support tickets, when customers can be either won or lost, depending on how your brand treats them.

These steps will give you a solid foundation for building your loyalty program. But once you’ve inspired some customer loyalty and reduced churn, your attention will naturally start to move to the next step: attracting new customers into the same program.

 

How To Grow Your Brand With Customer Loyalty 

If you build a brand with solid customer loyalty, you’re off to a good start. If you’ve inspired customer loyalty, it means you’ve started earning a reputation for quality. Customers aren’t going to give their loyalty to just any brand that incentivizes it, after all.

This means you’ll get some word-of-mouth marketing off the bat. That’s good, since 92% of consumers in a Nielsen survey said they’d take the word of family and friends over conventional advertising. But supercharging word-of-mouth marketing requires a systematic approach similar to the way you build your loyalty program. Here’s how you can turn that loyalty program into a growth machine.

 

Gather Customer Feedback

Gathering customer feedback is an essential part of any successful business. By regularly collecting and analyzing customer feedback, you can gain valuable insights that can help to shape the direction and success of your business. 

Here are the easiest ways to gather customer feedback quickly and automatically:

  • Use post-purchase surveys. Customers are happy to tell you their favorite parts of the experience. They’re just as happy to share their highest points of friction. But one thing is clear: they’ll rarely tell you if you don’t ask. Automate post-purchase surveys and you’ll have a trove of customer loyalty data to work with.
  • Ask on social media. Promote surveys and new ideas on social media, since it’s such a great way to amplify your messaging. Be a bit wary here, as not everyone on social media is necessarily going to be in your target audience. But you can use social media messaging to gather customer feedback.
  • Track your customer data. Use data and analytics with your customer loyalty offerings to identify where customers are getting hung up. For example, do you have a low CTR (click-through rate) when you direct customers through a complicated sign-up form? That’s a key data point that demonstrates how much your customers would prefer an easier browsing experience.

 

Choose your loyalty program style

People love to share fun concepts with their friends and family. Take Sephora’s tier-based loyalty program as an example. There’s a reason it has 25 million members; unlocking deeper rewards can be a downright viral concept. So have fun with this choice. If you’re using points-based rewards, what kinds of fun perks can you “bake” into your loyalty program? If you’re a brand with a unique focus, what about a value-based loyalty program that donates rewards to charity?

See our favorite loyalty program ideas to see how you can use loyalty marketing for your business.

 

Integrate rewards into the customer journey

Try to get inside your customers’ heads. What are the key phrases and steps you can deliver in different aspects of the customer journey that promise them your brand will deliver?

 

Build rewards beyond points

Rewards points are great. And they can be highly effective. But don’t be afraid to offer additional rewards as a “cherry on top” that could inspire even more word-of-mouth success for your brand. Consider adding other rewards for loyalty, including:

  • Exclusive or early access to new products. If a customer is already loyal to your brand, this one will be particularly rewarding. Make customers feel like a “VIP” just for participating in the rewards program. Exclusive, early access to new products will also work because you’re typically offering that access to your most engaged customers anyway.
  • Exclusive access to promotions. New promotions fall in the same category as the above. For example, let’s say that you have an SMS or email marketing list. Offering exclusive access to new promotions means customers will have an additional incentive to join. That, in turn, helps spur the growth of your list.
  • In-store retail events. For the ultimate customers, the digital experience will never be enough. They need to get the tactile, in-person experience that comes with in-store retail events. Consider giving them in-person rewards that they can redeem at conferences or retail outlets. This won’t only incentivize them to join the loyalty program, but will promote those events as well.

 

Test your rewards

What reward is most rewarding? If it sounds a bit like a philosophy question, that’s the trick. You may not know until your loyalty program’s rewards build some experience with your customers first. Consider testing the following rewards to see which tend to spur the most action among your customers:

  • Loyalty points
  • Loyalty tier status
  • Coupon codes / gift cards
  • Birthday rewards
  • Anniversary rewards
  • Free shipping
  • Exclusive access to new promotions

 

Make sure the triggers for each reward are clear

You can do all of the above and still struggle if you’re missing this one key point. You don’t want customers to be unclear about how to achieve the rewards they’re after.

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Make it clear to customers which actions trigger what rewards. For example: “Sign up to our newsletter and receive a 10% discount on your next purchase.” It’s that easy. Make sure you incorporate this language at other key points, as well. This includes:

  • New Customer Validation. Although typically a trigger for when a referral program offers rewards, it can still factor into your loyalty program. Generally, you’ll want your loyalty program to focus on long-term triggers, however.
  • Minimum Purchase Threshold. What defines an “order”? Many companies have already picked up on the fact that customers will place tiny orders just to get over a threshold, or to activate some bonuses.
  • SKU or Collection Purchases. Maybe you’ve identified that a particular collection on sale tends to produce more loyalty from your customers. If you designate a specific collection or SKU as particularly rewarding, you can see if you can spur further loyalty by encouraging new customers to shop these specific SKUs or collections.
  • Reward Delay & Reward Caps. Here’s where clarity can help you avoid some problems. If there are reward delays or reward caps, make sure customers know about it beyond the fine print. Otherwise, their expectations for their rewards can set them up for disappointment in your loyalty rewards program. It’s not a good way to get started on the right foot.
  • Customer Authentication. Once a customer is authenticated and signed up for your program or your website, it’s easier for you to offer them the benefits that entice them to stick around. Consider adding loyalty bonus points simply for customers who get started. This will encourage them to take the final leap and join your program officially. Once they’re in, you’ll find it easier to keep their attention with incentives.

 

Using Marketing to Drive Loyalty

…or is it the other way around? Your loyalty program can be a powerful tool for keeping customers around, to be sure. But if you build it the right way, it can also be a powerful attractor. When word gets around that signing up for your website or loyalty program is one of the best values on the web, you may find it difficult to deal with the influx of new customers. 

That’s how you put the power of word-of-mouth marketing in your corner. And once you use a platform like Friendbuy, you’ll find it even easier to build a loyalty marketing program that keeps your customers staying.