8 Benefits of Loyalty Programs for Businesses

8 Benefits of Loyalty Programs for Businesses

You may be wondering why businesses would be interested in offering loyalty programs. After all, there are costs associated with running a program and the business has to give something to get something. It’s natural to ask, well, what's in it for us?

8 Benefits of Loyalty Programs for Businesses


Loyalty Programs: A Two-Way Street


You may be wondering why businesses would be interested in offering loyalty programs. After all, there are costs associated with running a program and the business has to give something to get something. It’s natural to ask, well, what's in it for us?


From forming an emotional base that branches on to stronger relationships, to the savings the customers and businesses can mutually enjoy,  it’s a no-brainer that loyalty programs are all around a pretty successful investment.


Before considering integrating a loyalty program, we should first start off with defining it.

A loyalty program is an ongoing rewards system that encourages customers to keep on coming back to your business through incentives; i.e positive reinforcement. These incentives can include offering discounts on future purchases, freebies, events, and exclusive status upgrades. The main objective is to retain customers, and through that naturally gain new customers in the process! To read a more in depth article about how loyalty programs are an effective tool for customer retention, click here!

Many companies wonder if this investment is worth it in the long run. Here are 8 reasons why adopting a loyalty program can benefit your business:


8  Benefits:


Giving Back to Your VIPs


Loyalty programs can allow you to give something back to your most loyal customers.

Whether it's through discounts, rewards points, or other perks—customers who have been with you for a long time deserve something special.


The best way to show loyalty is by giving something that benefits both parties: you get more money and they get more value.

It shows your customers that their loyalty is appreciated.


Customers feel valued when they are rewarded, and for them, the form of a reward can mean more than just money.


Recognition by the company is a pretty big part for many. Even something as simple as a seemingly “customized” email follow-up to the programs, acknowledging customers' continuous support that they try to keep up, can personify a business to a degree where the customer feels personally valued and needed.


A bond can then be formed, and that is a huge step toward the ultimate goal: a more secure retainment.


Reduce Churn, Increase Retention


Loyalty programs are an investment in your customer retention efforts.  There are a plethora of types of programs to choose from, it comes down to choosing the one that works best for your business and will allow you to connect with the right loyal customers to establish that desired steadfast connection.


To keep customers wanting to come back and inspire long term commitment, customize your program towards your target demographic. Adjusting your type of incentive to your target audience would have a much more fruitful outcome. Putting your money in the right place and, in turn, help reduce costs in the long run.


Your retained customers have already proven their interest in your business and likely have a higher chance of becoming repeat customers. Rather than aiming for new prospects, who both take a longer time to acquire and are a bigger risk to spend time and money reeling in.


Retained customers are known to purchase more frequently as well as more of your product/services at a time.


Secure customers, secure profit.


The cost of trying to acquire new customers is significantly larger than retaining the ones you have already invested in. It's around five times pricier to acquire new customers than it is to sell to existing ones. This price is especially heavy for start-ups and new companies. Growth is all our goals, and no one can properly incline without a stable base.


Differentiation is crucial in today's market, gaining a competitive advantage is the only way to stay afloat, especially when we live in a world that has progressed so much that the majority of business offerings are pretty easy to replace. Once you gain customers, you don't want (and often can’t afford) to lose them.


And, with loyalty programs, they wouldn’t want to lose you either.


The time and effort they put into racking up the points, positive association with the brand due to the rewards they received, and the disheartening thought of starting a whole new relationship from scratch with another business’s loyalty program could be the main reasons to keep doing business with you.


This makes it easier for businesses to save money by not having to spend as much on advertising, marketing, and other forms of promotion as they would if their customer base isn’t as cemented.


Loyalty programs make it easier to reach out to a specific group of clients.


Loyalty programs are a great insider tool! It helps you gather data on your client's behavior and preferences. This is vital, because the more information you have about your customers, the better equipped you are to meet their needs and cater to their preferences. This can help shape future marketing strategies and improve customer service to keep them coming back for more.

Understanding their likes through interpreting their data (i.e, data found through registering with your program) can help draw up offers for items they're most likely to enjoy and would look out for.

That is especially helpful if you have different groups of customers that need different services and products.


By analyzing this information as well as observing how they interact with different products or services, businesses can get a sense of what else they need or want from their experience at the company.


For example, your business may have one group of loyal customers who are willing to spend more money with you on certain higher-end options you provide, while another group may not want to pay as much and are opting for more standard choices.


Loyalty programs allow you to make sure that both groups feel special and appreciated by sending them targeted emails or other messages that highlight their value for the company, emphasizing their personal objectives for doing business with you in the first place.


This is especially helpful for properly placing the right products or services in the view of the right customers.

Successfully being able to up-sell and cross-sell to increase their cart size.


So yes! By targeting the customers’ needs and wants, they’re more likely to make more sales, and in succession be more on alert for any emails or messages you send out to them. Rather than being sent to spam, or left unread.

Increasing brand awareness.


This no doubt helps drive more traffic to your website and social media platforms, generate profitable leads, and overall aids in achieving your business objectives and goals.


Wonders of Word-Of-Mouth


Loyalty programs have built-in referral systems, which means that you gain new customers for free!

You’re portraying your company in a good light, thanks to the positive associations that have been built up around it as a result of your offerings and the attentiveness given. Catching the right kind of attention.  Now, with increased customer satisfaction derived from an overall better customer experience, customers are more likely to share their membership cards or other information about your loyalty program with others—helping build brand awareness. For both you and the program itself!


Just like your friends and family often recommend restaurants and services to one another, your best customers will also want to share their positive experiences with others. It has been proven that consumers' trust in businesses has gone down, and they understandably place their overall trust in the opinions of friends, family, and colleagues over businesses.


The best way to encourage positive word of mouth is by providing a great rewards program that incentivizes referrals. You can use the program itself as an opportunity to promote your business by offering discounts or extra points for referrals. When someone refers another person through the loyalty program, both parties get rewarded!


Customers Build Your Customer List


Compiling the data from the registration process of the program, you can target your traffic by curating a targeted email list to previous customers. A very cost-effective, low-risk way for a high return on investment.


Having information such as shopping patterns, geographic and demographic variables, and general order history, you would be able to be eye-level with your consumer’s perception of your brand. You then are able to more confidently upgrade your other marketing strategies and evolve your tones, your narratives, and even the product or service itself to stay current and up-to-date with their mindsets and lifestyles.


Satisfied Service


Loyalty programs improve consumer satisfaction, which means that you deliver better service!

Creating a space where feedback is encouraged, and monitoring the responses diligently, you’ll be able to gather more insight on the consumer perspective and collect very vital information.

By collecting this data, you can find overlooked problems, or smaller kinks to work out within your services (such as poor delivery times), and work into improving those areas so that customers aren't inconvenienced again in the future (or lose interest altogether).


It's true—customers who participate in a loyalty program are more likely to return to your business again, meaning they'll be repeat customers and make repeat purchases. Bettering what you offer each time, shows the customers you care about their feedback and their presence.


Boosting Your Bottom Line, Shedding Unprofitable Customers


There's no magic number for the value of each individual customer. It depends on how much revenue they bring in and what kind of profit margin you're making from them. If a loyal customer brings in $500 each year, then that's good for your bottom line! But if they only buy once every five years, then it may not be worth the cost of keeping them around—especially if there's no guarantee that they'll buy again. So how do we calculate whether or not our loyalty program is worthwhile?

The first step is calculating the cost to acquire new customers (CAC), which includes everything that goes into acquiring someone as a new client: advertising costs, sales commissions, etc. Then we can compare CAC with LTV (customer lifetime value).


Customer lifetime value is basically the total profit we as businesses can reasonably expect to receive from a customer during the entire relationship.


We compare CAC with LTV to see where we stand financially speaking—are our promotions generating more revenue than they cost us? If so, great! That's a sign that our promotion isn't costing us money—it's bringing us money back into our bank account.


But here's where things get tricky: while calculating LTV is essential when deciding whether or not your loyalty program will be profitable overall--it doesn't tell us anything about how well it’s working today or tomorrow! This means two main things are missing from these two calculations alone: 1) knowing which customers need extra attention so that they don't leave; 2) knowing which channels are best at converting existing customers into paying ones again.


All the while, shedding the weight of inactive customers can help you focus on increasing incremental growth. The gradual growth that comes with a loyalty program’s customer's Share of Wallet (SOW) is much more a priority than actively trying to gain new customers or revive ones that proved they were not and will not be beneficial monetarily.


Whether your loyalty program ultimately lives up to its best potential, depends on which type of program you chose for your business. It’s important to test the waters, and see which program your target demographic will respond to best. It differs by who you’re targeting, by how often your product/service is bought or used, and in general differs industry by industry. A luxury shoe brand might not have the same program a restaurant would (there’s a whole article just about LTV for restaurants here if that’s what you’re looking for!).


All in All…


Helping to retain your customer base is the purpose and ultimately the biggest benefit of these programs.

A customer that is familiar with your business and its products is much less likely to go elsewhere than a new prospect who doesn't know anything about you or your brand. Although it is less likely, it is quite possible for your customers to stray. A constant possibility, especially if what your business is providing isn't uncommon. By implementing a loyalty program, customers would want to stick with you to not lose the progress they’ve made or the status they were honored with and feel more connected to the business by tying their efforts and time spent with you.


When you have a loyalty program, your customers will be more likely to engage with your brand. This means that they will spend more time on your site, buy more products and services from you and share their experiences with friends and family. All of these things can help increase sales for both new and existing customers.


A loyalty program makes it simple for people to refer others because all they need is a code or link to deliver to the new person so that they can sign up for the program as well. They can also be used as an incentive for attracting new clients or even increasing sales by offering an incentive to make a purchase right at that moment!


By being able to reduce your overall costs per sale, you can charge lower prices without sacrificing profit margins too much, saving you money. When people have no reason not to buy from a certain store or restaurant because they already know what kind of quality service they'll get there (thanks again for those free gifts!), then why wouldn't someone choose that place over one where everything feels unfamiliar?


Relationship benefits that in turn generate monetary benefits, that’ll overall benefit your business and your brand identity? In our opinion?


They’re definitely worth it.