Published By Upzaar Team

Digital Loyalty Programs: A Very Effective Tool for Customer Retention

Customer Retention

What is Customer Retention and Why is it Important?

Retention simply means how much your customers are sticking with you. The main goal of customer retention strategies is to keep its customers as long as possible. You want your customers to stay loyal to your brand and to make as many repeat purchases as possible. The best way to achieve that is by implementing customer retention strategies. If your business has high customer retention, it could mean that you have an excellent product - but more likely - it means you’ve actively thought about how to retain customers and keep them coming back for more.

Research says it’s cheaper to get current customers to make a repeat purchase than it is to acquire new customers. According to data compiled by Harvard Business Review, onboarding a new customer costs between 5x and 25x more than keeping an existing customer. You can raise profits by 25 to 95 percent by simply increasing retention rates by 5%. For example, Vanguard's flagship S&P 500 Index Fund fees were below 0.20% of assets when Jack Brennan took over as CEO in 1996. They had dropped to 0.18 percent by 1999, a 10% improvement.

Customer Retention vs Acquisition:

Customer acquisition is the process of finding and persuading customers to buy from your business. An example would be posting Facebook ads or Google ads. Customer acquisition creates a customer base while retention builds the ongoing relationships that allow you to extract more value from your existing customers. Acquisition is often considered the first step to making profits in any business because you always want to gain new customers and even though that is correct, giving it your complete attention and ignoring something as important as customer retention could lead to significant losses. 

Brand Loyalty and Spending Habits:

We’ve established that when you have a customer retention strategy in place and aim to give the best service possible to your customers, they are more likely to stay loyal to your brand or business. The question is will loyal customers be willing to spend more on your products or service in comparison to your competitors? 

According to Fundera, customers that are loyal to a brand spend 43% more money there, therefore businesses that don't prioritize returning customers are losing out on substantial revenue. Existing customers account for 65 percent of a company's revenue. Loyal customers would spend more money on your products than new customers would, so your retention strategy should focus on how you maximize the profitability of each customer.

The bottom line is that focusing on retaining your existing customers costs less on average, results in word-of-mouth marketing, and creates more revenue.


Ways to Improve Customer Retention:

Now that we understand the significance of customer retention and how valuable it could be to your organization, let’s discuss some important things to consider that can significantly improve your customer retention.

How the $1.244 Trillion Company Perfected

Customer Support

There is a reason why Amazon’s “mission to be Earth’s most customer-centric company” approach makes it perhaps the largest ecommerce company in the world. 

Jeff Bezos, executive chairman and former president and CEO of Amazon, says “We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.” 

Amazon’s hyper-focus on customer centricity has resulted in the creation of perhaps one of the most fledged customer-support strategies. “I would define Amazon by our big ideas, which are customer centricity, putting the customer at the center of everything we do”, says Bezos. 

An effective customer support strategy would focus attention on before, during, and after a sale. Fast, courteous, and consistent service is the gold standard in the eyes of customers. Whether they visit through your website or via social media, pre-buying queries about the service or product might transform an interested consumer into a sale or a complaint into a resolution. Naturally, a successful response to a dissatisfied customer's complaint might turn them into a pleased, repeat customer, improving your customer satisfaction overall, which is key in customer retention. 

1/ Customer Feedback

Customer feedback is extremely vital to any organization. Asking people who use your product or service is one of the most effective ways to understand the strengths and weaknesses of your business. If a customer feels like they're being listened to and that their feedback is highly valuable, they’ll likely stick with you.

Customers who feel like they are part of the process are always more likely to stay loyal to your product or service. Asking for feedback makes them feel like an integral and valuable part of your production. Ask your customer for insight on how you can improve a certain service in the future. This level of open and honest communication shows customers that you care about offering the best service and that you are committed to their satisfaction. This creates a direct relationship with your customers and that directly impacts customer retention.

Customer feedback surveys are perhaps the most popular way to go about it. Big brands like Apple and Uber are fabled for their feedback surveys. Although it may appear tedious and repetitive, people enjoy providing feedback, especially if they believe it is valuable and the input rewards them in some way. Surveys can also help businesses discover unhappy consumers and allow them to fix the problem as soon as possible.

2/ Loyalty Programs

When you want your customer to stick with you must provide them with an incentive to make a second and third, and fourth purchase, and so on. You want to motivate them to become repeat customers. One of the most common and effective ways to do this is to implement a loyalty program for your customers. 

According to Forrester, 89 percent of online adults are members of at least one loyalty program. Loyalty programs are great tools for growing your customer base, boosting consumer spending, and expanding customer interaction options. According to a recent study, customers are more likely to refer to brands with effective loyalty programs and to boost their spending to make the best out of the program's benefits. 

​​Customers who participate in customer loyalty programs are 75 percent more likely to make another purchase after receiving a reward. Offering your customers rewards for purchasing from your store is a great way to motivate them to come back for another purchase. A straightforward loyalty program that works as promised can also result in a lot of your customers recommending the service to their family and friends. 

Loyalty programs can be their own referral programs. New customers through referrals and word of mouth are costless and that can result in even more significant profits for your business. Customers referred by loyalty customers have a 26% higher retention rate. Something similar to referrals is also building a community around your service or product through user engagement in reviews or comments. For example, rewarding your customer for leaving their feedback on your service incentivizes them to be more engaged with your service and it would subsequently allow people to interact with each other, creating a community. Creating a community around your business serves as a major part of people remaining loyal to your brand. Loyalty programs for small businesses, restaurants, salons, gyms, retail stores, bars, and so on are the future. Long story short, if you have any kind of business where you provide a service or sell a product to a customer, you must seriously consider a loyalty program.

So now that we have established some of the main advantages of a customer loyalty program which include better customer retention rates, a very effective referral program, an increase in revenue, and building a community, let’s look at some of the most popular loyalty programs in the world. 

Case Study: Starbucks

Starbucks has implemented what is considered by many the most popular loyalty program for its simple, user-friendly, omnichannel approach. Millions of customers and members of the Starbucks Rewards loyalty program can earn ‘stars’ by purchasing items at participating Starbucks stores.

Starbucks successfully gamified its customer retention approach. They have created a system where customers earn their stars towards a bigger goal. And they do that in many different ways. Customers can earn stars by making their orders from their application, by ordering through a Starbucks card, by buying via a credit card, or by bringing a clean, personal reusable cup for their drink. 

Some of the rewards, as per their website include, 

  • 25 Stars: Customize your drink (make your drink just right with an espresso shot, non-dairy milk substitute, or a dash of your favorite syrup)

  • 50 Stars: Brewed hot coffee, bakery item, or hot tea

  • 150 Stars: Handcrafted drink, hot breakfast, or parfait

  • 200 Stars: Lunch sandwich or protein box

  • 400 Stars: Select merchandise or at-home coffee

  • A free drink or food item on a customer’s birthday

Starbucks has a loyalty program that rewards spending, meaning that for every dollar spent on an item, you’ll get more stars. This naturally would reward a higher spender faster and would incentivize lower spenders to spend more per visit.

I’m sure you’re thinking at this point, this all sounds good, but what are the numbers? How effective is this and what kind of profit can one expect? Let’s talk about Starbucks’s numbers and statistics and you can tell yourself.

According to Inrelo, in 2019, Starbucks recorded a $2.65 billion gain in revenue, with the majority of the rise attributed to their rewards program. Starbucks' membership program (16 million members) accounts for nearly 40% of sales at the company's US stores, and membership has increased by more than 25% in the last two years. Compared to the previous quarter, revenue increased by 4.6 percent to $6.31 billion. The program has approximately 25 million members as of October 2021, and Starbucks Rewards now accounts for 53 percent of all spending in its stores.

The Starbucks Rewards program has become one of the most popular loyalty programs due to its many rewards and discounts, giving coffee drinkers plenty of reasons to favor Starbucks over the competition. They raised the bar for what a strong customer loyalty program should achieve for both customers and the business.


Loyalty Program Software

We mentioned how crucial it is to have a loyalty program for your organization. It can result in great customer retention and loyalty, significant improvements in customer experience and satisfaction, and above all a rise in revenue and profits that you cannot ignore. In simpler words, it’s a no-brainer. 

What makes a loyalty program tick all the boxes for a consumer, however? What is the difference between a good loyalty program and an excellent one? Below we will mention some of the most relevant features and characteristics you need to consider when implementing your loyalty program. 

Omnichannel is the Way 

Omnichannel is a user engagement strategy in which a company provides customers and prospects with access to its products, offers, and support services across all channels, platforms, and devices. The customer is at the center of omnichannel, which ensures that customers can easily and smoothly navigate between all of the company's channels to make a single purchase.

One of the main features you should pay attention to when implementing a loyalty program is to have a solid, reliable omnichannel approach. Customers value convenience more than anything else and if you provide the best service possible while allowing customers to put in a minimum effort to get a service or order a product, you are increasing overall customer satisfaction. 

While traditional loyalty programs meant that you can earn rewards after you make a purchase in-store, modern loyalty programs aim to give customers rewards across many platforms in a seamless, effortless way. This can be done by having an omnichannel approach. 

According to Invesp, companies that use omnichannel customer engagement techniques maintain 89% of their customers on average. 

Avoid Confusing Your Customers

Your loyalty program software must explain exactly what kind of conditions are needed for any reward. Poor explanation of earning conditions can be very confusing and frustrating for customers and could potentially ruin the relationship you’ve built with them. 

Tier Levels and Exclusivity

Starbucks and many other top brands offer tier levels for their loyalty program members. These levels can be through paying memberships or through accumulated points. The gamification of rewards can be very satisfying as people love working toward a goal and seeing their progress. Make sure, however, that your tier levels are far off each other because if you do otherwise, you might risk cheapening the reward. 

Exclusivity through tier levels is something that is also very important as people feel a sense of pride when they are part of an exclusive tier level that few people have reached. Showing your customers that they are part of the 10% of customers who have a GOLD tier, for example, can be very rewarding emotionally for them. 

Various Different Ways to Reward Your Customers

Offering your customers rewards for signing up or registering an account, referring a friend to your business and successfully signing them up (i.e through an invite link), or for leaving feedback on your application or website can incentivize your customers to be more engaged with your organization and hence generating more profits. This two-way relationship can be beneficial to both your business and the customer.

Creating a loyalty program software can be very demanding money and time-wise, but it is something that is without a doubt worth it as we have established throughout this article. You can transform your small business to the next level by implementing a solid loyalty program. Local businesses especially can benefit from this customer loyalty strategy.



Should you wish to begin your loyalty program today and give this whole thing a try, Upzaar offers a 14-day free trial. Upzaar helps you customize digital loyalty cards that your customer can use without the need for an app or a physical card to carry. It also helps manage your customer rewards to motivate your loyal customer to make repeat purchases. Upzaar has an important feature that enables you to collect feedback from customers, resolve any complaints, and answer any queries. It also has its own dedicated customer loyalty app. Check it on Apple Store and Google Play.


More importantly, Upzaar has a customer support team that can help you with starting through a training session via live chat or even a scheduled call. 

If you love the service, you can then sign up for a membership starting at $55 a month. No credit card required.

© 2022 by Upzaar. 

  • Instagram
  • Facebook
  • Twitter
  • LinkedIn