Why do you need a customer loyalty program?

How do you keep your customers coming back for more? The right product at the right price in the right place is a good start. But when it comes to promotion, sometimes it is too easy to overlook the obvious.

Given the skills and budget necessary to run an effective marketing campaign, working hard to keep the customers you already have should be every small business’s priority.

The costs of customer acquisition

It costs a lot to acquire a customer. Average acquisition costs do vary by industry, but if you total up all your marketing spend in the last year and divide that by the number of new customers you gained last year, you’ll have a rough idea of what each new customer costs you… and that number might be bigger than you realize!

To drill down on which marketing activity brought in the most customers—or the average cost of new customer acquisition per campaign or period—divide the total spend by the number of customers brought on board. This is vital analysis if you want to direct marketing spend and activity to where it is most effective.

However, this analysis doesn’t take into account recurring revenue and returning customers, who are probably among your most profitable customers (because they don’t require acquisition costs).

Experts estimate that it costs around five to seven times more to acquire a new customer than it costs to retain an existing one.

The benefits of preaching to the converted

It makes sense to focus marketing activity towards those people who have already discovered and liked your business.

They are a ready-made audience for your marketing campaigns, an audience that already likes what you have to sell. Their journey to repeat purchase is far shorter than the road to educating and acquiring brand new customers.

But the benefits of marketing to your existing customers don’t stop there: Some experts have argued that in today’s world of social media, social engagement and social shares, retaining customers helps you to acquire customers – because of the power of peer recommendation.

Keep your customers coming back for more

Let’s assume the right product, the right price and excellent service are a given. That leaves promotion.

A loyalty program is the most obvious solution. Traditionally, it was as simple as offering a card with every purchase that was stamped every time your customer spent a certain amount. When your customer collected a certain number of stamps, they earned a small gift or discount.

This type of scheme has the benefit of being simple to set up and easy to run. You can control the costs easily—ensuring that the gift or discount that accompanies the collection of the right number of stamps does not exceed the cost of acquiring a new customer. Indeed, it is substantially less.

A loyalty program offers a tangible incentive to your customers to return and repeat their purchase on an ongoing (habit-forming) basis.

One thing it doesn’t include, however, is any detailed customer insight which you can use to target customers more intelligently and appropriately; ultimately, you’re still waiting for them to come to you (albeit rewarding them when they do).

The attraction of data

Creating a customer database can begin with something as simple as offering a clipboard and pen on which people can leave their email addresses and be added to your email list. However, digital tools offer more scope for a more joined-up approach.

We’ll explore some of the digital options available for small businesses who want to get a loyalty scheme off the ground in a subsequent post. These digital tools include innovative ways to record customer details within a point-of-sale system, such as Upserve or to register using social media or a specialist app, such as Perkville, to record their purchases.

Whether you start online or offline, don’t lose sight of the most important rule: Customer experience matters.

Yes, promotion is important and loyalty programs have an important role to play in this. Loyalty program data empowers you to promote the right product to the right person at the right time. But to be really valuable for both you and your customer, the relationship has to be more than transactional; it must be built on continually delivering excellent service and an excellent experience.