| By Chuck Schaeffer
A 10 Step Loyalty Program Framework To Increase Customer Lift, Margins and Profits
We’ve all heard that it’s 3 to 5 times more expensive to acquire a new retail consumer than to upsell an existing one. Or that the top 20-25% of consumers contribute 75-80% of the margins and profits. But even with these time tested adages, too few retailers systemically capitalize on these consumer behaviors because they don’t have a process of acquiring, analyzing and making consumer data actionable toward specific retail objectives. Loyalty programs offer such an opportunity to make the link and apply consumer activities toward repeatable processes and forecasted business objectives.
It’s also not lost on retailers that loyalty programs are a key tool to increasing consumer purchase transactions, margins and top line revenues. Returning customers spend on average 67% more than first-time customers (source: Bain and company) and in some retail industries up to 15% of a business’s most loyal customers account for 55-70% of the company’s total sales (source: The Center for Retail Management at Northwestern University).
Strategic loyalty programs are also appreciated by consumers, as they segment customers based on how they want to be served, understand what’s needed to delight customers and deliver relevant, personalized and contextual communications and offers at just the right time. And as a result, customers develop a deeper emotional connection with the brand, while at the same time aiding retailers in their most strategic retail business objectives.
And while loyalty programs are most attributed to retail businesses, research consistently shows that these programs are equally effective in related business to consumer (B2C) industries such as financial services and can even deliver substantive benefits in business to business (B2B) industries. Don’t lose fact that B2B businesses are made up entirely of people and people want to feel recognized and appreciated by their suppliers.
The Retailers Business Problem
Too many retailers focus their marketing largely on new customer acquisitions and discount customer retention. Seemingly, they somehow believe that once a customer is acquired the customer will automatically continue their patronage. That’s naïve thinking. As barriers to switching brands continue to dissipate and consumers continue to become even more connected and informed, the cost to retailers who neglect their customer base will most certainly continue to rise.
Loyalty programs are often turned to in order to reduce churn, grow customer share and increase profits.
However, while Forrester research cites that 80% of all retailers offer loyalty programs, nearly two-thirds of them are under-utilized or ineffective, which explains why only 12% to 15% of customers are loyal to retailers. Similarly, Aberdeen Group reports that 74% of retailers report "partial to no tangible improvements" from their customer loyalty programs. Aberdeen goes on to report that "Our analysis shows that loyalty campaigns are being executed without due consideration to ideal customer segments, tools, coordinated cross-channel marketing needs, and long term customer relationships." The report also points out that while deploying successful loyalty programs is difficult, not deploying them is even more catastrophic, as based on their survey results they cite that "retailers without a loyalty program, indicate dismal results on sales and customer retention increases."
Clearly too many retailers are giving short rift to their loyalty programs and failing to take advantage of a top retail strategy that is proven to grow sales and margins, and particularly among the retailers most profitable customer segments.
It’s a grim picture but fortunately there is a better way.
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