POSitive POS SA Blog: POSitive Loyalty Program

By Sean Ogino

What is a loyalty program?

Turning customers into brand loyalists requires a repeatable process that incentivizes them to keep buying from you. A loyalty program is essentially the process of rewarding customers through structured marketing strategies for their frequent or continued engagement with your brand. The more they spend, the more rewards they receive. If you put customer preferences at the heart of your marketing efforts and execute a program well, customers feel good about purchasing from you and that will give your business a competitive edge against your competitors.

Benefits of Loyalty Programs

1. Customer Retention

The primary motive behind a loyalty program is to retain customers by rewarding them for their repeat purchase behavior. In fact, Khan and Khan (2006) have also said, “Loyalty exists when a person regularly patronizes a particular (store or non-store) that he or she knows, likes and trusts.” In short, the customer loyalty program is a tool to retain customers by giving them a solid motive to buy again from the company and establishing habits.

There are many studies which have explained this relationship between loyalty program and retention rate. One European study found that customers’ relationship perception of a Dutch financial services company’s loyalty program explained about 10% of the total variation in customer retention and customer share. Annex Cloud’s own customer loyalty statistics—taken from our clients—have shown that a well-implemented loyalty program can achieve the following:

Loyalty programs increase overall revenue by 5-10%.
Loyalty members spend 5-20% than non-members on average.
Loyalty program members buy 5-20% more frequently than non-members.

The direct impact that customer retention strategies have on the bottom line of business is a well-established fact. A business with a 60% customer retention rate is losing 3-4 times as many customers a business with 80% retention rates. Besides, increasing customer retention by just 5% boosts profits by 25 to 95%, according to the advisory firm Bain & Co. Indeed, out of the list of pros and cons of a loyalty program, retention is likely the ultimate benefit.

Advantage of customer retention

As a business owner in today’s competitive and packed marketplace, you’re hyper-focused on growth. A small change in retention can lead to big results. Hence customer retention is vital. Here are some benefits:

Retention is more cost-effective than acquisition. According to a report, it costs five times as much to bring in new customers compared to selling to existing ones.
Repeat customers deliver better returns. Research states that loyal customers buy 90% more frequently, spend 60% more per transaction, and deliver 23 % more revenue and profitability than first-time purchasers. Therefore, retention is a great way to grow and increase profits.
It’s a known fact that people get strongly influenced by referrals from family and friends. Hence loyal customers are the best source of referrals and new business. Customers onboarded through a referral tend to have a much shorter (and cheaper) sales cycle.
Customer retention also helps businesses improve CLV (customer lifetime value) and reduce churn.

Disadvantages of customer retention

Investing in customer retention both in terms of price and time can prove to be steep.
Businesses trying to achieve an efficient customer retention rate may not focus on the needs of new customers. There may be chances of new customers being overlooked by brands in a hoard to satisfy their existing customers.
If you choose the wrong loyalty partner, you may end up investing heavily in the partnership but not reap the benefits.

2. Relevant Customer Data and Consumer Trends

Consumer data gets recorded in the company’s database as soon as a shopper registers for a loyalty program. Companies can use this data for omni-channel, offline, and ecommerce segmentation, profiling their best customers and tailoring their offerings to specific groups of consumers. As loyalty program data gives the company a complete view of customer behavior, buying habits, and preferences, the company can use this information to invigorate its inventory management, pricing, and promotional planning. This data also enables marketers to measure the results of special promotions based on additional purchases, use of additional channels, or decreased time between purchases.

The reaction of Tesco’s chairman speaks volumes about how efficient loyalty programs are in extracting valuable information from a customer. He has said, “What scares me about this [loyalty program], is that you know more about my customers in three months than I know in 30 years!”

3. Higher Cart Value

As explained in the above point, a company can use collected data to cross-sell and up-sell. It can offer extended warranties after an item is purchased, suggest accessories that go well with the purchased item, and provide discounts on related purchases. Moreover, the loyalty program can also bring relief by increasing demand in slow seasons. Its best example is an airline mileage program that is available only on selected flights. Due to less wastage, such targeted promotions are prone to yield more satisfactory results.

4. Reducing Unprofitable Customers

One of the less frequently considered items on this list of the pros and cons of loyalty programs is that they let companies shed unnecessary weight. A well-designed loyalty program allows companies to segment customers and discover profitable and unprofitable customers. It helps them in dropping off the customers who only buy the discounted lines and avoid premium range almost on a regular basis. These customer profiles can cost more money than they generate.

Through a loyalty program, companies can reward better customers only and thereby minimize the payout to not so profitable customers. Without an iota of doubt, this is the most efficient way to retain the customers from whom the company generates the most profit.

5. Better Customer Communication

A loyalty program offers a direct line to customers, making communication much easier. Aside from announcing new products/services, promoting sales, and the like, a useful item on this list of the pros and cons of loyalty programs is that they facilitate recalls when necessary. This is possible due to the purchase date and barcode of the recalled items. The recall notice gains more weight and significance, as it is based on the consumer’s actual purchase of the affected good. Compared to a store sign or newspaper notice, the chance that this email-borne recall notice will get read by the people is high.

POSitive Point of Sale Loyalty Program

POSitive has a fully-fledged, configurable Loyalty function. The retailer can also create their credit and COD customers as Loyalty Customers. To configure Loyalty within POSitive POS just select the function in the Program Options:

And specify the value of a point during sales as well as during redemption of points. In the example your customer will get 1 point for every R10 spent with you, and they will be able to buy for 10c with every point they have.