How to Develop a Highly Profitable Loyalty Marketing Strategy for Your Business in 2014

Marketing in this day and age has to be about more than a one-off purchase. It was the same way a hundred years ago. Marketing has been loyalty-driven since the inception of the first ever department store (Harding, Howell & Company, of Westminster London UK) first opened their doors in 1796.

I’m sure the loyalty marketing concept even dates back to the first Neanderthal who decided to turn his spear-making expertise into a service he could offer to survive, offering his spears to other Pleistocene-era sapiens in exchange for other valuables!

Loyalty marketing program

So What is Loyalty Marketing?

If you’ve never heard the term used, it’s nothing new. We’ve all experienced it at one time or another.

Loyalty marketing is simply doing things for your customers that keep them coming back.

Preferably things that they value, like:

  • Referral bonuses for return customers who bring you new business.
  • First time customer discounts.
  • Free products or services for customers who stick with you for “X ” number of years.
  • Purchase points they can use for future purchases.
  • Bonus bucks (popular with gas stations.)
  • Free continental breakfast (check out this loyalty marketing story about hotels and their current need to offer this incentive in order to stay competitive.)

Hose Your Competitors

Don’t think in terms of a one-time or lifetime cost to providing these services, or the massive profits you could be letting go over a longer time period. The continental breakfast example shown above is a great example of how hotels compete with each other.

We’re not talking the swanky Hilton here, but rather mid-level chains like Hampton Inn, Comfort Inn, Holiday Inn, etc. If you read the article I linked to above, you’ll note that they have to do it or they’ll lose business to the hotels that do.

By offering a loyalty program with a high perceived value to a customer, you can hammer competitors who either:

A) Refuse to spend their hard-earned profits giving back to the customer (this stubborn tom-foolery exists in nearly every industry.)

B) Can’t afford to because of already low profit margins, lack of business, etc. (Hint: push them out of business and that’s one less number in the yellow pages, or Google that the customer will call before contacting you!)

C) Are so disillusioned that they don’t see any value in loyalty programs (i.e., the “they all know me and like me ” or “if they want what I got they’ll keep comin’ back ” mentalities.)

Developing Your Business’s Loyalty Strategy: Ask The Customer

Start by analyzing surrounding businesses and their loyalty programs. If your business is a blog or ecommerce-based operation, this could get very involved, but you have to see what the competition is offering. Look for freebies such as newsletters, catalogues, memberships, etc. Also watch out for discounts, package deals, and other incentives that you don’t offer.


Offer your customers a survey!

Guess what you’re going to ask them in the survey?

  1. Ask them if they’ve ever recommended you (why or why not?)
  2. Ask what add ons you can offer with your product or service that would increase their experience (maybe they’d like a free lighter with their cigarette purchase, a breath mint with their meal, a points card that gives them discounts on future coffee or gas purchases, online purchase vouchers, etc.)
  3. Ask them how much they typically spend on your type of product/service per month/year (this is highly valuable, as it will help you assess the potential lifetime value of the customer (see simple calculations here) and thus determine the viability for putting out extra costs in loyalty bonuses.)
  4. Ask them how many times they’ve used a competing product or service in the last year and why (this will show you their current loyalty to your brand and obviously give you invaluable info on how you can trump your competition – also other important information such as whether they don’t like certain employees, your location’s inconvenient, you’re not open enough hours of the day, slow website/no website, pop-up ads that’re annoying, etc.)
  5. Most important: The last question should be asking them if you were to make any of the changes they’ve suggested, would they patronize your business more often, approximately how often, and would they recommend you to friends and family more (as with the example in #4; perhaps your lack of a loyalty program isn’t the only thing holding you back – many customers will tell you if you ask.)

You may have to offer an incentive to get them to fill out the survey, such as a free or discounted purchase – free movie pass, free drink, free song on iTunes, etc. Be creative, and remember that you need this information!

It’s a marketing investment, not an expense.

Yes, you might be giving away something for free to get the customer to tell you what you need to give them for free, in order to get more of their business, but don’t get disparaged at this point. You could just give the surveys away like business cards, without any incentive, then sit back and wait, but quantifiable information could take years to collect and will likely be outdated by the time you get around to using it.

This is what customer service and marketing is all about folks!

Online surveys are great for online businesses. However, if you’re a brick-and-mortar operation, try to offer the survey instore. Use incentives if you have to, but remember that sending people away with a web address or QR code to fill it out later won’t be as effective. Human beings are forgetful creatures, and you want as much info as you can get, as quickly as possible, so you can formulate your loyalty plan and implement it tout de suite!

On target
photo credit: ogimogi

Formulating a New Loyalty Strategy for Your Business

Now that you’ve got some great information about what customers want, and their estimated lifetime value to your business, you can start to prep your loyalty plan.

The best strategy in marketing is often to strive to be a front-runner; to think “outside the box “. Since loyalty programs do have an obvious expense factor, being the first to do something that isn’t yet tested can really blow a budget fast.

You can stand apart from your competition simply by using some of the same old value-added features that have been used forever, with a unique twist of your own.

Let’s take brief look at the most popular. I can’t develop your plan for you, but hopefully the following info will get the blood rushing to your prefrontal cortex.

  1. Points Collection: Bonus bucks, air miles, stay 5 nights get one free, buy 10 get 1 free, etc. This is an overused, but still highly effective way to garner more loyalty from your clientèle. The key idea with a points program is that by the time you pay out, you’ve already made a certain threshold of profit from the customer, so very little comes out of your bottom line.
  2. Coalition Programs: Coalition programs are partnerships between you and other businesses. Let’s say your pizza joint offers a “free movie pass ” with each medium pizza sold. The movie theater then offers a buy “1 medium pepperoni pizza and get the 2nd one free ” coupon for your store when someone buys two or more movie tickets. There’s good partnership deals to be made with every business. Obviously, you’re not going to look for direct competition, but rather complimentary or otherwise popular products and services to partner with. Pair together – food with anything (right?), used cars with service centers, gyms with supplement stores, computers with pc repair services, etc.
  3. VIP Membership: Typically a VIP membership needs to have a value above and beyond the service you offer already. Customers should pay for the privilege and get more than their money’s worth in return. They get double the normal purchase incentives, access to a “lounge “, better discounts from your partners, free drinks/snacks, etc. You can also give away VIP memberships combined with other loyalty benefits such as points, seniority, game prizes, or ladder programs.
  4. Seniority Benefits: This is a simple program to implement and highly profitable. Your long-term customers are the people that keep coming back to spend their money. They’re also valuable in the other business (referrals) they bring to you; since they’re repeat customers, it isn’t too much of a stretch to assume they’ve recommended you to others. Use your customer lifetime value numbers to decide on a bonus program that makes your customer feel really wanted, while still being lucrative for you.
  5. Ladder Program: Here, the customer “moves up the ladder ” by doing all, or most of their business with you. Like with the others, you can combine a variety of loyalty programs into one with the ladder. It’s very popular with airlines, who offer different cash and non-cash incentives as you move up different rungs of the ladder. The customer moves up one level and they get a freebie or two, next level they get double points, next level they get a VIP membership, next free car rentals, etc. Seniority, dollars spent, and referral benefits should all be included in a ladder program.
  6. Games: Scratch tickets, connect the dots, sodoku, monopoly – etc., etc. The customer gets a scratch ticket for even bigger prizes with every purchase, each purchase they make advances them to winning a game, or they get a game piece with each purchase. People love games. Over $58 billion in lottery tickets were sold in 2010 (source.) Over 3 billion hours are spent every week on videogames alone (source.) People of all ages like their games.

Note About Customer Service

You could also improve your customer loyalty by improving your service. Smile more, insist that your staff smile more, say thank you to every customer, remember your regular’s names, make your website mobile friendly. The free possibilities are endless, but aren’t always enough in the competitive marketplace we currently live in.