10 Valuable Benefits of Using a Customer Loyalty Rewards Program

Running a loyalty program is a great way to add revenue and make customers excited about shopping. In a way, a loyalty program encourages customers to purchase frequently because of incentives.

But how do loyalty programs work? What are the benefits of using a customer loyalty rewards program?

How do loyalty programs work?

When a company uses a customer loyalty program, it benefits both ends — the company itself and the buying customer. Simply, customers are rewarded for their brand loyalty while the company is provided with sales, referral, and vital data.

Fortunately, there’s no need to reinvent the wheel in starting a loyalty program. For example, you can partner with Lootly to help you grow your revenue as well as customer satisfaction through loyalty and rewards programs.

Source: Lootly

With an incentive marketing platform like Lootly, there will be no need for you to start from scratch. Simply customize the program with what you have in mind and there’s your program. It’s that simple.

Benefits of loyalty programs

For others, it’s baffling why big companies like Amazon, Apple, or Starbucks invest so much money in rewarding customers even to the point of giving out products for free. If you’re one of those people who would like to understand the behavior of these giants, here are the benefits of using a rewards program on a business:

1. Retain customers

Let’s start with the most basic. The primary purpose of loyalty programs is to retain customers by giving them incentives for each action they take — making a purchase, giving a referral, sharing on social media, leaving a review, and others.

One of the goals of a loyalty program is to have a “repeat business” phenomenon where customers go back to the store, again and again, to purchase products or avail services from the company.

As you move on through the list, you would realize that most of the benefits are brought by loyal customers.

Another reason for retaining customers is CLV or Customer Lifetime Value. This is simply a measurement of the projected value of a customer based on their present and future activities with the brand.

The bottom line of CLV is that acquiring new customers is more costly than retaining new ones. It would cost you more to gain a buyer through advertising and marketing. You make more profit when the customers who are already engaged with your brand keep on buying from you.

2. Gather relevant customer data

The customer data you’ll gain using the loyalty program is perhaps the most important benefit of them all. In fact, in a survey held by PwC, most of the respondents believe customer data to be the most valued and most important consideration.

These programs would allow you to track important analytics and measure metrics related to customer loyalty like repeat customer rate, purchase frequency, and even engagement. Lootly’s “Insight” feature allows you to drill drown on individual customer profiles and understand their behavior better.

Source: Lootly Insights Feature

Loyalty programs provide a space where you can conduct a form of research about your customers. Over time, you would be able to understand which reward drives your customer the most to perform an action. You can then apply the same incentives on some of your products to increase sales.

In addition, you can also use the data to provide customers with a personalized experience. It’s critical that you provide your customers with the best service possible. If not, you could lose a lot of them. A study fielded by American Express revealed that 68% of customers believe excellent customer service interaction is fueled by a pleasant experience.

With your data, you would be able to create targeted marketing campaigns that make marketing simple and cost-effective while ensuring a high engagement from your customers. 

3. Boost sales

Customer data is the most important benefit of loyalty and rewards programs because this collected data will allow you to give your customers personalized shopping experience. This allows you to make better recommendations to your target market.

For example, if you have tried buying and reading books with Amazon Kindle, you will receive book recommendation emails that contain books which are related to the ones that you once bought, including those that are inspired by your wishlist:

Source: Amazon Kindle Email

With customer data, you will be able to boost sales from customers by increasing their cart value. This can be done by cross-selling and up-selling recommendations. There’s a higher chance your customers would buy since the recommendations are based on their own purchase history and behavior.

4. Increase revenue

In business, the primary goal is to meet the needs of the customer. A satisfied customer leads to a repeat in business which leads to an increase in sales and revenue. It’s only natural for loyal and satisfied customers to spend more since your brand has already gained their trust.

This is one of the reasons why giant companies invest in loyalty programs and customer retention. Imagine this finding from Bain & Company: Focusing on customer retention and increasing it by 5% could lead to an increase in profits and sales from 25% to 95%.

5. Lower marketing costs

Though using and implementing loyalty programs are counted as investments, it can actually help you save money in the long run. These programs aren’t as expensive as others think. Retaining customers is proven to be less expensive than acquiring new ones.

It’s not really that hard to see why some marketers see incentive programs to be expensive. If you think about the money spent on those rewards without comparing it with the actual data in attracting new customers through marketing and advertising, it seems like a total waste.

If you take the figures from the finding from Bain & Company about customer retention and an increase in profits, the opposite is also true — acquiring new customers is 5 to 25 times more costly than retaining the existing ones.

6. Shed off unprofitable customers

Loyalty systems will help you reduce unprofitable customers that are more harmful to your company than being profitable. Understandably, you might be thinking, “How can a customer be unprofitable and harmful to a company?”

Here’s a good definition of unprofitable customers from Market Business News:

“Customers who are unprofitable consume more of your business’ resources than they pay for. These customers divert attention and resources from a business’ profitable customers.”

Source: Market Business News

Using a loyalty program would help you see who among your customers are profitable. Your unprofitable customers cost more money than they give since they only buy the discounted lines and avoid any premiums regularly. Once they’re dropped off, you can focus on retaining your customers who generate the most for your business.

7. Customers feel happy and appreciated

A loyalty program would help you build personal relationships with them. Of course, the basic step towards an emotional connection between your brand and your customers is showing how much you value and appreciate them.

It’s a no-brainer that giving incentives to your customers would make them happy. But the act alone of giving back separates you from other businesses that sell the same products or services but don’t give back to their customers. 

With a loyalty rewards program, you’re making sure that your customers understand that you’re not only there to make money off of them. You’re making it clear to them that you’re also interested in your mutually beneficial relationship.

It’s worth noting that happy and loyal customers tend to purchase more frequently. Customers purchase more out of emotion and desire rather than necessity. Using loyalty programs to reward customers for their actions appeal to their emotional part, which leads them to form an emotional attachment with your brand.

It’s definitely worth investing in a customer’s happiness and satisfaction. Motista, a predictive intelligence company, conducted a 2-year study about the impact of emotional connection on purchase behavior. They found out that customers with an emotional attachment to a brand have a 306% higher lifetime value.

8. Improve customer communication

Once you made an emotional connection with loyal customers, communication with them wouldn’t be hard. Loyalty programs provide ways for you to be able to communicate with customers directly in a more personal manner.

When you have a personal relationship with them, promoting sales, events, and even showing them new products would become easier. Because of the relationship, you’re also bound to recommend the products you know would benefit them and show that you’re not just into it for the additional sales.

By improving customer communication, it’s also easier to facilitate a product recall when necessary. Using customer data like purchase dates will help you pinpoint who among your customers have the defective products.

Product recall may negatively affect your business’ reputation. However, loyal customers, who are more likely to read your email about the recall, would be able to understand once you go out of your way to explain the situation to them.

9. Attract new customers

The fact that loyalty programs can attract new customers isn’t surprising. With an incentive program, you’re able to turn valuable customers into brand advocates who would refer your brand to their family and friends.

It’s already given that satisfied customers would most likely refer your brand out of their own happiness and initiative. The enjoyment and satisfaction they received from your brand are rewarding enough.

But sometimes, your customers would need a little push. Data from Ambassador, a referral marketing software, showed that 88% of Americans would like to receive some sort of incentive for sharing a product.

That’s why Lootly has a referral feature. We understand how a loyalty program can drive revenue even further by turning loyal customers into advocates and attract new customers.

Source: Lootly Referral Feature

This especially works when both the referral and referrer receive an incentive. What usually works is offering points, coupons, or even discounts once the referral signs up or purchases a certain product. Then, it becomes a cycle when the referral becomes the referrer.

10. Boost reputation and social proof

Lastly, a loyalty program would help boost your brand’s reputation and social proof. By becoming an advocate of your brand, loyal customers would share your product and business with other people and in social media.

And the more your customers are satisfied with your brand, the more they’re inclined to support the company and recommend it to others. This would surely increase your brand’s popularity, reputation, and social proof leading to more new customers and increased revenue.

Moving forward…

As you can see, there are lots of benefits to using a loyalty program. Sure, some may argue that there are disadvantages too like vague and limited data, saturation, the potential of loyalty programs to tip off the financial security of a business, and many others.

However, these disadvantages can be remedied. All it takes is additional effort and thoughtful planning. For example, loyalty programs, when paired with surveys, can help marketers understand the behavior of customers better. Financial loss can be prevented by thoughtful planning and calculations of the incentives and making them fairly priced and effective.

The point is, a customer loyalty program like Lootly might be the missing ingredient to your company. There are a lot of benefits to using one and all of them are for the company’s advantage.