Do loyalty cards really create loyalty?
In today’s day and age, it’s almost impossible not to be a part of a loyalty program. In 2022, just under 90% of Aussie consumers were enrolled in at least one loyalty program, with around 45% reporting that they actively used their memberships.
As surprising as those statistics may seem, they should compel you to implement a loyalty program in business – regardless of your industry or business size – as soon as possible.
Think about it for a second: If loyalty programs weren’t beneficial for business, why would so many companies offer them?
Loyalty programs are often mistakenly viewed as cheap promotional devices even though they’ve been around for decades. From airlines to telcos, businesses are spending time and money to develop and implement loyalty card programs – and you should, too!
As Frederick F. Reichheld and W. Earl Sasser, Jr., documented in “Quality Comes to Services” (HBR September–October 1990), a business’s most loyal customers are also its most profitable.
Over time, loyal customers become more and more valuable: buying more, paying premium prices, and bringing in new customers through referrals.
A cleverly designed loyalty card program can encourage first-or second-year customers to behave like a business’s most profitable tenth-year customers — but only if it’s planned properly.
How to create an effective loyalty card program
All customers are not created equal
It all ultimately boils down to this: You must find ways to share value with your customers in proportion to the value the customers’ loyalty creates for your business.
Some of the best examples of this can be found in small businesses.
For many years, successful local businesses have intuitively understood the purpose behind an effective loyalty card program. They make it a point to get to know their best customers personally and often reward them with special services and attention, like notifying them when a sought-after item arrives in-store or giving them a free drink or a special dessert.
What they’ve realised is delivering increased value to profitable customers turns them into loyal customers, and loyal customers become even more profitable over time.
Unfortunately, many businesses treat all customers as equals within their loyalty card programs, providing them with products of equivalent value regardless of how much they spend or how long they’ve been customers.
What this is actually doing is wasting resources to over-satisfy less profitable customers while under-satisfying the more valuable loyal customers. This can often result in your highly profitable customers looking for more attractive options elsewhere (i.e. the opposite of what you should be trying to achieve).
Make it profitable
This sounds like a no-brainer but you’d be surprised how often businesses get this wrong. A loyalty card program is not about giving away something for nothing!
While it can be difficult to determine exactly how much value your loyalty card program will bring when you’re just getting started, you should be careful to not bite off more than you can chew.
It’s always best to start with small incentives and work your way up as your loyalty card program warms up.
Reward the right behaviour
When you’re designing your loyalty card program, ask yourself this question: Am I rewarding my customers for desirable behaviours?
When you think about loyalty card programs in this way, you can see why one-off rewards or promotions aren’t likely to be as effective.
What you want to reward are customer behaviours that are truly valuable to your business. Think about the value of repeat purchases or spending a certain dollar value within a certain time frame compared to the value of a first-time customer who may never return, for example.
Offer a reward your customers actually want
Many of today’s loyalty card programs reveal that businesses don’t understand their customers as well as they should.
The ultimate value of any loyalty card program rests with how valuable your customers perceive the rewards to be. Ensure you’re enticing your customers with a carrot they care about!
Don’t be afraid to try different incentives and ask for your customers’ feedback to improve as you go.