3 Reasons Customer Retention is Much More Than a Loyalty Program

Customer retention can be a financial game-changer in your company’s success. Harvard Business Review reports that increasing customer retention rates by 5% can increase profits by at least 25%[i]–with some companies able to nearly double their profits.

Most CEOs and marketers alike understand the importance of customer retention. But many mistake a loyalty program as the solitary means for improving retention rates. Here are three reasons effective customer retention is so much more than a loyalty program.

Reason #1: A loyalty program works great…to already loyal buyers. Everyone loves a good loyalty program and why not? A strong program improves retention rates to a very important segment of your database: loyal buyers. Just ask Amazon about the successful launch of its Prime business. Still, in today’s competitive marketplace, there’s a hard truth many companies are choosing to ignore: Less than half of enrolled U.S. households become active loyalty customers[ii]. Which means a strong loyalty program may keep loyal buyers buying, but do little else to engage, let alone retain, the rest of your customer base.

Reason #2: A loyalty program puts the focus on what your company needs – rather than on your customer’s needs. Discounts and rewards are popular loyalty program incentives. But let’s face it, these tactics have a very clear agenda: To drive sales. They work well when your product is something your customers purchase frequently. But if you’re not selling coffee, sandwiches, or even airline miles, are you taking the time to find out how to satisfy your customers’ needs? A staggering 60% of members feel that their loyalty programs do not actually target their needs. [iii] Ouch! Not meeting the needs of your customers is a sure sign you’re not likely to retain them.

Reason #3: A loyalty program tends to be a one-size-fits all approach. Today it’s all too common to see one specific loyalty offer mass-marketed to everyone on a loyalty list at the exact same time. This tactic may have legs say, during the holidays, but at any other time it’s hard to generate success that’s scalable from a one-size-fits-all loyalty program. Effective customer retention requires connecting with the right person at the right time with the right message. And that means using targeted segmentation, personalized offers, as well as contextual timing within a customer’s buying cycle. Does your loyalty program do that?

If you answered no, you’re not alone. So here are a few ways to start thinking about a more comprehensive customer retention strategy—one that extends beyond a loyalty program.

If you’re looking to get more traction from your current customers, begin by looking at your customer data in search of answers to questions such as: Who is most likely to buy additional goods/services from you? Who is most likely to churn out of your active buyer file and become inactive? Who is likely to keep purchasing regardless of a deep discount offer?

As the answers to these questions emerge, you will discover new ways to segment your list, such as grouping At-Risk versus Core versus High-Value customers. Once you’re able to segment to this level, you can begin to develop a messaging and offer strategy personalized to each segment.

For instance, when targeting At-Risk—a group “at-risk” of no longer doing future business with your company—you may offer deeper discount incentives and aim to increase overall engagement through highly interactive communications.

Approaching customer retention this way, it’s easy to see how a loyalty program is simply one-part of a larger, more comprehensive strategy to retain your customers—one that when executed well could drive game-changing revenue for your business. [iv]

[i] https://hbr.org/2000/07/e-loyalty-your-secret-weapon-on-the-web

[ii] https://www.bigcommerce.com/ecommerce-answers/how-market-loyalty-program-and-get-people-sign/

[iii] https://www.bigcommerce.com/ecommerce-answers/how-market-loyalty-program-and-get-people-sign/

[iv] http://www.inc.com/guides/2010/08/get-more-sales-from-existing-customers.html