For most companies, uncovering ways to reach new customers is a constant struggle. While companies often feel the key to running a highly profitable business is to focus on the acquisition of net new customers, the truth is that acquisition is only half the battle. Retaining customers beyond initial purchase — and doing so in a cost-effective manner — is a critical success factor to any business. From this perspective, molding your marketing strategy to focus on increasing customer lifetime value (LTV) will enable you to more fully realize the share-of-the-wallet of opportunity of your customers – driving profitable growth and staying ahead of the competition.
However, in an effort to compete with Amazon.com and other competitors, too many companies fall into the trap of over relying on discounts as their core acquisition & retention strategy. Ironically, many companies end up offering incentives in a way that reinforces and rewards behavior they would actually rather NOT encourage. While discounts may bring a customer back initially, they erode the bottom line and do not build the sort of meaningful relationships that inspire customers to be loyal over the long term. These engaged, repeat customers are so valuable to your business that, on average, they account for 40% of total revenue and drive 3-7 times the revenue per visit as one-time buyers (Source: Adobe Digital Index Report).
The key to creating sustainable customer relationships is a shift to more thoughtful and engaging loyalty programs focused on meaningful customer interactions that help a consumer feel more invested in your brand, spurring loyalty and future purchases. Here are three ways to get you there:
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1. Targeted Communication: Customers want to feel special. In order to make them feel like more than one of the herd, your communication should feel authentic to their experience and perspective as your customer, providing value that applies directly to them. Design your loyalty program with an approach that allows you to tailor your messaging, offers, and rewards to the individual members and segments within your program. Your customers will be glad you did.
Here are a couple examples of how you can match a customer’s actions with the right contextual message:
Example 1: A lapsed member with no actions in 120 days can receive a points promotion designed to reengage that customer.
Example 2: A member with a sizeable points balance but no redemptions may receive a “rewards sale” promotional message, offering rewards at a 25% rewards discount to encourage “burn” (which will directly fuel their ongoing engagement in the program).
2. Omni-Channel Engagement: Key customer interactions are no longer limited specifically to the purchase path of your website. To maximize engagement with your customers, you need reach them across touch points – online, mobile and in-store – with an integrated customer experience where the actions, promotions, and rewards within the program mesh seamlessly with how and where your customers choose to interact with the brand.
3. Meaningful Rewards: In order for your loyalty program to be successful, it is critical you take a thoughtful and pragmatic approach to the rewards structure. It is often optimal to incorporate a balanced approach, blending rewards that are relatively attainable to encourage initial engagement with other more aspirational rewards that are more geared toward top customers (engaging high value customers, while creating a “halo effect” for others). You also want to ensure your rewards are meaningful and equitable in the context of the actions taken, being careful to consider similar incentives that might exist for customers outside your program. Finally, your rewards should not only be compelling, but also complimentary with the overall brand positioning. For one retailer this might mean rewards that emphasize savings opportunities where another retailer might be inclined to focus on value-added experiences and exclusivity.
Here are a few examples of effective rewards that could work for your business:
- Free Product: Offering a reward of free product not only provides a brand-centric incentive but also affords the benefit of driving awareness of product assortment and encouraging trial.
- Savings on Next Purchase: Beyond a base structure for earning and redeeming for savings, consider layering in strategic execution such as incremental savings to lapsed purchasers (to optimize the incremental revenue and margin component associated with the reward offered).
- Benefits linked to Tiers Status: Utilizing a tier structure enables you to provide high value customers enhanced benefits not broadly offered – such as access to exclusive product, limited quantity experiential rewards, and free shipping and returns.
It is short sighted for companies to concentrate on new customer acquisition and purchase conversion. To drive sustainable profitable growth, marketers need to broaden their focus to retain customers. By coupling smarter customer engagement tactics with more efficient reward strategies, you can influence key behaviors and start making more valuable connections with your customers right away – building lasting relationships that will lead to more loyal customers, increased LTV and heightened profitability.
Zach Woith, Director of Loyalty Strategy, 500friends, is responsible for developing strategies to improve customer loyalty and increase lifetime value of customer relationships for 500friends client partners, including Internet Retailer Top 500 e-retailers and leading omni-channel retailers. Prior to joining 500friends, Woith held multiple eCommerce management roles with hpdirect.com, including launching & managing their loyalty program. Previously, he held other category management & marketing roles with Hewlett-Packard.
