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Loyalty Programs

5 Key Reasons Why Loyalty Programs Are Imperative for Business Success

Written by 
Brad Davis
November 11, 2019

Most business owners are well aware of the basic concept behind a loyalty program. However, many people still mistake a “repeat customer” for a “loyal customer”.

Will the customer who frequently visits your coffee shop continue to come in for their daily coffee when they move to another area? How about when you raise the price of your coffee by 50 cents, or when a café with better Wi-Fi opens up across the road from you?

A repeat customer returns to a business because it’s convenient, or it’s cheap, or for whatever reason they consider most important to them. The moment a better option comes along, they’ll jump ship and you’ll never see them again.

A loyal customer, on the other hand, has an emotional connection to the brand. They continue to do business with this particular brand because they feel valued, appreciated and looked after.

Consumers with an emotional connection to a brand have a 306% higher lifetime value than regular customers. They also stay with that brand for longer, and will recommend that brand much more often (Motista).

See the difference?

how to create brand loyalty

A good loyalty program fosters an emotional connection. Whereas the old “Buy 6, Get 1 Free” paper punch card system is an effective method for retaining repeat customers, digital loyalty apps create loyal customers.

Here are five reasons that a customer loyalty app is crucial for any business looking to expand its customer base and strengthen the brand-customer relationship.

1.     You can engage customers on a new, much more personal level

By creating a customer loyalty app for customers to download onto their smartphones and redeem points on, you’re enabling a much more personal relationship between your brand and each customer.

Whether you’re running a small business with a single location or a large-scale international brand with multiple outlets in every major city around the world, the process for encouraging customers to develop an emotional connection to your brand is the same.

With a digital loyalty app, businesses can send their customers push notifications, texts and emails with personalised offers targeted to each specific customer, based on their previous purchases and transactions.

push notification marketing

Software developer Pega found that 95% of customers are not just willing, but actually eager to receive proactive communication from companies they make purchases from – 38% want a lot of it, and another 37% want occasional communication that is specifically tailored to them.

A customer loyalty app allows brands to offer spontaneous rewards or exclusive offers to loyalty members who visit a store before the end of the week, for example. Things like Scratch & Win promotions can be used to thrill and excite customers, while tailored discounts make a customer feel valued and appreciated.

This barely scratches the surface of how customer loyalty apps can be used to directly engage your highest spending customers (you can find more tips here), but you get the idea.

A mobile-based customer loyalty experience offers a level of connection between brand and customer that simply can’t be achieved any other way.

Scratch & Win Redemption

2.     You can find out exactly what your customers want (and give it to them)

analysing customer behaviour

The remarkably effective “targeted offers” technique mentioned above comes from accumulating customer data; and digital loyalty programs are your best tool for achieving this.

Every time a member of a brand’s digital loyalty program makes a purchase, the business gains indispensable data on:

  • what the customer bought
  • how often they buy it
  • what time of the day or which day of the week they buy it
  • what they tend to buy alongside it
  • which location they most frequently shop at
  • many more pieces of information that allow the brand to offer that individual customer a truly unique loyalty program experience.

The more you know about your customers, the better equipped you are to give them what they want – it’s a win-win.

Having all this customer data allows you to take a step back, observe the bigger picture, and notice the patterns and trends in your brand’s consumer behaviour. As for the customer; they get to enjoy more personalised rewards and a far better overall shopping experience with your brand.

Bond Loyalty recently revealed that 87% of American consumers are happy to have a brand track their shopping activity and customer data if it results in a more personalised experience.

In the long term, this can save you thousands if not millions. You can clearly see what aspects of the business need improvement, which strategies aren’t working like expected, and other key elements that allow you to stay in business.

3.     You can create brand ambassadors, and a sustainable referral program

Cafe Customer Loyalty App

Referral programs have proven to be a highly effective method for acquiring new customers; as various rideshare and app-based food delivery businesses have demonstrated in recent years.

By having a digital loyalty app that your customers can engage with, your loyalty program isn’t restricted to simple “Buy X, Get Y”-type models.

Suddenly, you can offer spontaneous side-promotions that keep your brand front-of-mind by putting customers into the draw to win bigger prizes. You can also offer an incredibly enticing referral program.

Customers who are loyal to your brand and regularly engaging via the rewards app are likely to already be ambassadors of your brand, providing word-of-mouth referrals that aren’t costing you a thing.

In fact, Deloitte found that new customers referred by loyal customers have a 37% higher retention rate, while a study by Harvard Business Review revealed that a referred customer ultimately generates 16% more profit than the average customer.

By offering customers further rewards for referring others, you’re creating the means for acquiring new customers without any traditional advertising costs. This is an incredibly sustainable method for expanding your customer base.

4.     You can increase revenue exponentially

Do loyalty programs increase sales

Of course, this is the key reason any business implements a loyalty program, right?

Perhaps one of the most enticing statistics in motivating a business to create a loyalty program is Bain & Company’s findings that a 5% increase in customer retention can equate to a staggering 125% increase in profits.

This is because not only do loyal customers keep coming back and offering repeat transactions, but they’re actually spending more money per purchase as well – the same Bain & Company study revealed that existing customers spend 67% more than new customers.

Considering the increase in revenue that a business can enjoy with a well-structured rewards program, the costs associated with creating and maintaining it are a drop in the bucket.

Want to know if a loyalty program is right for your business? Have a read of the top 10 industries where loyalty programs are extremely effective.  

5.     You can acquire, retain, and win back customers with minimal effort or resources

As you’ve probably already gathered from the points mentioned above, retaining existing customers is only one facet of how a well designed and adequately maintained digital loyalty program can work for you.

While things like the tailored rewards and direct engagement motivate existing customers to keep coming back, referral programs and general word-of-mouth can keep a healthy stream of new customers flooding in.

Similarly, an attractive rewards program is likely to help you win back old customers who, for whatever reason, lost interest in your brand or product.

customer using digital loyalty app

Once a brand has invested some time and resources into creating an effective loyalty program and working out the initial kinks, it essentially becomes a self-sufficient machine that is constantly working to expand your customer base.

In fact, a really well structured digital loyalty program will act like a snowball rolling down the hill, growing bigger and bigger as it rolls!

Of course, we’re not saying that you don’t need to maintain your rewards program – quite the contrary. Use the customer analytics that your loyalty program is providing to constantly hone and tweak it to stay relevant to your customers’ needs.

However, the profits achieved from this practise will far outweigh the cost, manpower and resources used to create a digital rewards program.

Convinced? We hope so!

Want to launch a loyalty program but need a bit of help? Check out our free Digital Loyalty Program Launch Checklist!

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