Why businesses use loyalty for the money

Rewards, points, discounts, and travel miles – these are some of the many methods retailers use to attract regular custom from shoppers.

Whether they are buying groceries, books, plants, coffee, to encourage better driving, more travel or to improve general health, customers are encouraged to interact more with their favourite retailers and service providers, and are rewarded for their loyal custom.

And what a clever enticement it is – giving customers a free coffee for every 10 coffees they buy hooks them in, voluntarily, and keeps them coming back for more rather than going to the coffee shop around the corner that does not have the same offering.

Loyalty programmes are about retaining existing customers, attracting new customers, and getting insight into the behaviour patterns of your customers to enable you to target their spending needs.

The concept of rewarding radiates an air of generosity; of the service provider being grateful for regular custom and wanting to give its customers something extra in return.

For companies, it’s a low cost method of encouraging shoppers back to the store to shop some more.

The business case for a rewards programme is a no-brainer: by making the customer feel special, return business is assured and not just once, but repeatedly.

Happy customers are an inexpensive marketing tool – they not only return, but they spread the good word for the business, free of charge.

Research from Inc.com shows it costs five to 10 times more to acquire a new customer than it does to sell to one who is on a loyalty programme.

On average, loyalty customers spend 67% more than new customers.

For many customers, the existence of a rewards programme can be the defining factor that makes them choose a service provider over its competitor.

Token Group chief executive, Steven Levey, believes there is no automatic customer loyalty these days.

"As a retailer, you may have had a relationship with a customer for 20 years, but if that customer finds a better deal elsewhere, you have lost them.

"They are free to choose where to shop, and they’ll go where they find the best deal. Customers who feel appreciated and perceive that they are being rewarded in return for their custom, are more likely to remain loyal customers," says Levey.

But saying thank-you to regular customers is not the business driver behind rewards programmes. Of far greater benefit to the business than return custom is the wealth of data the programme builds.

"The main business case for launching a loyalty programme is that one of the only ways to connect with and retain customers is to find out more about them. The most effective loyalty programmes are used to build a sophisticated database that provides the company with insight into what their customers’ buying preferences are, and allows them to track their customers’ lifestyle choices, such as where and how they shop, eat, drink, bank, phone and travel, ” says Levey.

Rentia Kramer, director for loyalty at Ispsos, says one of the critical ingredients for a successful rewards concept is a well-structured programme that is simple and does not submerge the customer in complicated requirements.

"For customer take-up to be good, registering needs to be quick and simple, and the benefits to the customer clear and easy to achieve,” says Kramer.

Examples of simple programmes are the long-established Clicks Club Card and the relative newcomer to the rewards game, Pick n Pay’s Smart Shopper – both are free to join, immediate, and boast a substantial database.

Achieving successful rewards programmes
One of the oldest, simplest and most successful loyalty programmes in South Africa, the Clicks ClubCard gives its members cash back based on spend.

In return, the company receives valuable insight into customer behaviour from its almost 4-million active members.

Launched in March 2011, Pick n Pay’s Smart Shopper programme already has more than 7-million members, with take-up predicted to increase with the announcement of its Smart Shopper mobile app.

Kramer says the other crucial key to achieving a successful rewards programme is accurate customer information that is constantly maintained.

Companies can implement the Rolls Royce of loyalty programmes, but if the data fed into that programme is not accurate, then it is worth nothing.

"Customer information becomes stale quickly – people’s lives change, they move house or country, change jobs, get older, have kids and die.

"A database is a gold mine of information, but as with anything that’s alive and growing, it needs to be constantly managed and updated to keep its value and enable business opportunity. Companies that mine their data efficiently are able to target their marketing most effectively," says Kramer.

Businesses can gauge the success of their rewards programme in a number of ways, including sophisticated data analysis methodologies that measure the impact of customer relationship management campaigns.

Redemption of loyalty points is always a good indicator of the value of a company’s rewards programme to its customers.

Chief executive of Truth, Amanda Cromhout, says retailers see approximately 4% to 6% incremental sales increase from having a loyalty programme.

"It’s important to ensure this is measured as an incremental uplift, rather than simply a matter of loyalty shoppers shopping more frequently or having bigger shopping baskets.

"Your most loyal customers are likely to self-select on to a loyalty programme, so basket size and frequency of shop will rise anyway," says Cromhout.

Why loyalty programmes increase business

• Most reward programmes generate an increase of 5% in sales just from having the programme.
• A successful loyalty programme can increase regular customer visits by as much as 24%.
• The average rewards programme will retain up to 14% of a company’s cardholders that would have been lost to a competitor without a loyalty programme.
• Emailed promotions are 10 times more likely to be redeemed than direct mail.
• Text message promotions average an open rate of 98.7% with a redemption rate of 60%.
• 75% of gift cardholders spend 60% more when redeeming than the value of the gift card.

Although this article has been made possible by the Mail & Guardian's advertisers, content and photographs were sourced independently by the M&G supplements editorial team. It forms part of a larger supplement