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What is a loyalty program?
A loyalty program is a strategic system aimed at attracting and retaining customers through various incentives such as discounts and bonuses. Participants in this program receive rewards for completing target actions that are relevant to the business at its current stage of development. This may include incentives for first or repeat purchases, choosing certain products, installing a mobile app, or referring new customers through referral links.
Today, many large companies involved in various activities - from retail to hospitality - actively use loyalty programs. They are particularly effective in segments with a high customer acquisition cost, making them a valuable tool for customer retention and revenue growth.
Why is a loyalty program needed?
At various stages of business development, loyalty programs can serve different functions. Here are the main tasks they help to address:
- Creating emotional attachment to the brand: Loyalty programs help form a loyal customer segment where buyers return for new purchases due to the bonuses and gifts received.
- Increasing profit: Rewards motivate customers to shop more frequently, add more items to their carts, and increase the average check.
- Retaining customers: Programs include mechanisms that help win back lost customers and prevent their churn, which is especially important for businesses.
- Attracting new customers: This is achieved through advertising loyalty programs or inviting new participants via referral links.
- Data collection: Information about customers allows for behavior analysis and the creation of personalized offers.
Types of loyalty programs
There are several types of loyalty programs, each using different mechanics and types of bonuses. Let's consider the main ones:
Discount program
This is one of the most common loyalty programs, where customers are offered discounts. Discounts can be fixed or cumulative and applied to all products or specific items. However, it is important to remember that overly aggressive marketing approaches can reduce customer trust.
Bonus program
Instead of discounts, customers earn bonus points that they can use to pay for future purchases. Bonuses can be accrued based on a percentage of the spent amount or for specific products, creating additional motivation for return visits.
Cashback
This type of bonus program allows customers to receive a portion of their money back after purchases. Cashback is actively used in the banking sector and retail.
Non-monetary programs
These programs offer customers non-material benefits such as participation in charitable initiatives, enhanced service levels, or exclusive access to new products.
Partner program
Programs that unite several brands with similar target audiences, allowing for an expanded customer base through partners.
Individual offers
Using big data analytics, companies can create personalized loyalty programs, offering unique rewards for each customer.
KPI of loyalty programs
To assess the effectiveness of loyalty programs, various metrics are used, including:
- Average check: It should be higher for participants of the loyalty program compared to regular customers.
- Repeat purchase rate: Determines the percentage of customers who return for new purchases in-store or online.
- Customer lifetime value: This metric shows the profit that a customer will bring over their lifetime.
- Share of enrolled participants: This metric shows how many customers registered for the program after viewing the advertisement.
- Percentage of redeemed points: Determines how many bonuses customers have managed to use, which may indicate their engagement in the program.
How to develop a loyalty program?
Creating a successful loyalty program requires consideration of several key characteristics:
- Clear accrual: The terms should be transparent and easy for customers to understand.
- Ease of redemption: Customers should be able to easily use their bonuses.
- Achievable goals: The system should allow customers to accumulate and spend bonuses without unnecessary complications.
- Convenience of registration: The registration process in the program should be as simple as possible.
- Value for the consumer: Bonuses and privileges should be meaningful to the target audience.
The step-by-step process of developing a program includes:
- Analyzing competitors and their mechanics.
- Defining goals and KPIs for the program.
- Selecting the appropriate loyalty program and reward mechanics.
- Calculating the economic indicators of the promotion.
- Testing the program to identify weaknesses before launch.