A good loyalty program can work wonders for your brand. A bad one not so much.
In order for a business to thrive, you need to both acquire new customers and retain the ones you have.
Research has shown that acquisition can cost between five and ten times as much as retention. Furthermore, the cost of bringing a new customer up to the same level of profitability as an existing one can be up to 16x more.
And like any relationship, customer retention takes work. This is where loyalty programs come in. Among other things, a well executed loyalty program can enhance your brand, retain customers, win new ones, yield insights and increase wallet share. A badly executed one, on the other hand, can waste time and resources and tarnish your brand image.
If you’re thinking of implementing a loyalty program at your spa or salon, or looking to give your existing one a makeover, here are five simple tips for creating one that works.
Know your customer base
The old buy–ten-get-one-free/half-off program might work for some business models but not others. And reports suggest that engagement in traditional loyalty programs is on the decline.
To know how to tailor your loyalty offers, you should first know what your customers want. Do they want discounts, free products, or VIP experiences?
For example, research shows that affluent consumers — defined by the US Bureau of Labor Statistics as those with a household income of $100,000 or more — value exclusive access and time savers (such as concierge service) in loyalty programs.
More insights can be gained through using reports and survey data.
Listen to what your customers want, then give it to them.
Use the program to expand the customer relationship
As Joseph C. Nunes and Xavier Dreze have pointed out, “Sometimes, the only effect of a buy-ten-get-one-free program is to give away a product unnecessarily.” After all, if someone likes something enough to pay for it ten times, they’re already likely to do so an 11th time. Better to expand that customer’s purchase repertoire by introducing them to something new. Give them a service or a product they’ve never tried before instead, and maybe they will become a regular for both the shiatsu they already love and the cupping or clay body masque.
Keep it simple
A customer who uses a loyalty program already feels like they’ve earned their rewards by spending their dollars on your services rather than someone else’s. Don’t make them work for it or frustrate them by making points hard to keep track of or rewards difficult to redeem. Do the heavy lifting yourself and hand over the rewards without being asked. Who wouldn’t like that?
Use artificial advancement
In a 2004 study titled The Endowed Progress Effect: How Artificial Advancement Increases Effort Nunes and Dreze conducted a customer loyalty experiment with a car wash.
On two consecutive Saturdays, car wash customers received loyalty cards. Half of the cards required eight washes to earn a free wash, while the other half required ten. But not really, because the car wash marked the first two out of ten as a bonus head start….so technically both cards required eight washes but the second group received artificial advancement.
The result? Over the next nine months, 34% of people who received artificial advancement got their eight washes and earned a free wash compared with just 19% of those who did not receive artificial advancement.
“This suggests that reframing the task as already begun increases persistence as demonstrated by the higher rate of completion,” the authors wrote. “This difference occurred even though the absolute distance from the goal did not change.”
So, when you offer your loyalty program, give the gift of a head start just for signing up.
Make sure you realize it’s a commitment
Once a loyalty program is underway, if you decide it’s not working for you, you can’t just pull the plug without potentially alienating the customers with earned rewards. This is why it’s imperative to create a well-designed program, so it provides value to both you and the customer from the start.
Do your research and create a great program that will make customers want to keep coming back.
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(Image: Copyright : Antonio Diaz )