One popular application of a customer retention strategy is a loyalty campaign or loyalty program. Just about every business has one, and we love to see our customers completing loyalty programs that truly drive their customers to new levels of engagement. But too many times a loyalty program is seen as the basis for a customer retention program not a supplement to a strategy. Retention is a much deeper and complex problem to solve with just a nice loyalty rewards program. Let’s look at a few areas of customer retention that loyalty programs do not address.
1. Loyalty programs can obscure your customers expectations.
Loyalty programs are rampant. Everyone has one, and not everyone is doing it the right way. In most cases it is a good thing for your business when the competitors do things the wrong way. But to often loyalty programs get tossed in same conversation as discounting and coupons and then they becomes synonymous. What this means is that the entire industry enters into a downward spiral on changing your product or service into one that “has” to have a discount attached simply because everyone else is doing it. Customers no longer think full price is acceptable and will turn a product or service into a commodity, looking for the best deal rather than the best product or service. It is true everyone loves a discount, but people love superior products more. Make sure you can illustrate expectations or advantages of your product or service before creating rewards and tend to work against your market position.
2. Loyalty programs can easily marginalize your product or service value.
When you enter into a loyalty program, the first items you start to discuss are the offers and discounts you are going to present to your customers. When you stop to think about it, what you are doing in most cases is discounting your service or product to people who bought your product or service without a discount before. So you are taking a voluntary cut on your margins to ask them to buy the same product they successful purchased before. And they liked it so much, they signed up for your loyalty program! Then they question is why?
Answering that issue might be harder than a simple blog post, but a step back might be thinking of what loyalty really means for your business. Do you know what a loyal customer looks like? Buying habits, preferences, why they are loyal? Every business wants loyal customers, but unless you know what drives a loyal customer to your business you can’t not successfully create offers or advantages in a program that are low cost to you and high value to your customer. Don’t take the simple road of killing your margins.
3. Loyalty programs create more cost to your business.
Yes, you could have hired a service to run your loyalty program and that would be a wise way to off load the man power needed to monitor, create and manage the loyalty program internally. But would have come at a cost too. Loyalty programs can spend lots of money in both cost, and lost profit if they are not done around specific retention targets. Make sure you start slow with your loyalty programs and evaluate return constantly. Every act of marketing and sales should drive sales. Having a proper strategy and measurement involved will allow you to make sure you are getting proper ROI on your campaign.
A loyalty program can be a great way to bring more engagement with your customers. But its not a silver bullet for customer retention. You must have a complete customer retention plan that includes measuring, monitoring, and other outreach besides a loyalty campaign.