01608 644144
How customer loyalty schemes work
The role of sales is to maintain turnover volumes or increase them. This purpose is often transposed one-sidedly into winning new customers. Indeed it is not unusual for recently promoted sales people attending their first formal sales training course to want to focus on this aspect alone. However, in the drive to move into new target customer groups and to cover more completely existing target groups, care of your core customers is an important topic.
Many very well known companies use loyalty programmes as a method of caring for and developing their existing customers. Effective loyalty programmes achieve two goals. These goals are promoting customer loyalty through reward, and building the customer relationship as something that is long term.
The second of these aims is worth thinking about. The “Bargain of the Month” or the regular “Special Price” do not make a loyalty programme. Instead the reward must be designed so that it promotes long term loyalty. Otherwise you will only achieve the effect of a short term promotional lift and the full potential of the loyalty programme is lost. In other words, instead of attracting bargain hunters, your good existing customers should be encouraged to purchase repeatedly.
Loyalty programmes from the organisations point of view:
From the business point of view a loyalty programme starts with the recognition that not all customers are the same. Given this, it is sensible to aim the loyalty scheme at your most attractive customers. The reward provided by the loyalty scheme and the desired purchasing behaviour of the customer must be closely bound to one another. Thus the value of the reward must never go beyond the additional value created by the purchasing behaviour aimed for. The check list below identifies the key considerations which are helpful when designing a new loyalty programme:
What types of client do we have? (e.g. often buys small quantities, sometimes buys large amounts, only buys items on special offer, often buys one-off items / ends of lines etc.)
How much is each type of client worth? (if applicable, taking into account the length of the client relationship)
What types of client have potential for development? How large is this potential?
What client behaviour (or what type of clients) do we want to encourage, what type of client do we want to avoid? What do we achieve from the change?
How much additionally created value are we aiming for if we gain x% of added potential with the loyalty programme?
What is the maximum cost for the loyalty programme? (y% of the added value created)?
Loyalty programmes from the client's point of view:
As taught on sales training courses, whether clients take part in the loyalty programme in the way you want them to or not depends on five factors:
1. The monetary value of the reward. In some schemes it is easy for the customer to calculate the monetary value of the reward, such as a client card which gives a set discount of, for example, 5% off all purchases. With other loyalty schemes the monetary value is less easy for the client to calculate. For example, an airline company’s air miles scheme where the high number of tariffs, means the customer can only estimate the monetary value.
2. Attractiveness. Clients pay attention to how worthwhile the reward is for them personally. Thus it is quite possible that, when buying office furniture, a reward in the form of a small filing cabinet (cash value c.3% of the purchase price) will be valued more than a free flight on a frequent flier programme (cash value c.5% of the tickets paid for).
3. Palette of redemption possibilities. If there is a choice of several different rewards of equal monetary value, then the attractiveness of a programme increases because from the point of view of the client it is more likely that one option will meet with their personal tastes.
4. Relevance. The issue of relevance is really to do with the question, “Is the reward attainable?” The bargain-hunter who constantly changes supplier for may not reach the premier level of reward with any supplier. If they become aware of this then their behaviour may change and they may concentrate on one supplier - the one with the most attractive rewards.
5. Comfort. Neither the client nor the suppliers’ involved want to carry out onerous administration in order to operate the premium process. This is what makes premiums connected with credit cards and customer cards so attractive - since all the data relating to purchases and turnover are computerised and so immediately available as the transactions are made.
Businesses whose size or capabilities are not sufficient to operate all the aspects of an effective loyalty scheme could increase the attractiveness of their programme by way of partnerships. In the design of collaborative loyalty programmes it is vital that you test carefully whether the loyalty being generated will benefit your own business as well as the collaborating partner business. Mistakes in design are expensive - the costs you incur are real and must be balanced by revenue generated.
In summary, a client loyalty programme is successful if it can compete in all five areas. If you want to learn how to present the benefits of your loyalty scheme to your customers and so maximise your sales success then attend one of our sales training courses.
