Old marketing adage: “Your best customer is your existing customer.” Consequently smart marketers are updating their existing loyalty programs or are introducing new programs to capitalize on current mobile and social technology trends. Add a dash of gamification – the loyalty game is about to become embedded in our daily lives.
Today’s post is the first of a two part series titled The Loyalty Game. First I would like to provide the rationale of why loyalty programs are a great marketing tool to build customer retention. In my next post, I will recommend my picks for the best 2012 innovative loyalty programs.
A well designed loyalty program can be the foundation for a sustainable business model. I have read numerous studies that detail the financial benefits of retaining existing customers. The Bain Consulting Group once reported that most businesses lose between 20 to 40 percent of its customers each year. Therefore by focusing on decreasing customer attrition, a company can improve their bottom line profits. In another study, Northwestern University’s Center for Retail Management projects that 12-15 percent of a business’s most loyal customers contribute 55-70 percent their overall sales. Loyal customers are also great ambassadors for referring new customers. It varies by industry, but in Foodservice word of mouth is still critical for sales growth. Granbury Restaurant Solutions recently indicated that 82 percent of loyalty program guests refer at least one guest; 42 percent refer four or more.
Thanks to smartphones, loyalty marketing is now on steroids. Gone are the days of punch cards or coded mini-loyalty cards dangling off key chains. According to Experian Simmons, over 33 million American consumers use their smartphones for shopping, as well as work their loyalty programs. Location-based rewards applications are the latest rage where loyal consumers can redeem their rewards at the Retailer of their choice.
Unfortunately I am not offering any rewards for reading this post. However, in my next post you will be rewarded with some insight about new loyalty programs that are beginning to change the playing field when it comes to loyalty marketing.