What are the pros and cons of implementing a loyalty program?
What is a loyalty program?
When it comes to repeat business, not all customers are created equal. Studies have shown that existing customers are much more likely to purchase from you again than compared to new customers. Because of this, an operator must identify the customers that provide the most value to your business.
Operators can leverage loyalty programs to increase repeat business from new and existing customers. Loyalty programs offer rewards to customers who continue to purchase from your business. They serve as a way of actively engaging new and existing customers by incentivizing them to increase the amount of money that they spend on your products.
There are various types of loyalty programs and ways that your customers can attain rewards, but in the end, the ultimate goal is to identify your most loyal consumer base and find ways to increase their business.
Goals of a loyalty program:
Grow customer referrals
Capture customer data
Increase word of mouth marketing
Improve customer satisfaction
Increase sales
Grow brand loyalty
Establish a direct communication link with customers
Pros of a loyalty program
Acquire customer data
Data is the easiest way for your business to get ahead. When you have a customer’s data — i.e. age, gender, favorite food, amount of visits and dollars spent per month — you have the key to growing your operation.
You accomplish that through a loyalty program. Customers sign up for the loyalty program through their phone, and that gives you access to a treasure trove of information. You can adjust your menu or pricing or make other operational changes when you better understand your customer. You can also better understand what types of loyalty programs drive customer behavior.
Increase brand awareness
Your brand is the central part of your business; It’s what distinguishes you from others in your industry. A rewards program increases brand awareness and brand loyalty. Your customers are more likely to engage with your brand when they feel appreciated and receive some form of a benefit. When your customers feel valued, they are more likely to share your brand with other people, increasing your brand recognition and sales.
Loyalty programs focus on the long-term
Loyalty programs are designed to foster and grow your most reliable customers. They are a long-term strategy to increase sales from a certain segment of your consumer base.
Coupons, on the other hand, are designed to attract short-term buyers who are looking for a deal. These deals usually include discounts on certain items or limited promotions that are meant to be temporary. Consumers who are more frugal or are looking to save money are the most likely to use coupons.
Enable targeted promotions
Once a person signs up for your loyalty program, you have access to their email address and other contact information. You also have their order history and can send them incentives and offers that match with their buying profile.
This is a much more targeted approach to growing your business because you have a better understanding of your customers and what appeals to them.
Increased customer retention
Customers want to feel appreciated. They also want a relationship with your operation and your brand. Loyalty programs provide that connection. A loyalty program lets your customers know that you care about them, and that you are willing to work for their business.
As a result, loyalty programs are designed to increase customer retention. The members of your loyalty program are in exclusive company and are more likely to order food at your operation because of that relationship. That’s good, because returning customers typically spend more than first-time customers.
Let’s you connect directly with the customer
People are bombarded with marketing and advertising. It can be hard to push through the clutter and speak directly to the customer. One of the greatest benefits of a loyalty program is that you have a direct line of communication to your customer.
They have voluntarily given you permission to speak directly to them, and you need to take advantage of that direct relationship.
Cons of a loyalty program
Used for short-term promotion
Loyalty programs are not a fix-quick solution. Operators often think of them as a way to drive short term-sales, but to be successful, loyalty programs need to be approached in terms of driving value over a long period of time.
Loyalty programs can be costly
There are many ways to structure a loyalty program. You can offer a discount after so many purchases or give free upgrades. To do that costs your business money. At the same time, administering a loyalty program costs money. Whether you use a third-party or develop the program yourself, a loyalty program is an expense.
Can cause confusion
Customers can become confused about the benefits of the loyalty program and how to gain maximum value. This has the potential to cause conflict with the customers because they might not be getting enough perceived value out of the program.
Market Saturation
Unfortunately, every operator these days has a loyalty program that offers different benefits. It can be challenging to differentiate your loyalty program and get your customers to participate.
Can be hard to understand customer’s motivations
Your goal with a loyalty program is to engage and foster a relationship with your most loyal customers, but you might not know the exact reason a person buys from your operation. It could have nothing to do with consumer loyalty, but rather be based simply on convenience.
Managing data can be challenging
You can collect a huge amount of data about your customers with a loyalty program, but it can be challenging to make sense of that information. Some of the most successful loyalty programs have a team of dedicated individuals who analyze the data to better understand the benefits it can provide to your business.
Just as everything in life, loyalty programs have both pros and cons. It is up to you as the business owner to decide if the benefits that stem from offering your customers a rewards program outweigh the potential side effects. Loyalty programs are not a one-size-fits-all solution. It is important that you vet and understand your consumer base and use a rewards system that best complements their buying styles and fulfills their needs. Reach out to our team of experts at Zuppler below to learn more about our loyalty integrations.