3 Benefits of a Loyalty Program in the Digital Economy
SaaS companies, mobile apps, and e-commerce platforms operate in highly competitive markets where customers have more choice than ever before.
The digital economy requires you to build trust without relying on human interaction, and customers expect a flawless technical experience with your app or website every time.
Think about it - if your Uber ride-sharing app glitches every time you need a driver, it may only be a matter of time before you (with both frustration and ease) switch to using Lyft.
From our experience working with companies in the digital economy, we’ve gained insight into three main profitability challenges and how to tackle them with a single solution:
- Customer Acquisition: How do you get new customers to try your product or service for the first time?
- Customer Lifetime Value: How do you ensure your customers make frequent, high-value purchases?
- Customer Retention: How do you prevent customers from leaving your brand for a competitor?
How do you address these challenges without spending thousands of dollars on ads, setting up expensive retargeting software, or wasting time on custom development?
The answer is in your customer loyalty strategy.
We can all agree that trying to build a loyal customer base is a good idea. But loyalty as a comprehensive strategy in the digital economy not only helps you find new customers, but helps you keep them, make them more valuable, and prevent them from leaving.
By addressing these challenges, it makes sense to describe customer loyalty as a way to fuel customer acquisition, customer lifetime value, and customer retention.
Loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering.
A digital loyalty strategy works because it can be applied to all points of the customer journey. It’s not a quick-fix advertising approach, but rather a way to support positive emotional connections with new and old customers.
In this article, we cover how a rewards-based loyalty strategy can help your digital business:
- Acquire new customers,
- Increase the lifetime value of each client, and
- Successfully retain high-value customers.
81% of consumers agree that loyalty programs make them more likely to continue doing business with a brand - so what are you waiting for?
1 - Customer Acquisition
The digital economy is expanding every day with new companies - some of which are going to target the same customers as you.
If a customer’s unmet need can be equally fulfilled with a competitor’s product, how do you prove that your value proposition is worth their time and money?
Offering loyalty rewards as an acquisition strategy not only helps you attract new customers, but doubles as a way to strengthen your selling power.
Grow your customer base
When faced with a set of similar alternatives, a customer will choose the option that offers the most benefit to them. Incentives unique to your brand can provide that extra bit of motivation needed to engage with your product for the first time.
Plus, motivating customers with loyalty rewards helps you avoid using price-cutting as your only way of standing out.
Acquisition rewards can take the form of a special introductory rate for users who place their first order, or 20% off their first month’s subscription. If you’re not sure what to offer, check out our series all about choosing the best rewards.
Grow your sales team
Your in-house sales team doesn’t need to do all the hard work, or maybe you don’t have a sales team at all. Turn your best customers into brand advocates with either a customer referral program, or a formalized partnership with other companies to sell on your behalf in exchange for unique rewards and commission.
Referral programs not only find you new customers, but potentially your best customers. Referred customers are 18% more loyal, spend 13.2% more and have 16% higher lifetime values than non-referred customers (source).
Read More: Loyalty Programs for Customer Acquisition
2 - Customer Lifetime Value
A customer’s lifetime value is measured by how much money they will spend with your business over time. Your most valuable customers are typically those who make frequent, high-value purchases.
Building a solid relationship with your customers is worth your time. Eventually, loyal customers spend 67% more than new ones.
The secret to building a profitable customer base is simple: Give them a reason to spend more money.
Offering the right loyalty rewards at the right times helps you extract the most value from each customer to boost spending amounts, encourage repeat purchases, and drive customer engagement.
Increase spending amounts
A desirable set of exclusive rewards can influence buying behaviour to your advantage. The 2016 Bond Loyalty Report reveals that 66% of consumers modify the amount they spend to maximize reward collection.
A great example is a VIP program whose rewards can only be obtained by customers who make significant, frequent purchases.
With a desirable set of rewards to be attained, a customer’s average spend amount will increase in order to reach and maintain VIP status with your brand. Even if they don’t reach the VIP level, the challenge to attain it will increase their usage and spending.
Encourage repeat purchases
You can easily reduce the time between purchases by offering limited-time rewards or discounts. Focusing on repeat purchases from existing customers means you can boost revenue without increasing ad spend.
Plus, when you stick to non-transferrable rewards like discounts or store credit, a customer has even more motivation to spend with your brand.
3 - Customer Retention
Churn rates can be difficult to control in the digital economy. Your customers are faced with new choices and value propositions every day, and it only takes a few clicks to end their subscription and switch to a competitor.
In the SaaS industry alone, 30% of companies report having unacceptable levels of churn.
Customer retention efforts pay off more than you might think. Research from Bain & Company indicates that increasing retention rates by just 5% increases profits by 25% to 95% (source).
Loyalty rewards can help convince customers to remain customers, or even come back after going quiet.
Keep your best customers
The basic principles of loyalty still hold true - emotional attachment drives brand loyalty.
Consumers with an emotional connection to a brand have a 306% higher lifetime value, and stay with a brand for an average of 5.1 years vs. 3.4 years.
Loyalty rewards are one of the best ways to show customers that you care about their experience and that you appreciate when they support your business. This could be a special reward on their birthday, or a gift to say thanks for being a subscriber for six months.
Switching costs also play a big role in retaining the customers that you have successfully acquired. VIP reward programs do a great job at increasing a customer’s switching cost, considering they would need to abandon their elite status and progress to-date if moving to a competitor.
Re-activate lost customers
Even if a customer has gone quiet, you still have a 60-70% chance of success to sell to them again, while the chances of success for selling to a new potential customer are only 5-20%.
It may seem counterintuitive to focus marketing efforts on customers who have expressed disinterest in your company, but re-engaging inactive users can be 5 times more cost-effective than acquiring new ones.
Identify and incentivize your best lost customers with special rewards encouraging them to re-activate their subscription or complete a new purchase.
Read More: Loyalty Programs for Customer Retention
How do I get started?
Modern loyalty software offers companies and marketers a full-featured, centralized reward management system that allows you to create loyalty programs in minutes and to engage customers at all points of the lifecycle.
The challenges of the digital economy give way to new methods of interacting with your customers. As a marketer, you have the freedom to track and incentivize almost any customer action to maximize your conversion and retention rates.
Survival in the digital space isn’t just about who can acquire the most customers, but who can keep them coming back for more - and more often.
Ready to launch your first loyalty program? Learn more here.