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Rewards & Loyalty Programs: Do they really work?

As a Corporate Account Manager with Epos Now I manage a whole host of different businesses, from small to medium, retail & hospitality clients, to Michelin star restaurants, large multi-million-pound shopping centres and UK wide retail chains.

One thing they all have in common is the desire to drive repeat business and keep the customers coming back to them and not their competitors. Now more than ever consumers have a growing abundance of choices and businesses must differentiate themselves from the competition to ensure that the customer keeps coming back for more.

Did you know it costs a business around 5 to 10 times more to acquire new customers than it does to sell to existing ones? Additionally, existing customers spend 67% more than new customers.

In light of statistics like these, businesses must think about what they are doing to keep their customers coming back to their business. One of the most effective ways of doing this is by implementing a Loyalty Program. Low-margin retailers often argue they can’t afford customer loyalty programs, but in this competitive day & age, with low upfront costs and the added advantage of taking very little time to establish a loyalty program, can they afford not to.

Rewards & Loyalty Programs: Do they really work?

What is a loyalty program?

A loyalty program is a rewards scheme offered by a company to customers who frequently make purchases. A loyalty program may give a customer free merchandise, rewards, coupons, or even advance access to product releases. Ultimately, loyalty programs should offer incentives for shoppers to reduce their store switching by offering them better value.

How well is your loyalty program working?

According to the 2015 Colloquy Customer Loyalty Census, households hold memberships in an average of 29 loyalty programs, but are active (meaning actually earning or redeeming at least one per year) in only 12 of them. Businesses lose money on time and effort, and customers get no more value from the businesses to which they are surpassingly "loyal."

So how do you keep your business out of that one-third unused segment? How do you convey enough additional value in your loyalty programs to keep your customers coming back?

Different Types of Loyalty Program

It is important that businesses are offering actual value to customers using their loyalty program. There are many different types of Loyalty schemes you can implement. To get you started, here a few ideas and pointers for customer loyalty programs that might work for your business.

Rewards & Loyalty Programs: Do they really work?

1. Use a simple point system

This is the most common loyalty program methodology. Frequent customers earn points, which translate into some type of reward. Whether it’s a discount, a freebie, or special customer treatment, customers work toward a certain amount of points to redeem their reward.

Where many companies falter in this method, however, is making the relationship between points and tangible rewards too complex and confusing. "Fourteen points equals one pound, and twenty pounds earns 50% off your next purchase in April!"... that’s not rewarding, that’s a headache. If you opt for a points-based loyalty program, keep the conversions simple and intuitive.

Although a points system is perhaps the most common form of loyalty programs, it isn't necessarily applicable to every business type. It works best for businesses that encourage frequent, short-term purchases, like coffee shops for example.

2. Charge an upfront fee for VIP benefits

Loyalty programs are meant to break down barriers between customers and your business... so am I really advising you to charge them an upfront fee? In some circumstances, a one-time (or annual) fee that lets customers bypass common purchase barriers is actually quite beneficial for both business and customer. By identifying the factors that may cause customers to leave, you can customise a fee-based loyalty program to address those specific obstacles.

This may be in way of them paying a certain amount to have ‘Gold’ level pricing or access to certain deals. A customer of mine has implemented a really successful program that has different tiers of membership cards (Bronze, Silver, Gold and Black). They charge customers different prices to become a member of the different levels which then benefit from higher levels of discounts and earlier access to promotions.

According to a 2015 study of 500 leading global brands, cart abandonment rates reached 75.6% across retail, travel, and fashion. This abandonment is often caused by "sticker shock" after VAT and shipping prices have been applied. Take a look at Amazon, they have found a way to combat this issue using a loyalty program with an upfront fee, known as ‘Amazon Prime’.

This system is most applicable to businesses that thrive on frequent, repeat purchases. For an upfront fee, your customers are relieved of inconveniences that could impede future purchases. Amazon's mastered this for e-commerce, but this model also has potential to work for B2B businesses that deliver products to businesses on a regular basis.

Rewards & Loyalty Programs: Do they really work?

Case Study: Amazon Prime

For £79 a year, Amazon Prime users get free, next-day shipping on millions of products with no minimum purchase, among other benefits as well as access to prime music & video streaming services.

Why is Amazon a great example? Because it provides enough value to frequent shoppers for them to feel like it's really benefiting them. According to a 2015 report, Prime members spend an average of £1,350 per year on, compared with £400 per year spent by Amazon customers who aren't Prime members.

Tips on making your scheme work

Getting started – rewards set in the future are less impacting on customer behaviour. i.e. the further away the reward is perceived to be before I can benefit, the less likely I will participate. There are two things you can do that will help:

Rewards & Loyalty Programs: Do they really work?

Using customer information to drive sales

Tesco know more about the shopping behaviours of its regular club card member shoppers, than any other retailer in the UK. They know when you treat yourself, how much fuel you buy, how susceptible to offers you are, how much you spend on your Christmas food shop and what time of the day or night you do it. Tesco has an enormous department trying to make sense of this data and looking for patterns. At the last count over 4 million different variations in vouchers and offers was sent out to its customers.

Many retailers offering schemes have no proviso to data capture. This is crazy, customers should sign up and retailers then use email, social media and direct mail to drive customers back into the store. Which lead us on to customer retention.

Customer Retention Rate

Customer retention is an indication of how long customers stay with your business. With a successful loyalty program, this should increase over time as the number of loyalty program members grows. Initially it may be a challenge to determine the effectiveness of the loyalty program but over time as data quality increases you will be able to measure it much more accurately. According to Fred Reichheld, author of the Loyalty Effect, a 5% increase in customer retention can lead to a 25-100% increase in profit for your company.

Rewards & Loyalty Programs: Do they really work?

A great example of this within Epos Now is EcigWizard.

Ecigwizard has made great use of the Loyalty Module, which allows them to add customer contact information and to use their personalised branded loyalty cards to reward regular customers using a points system. This system allows EcigWizard to make additional sales and boost customer satisfaction, and has become a major selling point for potential new franchisees. The customer data gathered is automatically synchroised to MailChimp to allow for marketing campaigns through the MailChimp integration available on the Epos Now AppStore.

“Utilising Epos Now’s loyalty system, we have managed to engage 53% of loyalty card holders on an ongoing basis, allowing us to build a long lasting relationship with our customers.”

- Olly Blackmore - Operations Director, EcigWizard

In Summary

Loyalty schemes do work… but it isn’t as simple as printing a loyalty card. A business that makes its reward programs the centre of its activities can influence and drive customer behaviour.

Loyalty programs are not only growing, but they are also becoming more integrated with the supporting brand and shopping experience, offering consumers a seamless experience across point of sale, the Internet, phone and mobile channels. Consumer-facing businesses must think beyond the concept of just a loyalty program. To reap the full benefits of customer loyalty, they must create a differentiated experience, consistent with their brand, to provide a change in customer brand preference.


Matt Sewell

Matt Sewell has been a Corporate Account Manager for Epos Now since March 2015. He specialises in Epos Now's corporate customers, working with large organisations such as Starbucks, University of London and Hawthorn Leisure.

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