How important is a loyalty system to your customers?

For the modern retailer, this is becoming an ever-larger question. Should you be implementing loyalty systems within the business and, if so, how will this actually benefit you?

Most small to medium retailers have already allocated a portion of their budget for marketing. Traditional methods include print media advertising and flyers, though we are seeing a shift towards social and electronic avenues such as Twitter and Facebook. However, this is usually directed towards one portion of your potential customer base − the new customer.

The obvious question, then, is what are you doing for your existing customer base and how are you enhancing their shopping experience, if at all? While growing your business is key to longevity and success, it is important to take note and understand the value of the existing customer base. Their loyalty to you needs to be acknowledged at some point. And because each customer is different, how do you reward each of them in a way that reflects their individual buying behaviour and have it still based on the value of their relationship with you?

"Win greater share of wallet"(Nunes & Dréze, 2006)

By providing extra incentives, loyalty programmes encourage consumers to direct more of their purchases toward a business, and less at competitors.

The good news is studies show customers want to be marketed to! Joe Public enjoys the idea of receiving extra value with each purchase, and being rewarded by their relationship with you. There is, of course, a complete new article that can be written on the psychological aspects of reward-based buying, but for now let's simply state that it works in favour of the business owner. What is important is that the value received occurs in such a way that the customer acknowledges its value and the business is able to afford it.

There is a huge up side to all of this since, by customers registering with the loyalty programme, you can understand their individual or collective buying and return patterns better. The impact of this to the business is immense. You can understand from your loyal customers what they are buying and what they are not, and can thereby adjust our buying patterns and stock holding accordingly. It may also give you insight into items customers associated together, helping you realise new markets and growth strategies. These patterns will allow you to focus your marketing on areas requiring more attention, or to increase the exposure of other items.

"Yield insight into customer behaviour and preferences" (Nunes & Dréze, 2006)

Loyalty programme customer relationship management (CRM) systems provide a tool for collecting customer data and tracking behaviour. This lets a business know what a consumer buys, how much, and how often. Using CRM can determine which customers to focus marketing resources on to maximise returns, reduce overall marketing costs, and improve the efficiency and effectiveness of marketing efforts.

Businesses understand the association items have with each other like shoes and polish, or couches and leather treatments. Not all customers who purchase one item are aware that you may sell the other and, as many businesses do, these "upsell" products are generally good profit turners.

 By tracking the purchases through the loyalty program we are given the opportunity to sell these products back to our customers knowing that they need it. And as they have loyalty points to spend and a rewarding relationship with us this should not be difficult at all.

In almost all scenarios, the cost of losing an existing customer is high. Many companies spend a large portion of their budget trying to lure new business with specials and promotions, often forgetting how many of their existing clients are being ignored. The existing customer costs us less to keep, already likes what we sell and hopefully how we do that. Best of all, they will probably tell others.

Retailers must make sure they can integrate their end-to-end processes (supply chain, financials, CRM and POS etc.). Otherwise it's impossible to realise the full benefits of a comprehensive loyalty programme – and that means you're losing good business.

Source :  Bluekey Software Solutions  19/11/2014

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