There is a distinct difference between loyalty programs that reward for loyalty or those programs that reward for frequency. It is of utmost importance to differentiate between the two; since a customer may repeatedly purchase from a retailer because he/she may have no other options available to them. This is a key distinction because when competitors become an option for a customer, loyalty is critical to whether or not a business will be successful. Therefore a business must strive to create loyal customers not just frequent customers.
An ideal program would reward the existing loyal customer and include the future potential loyal customers. Since as many as 45% of first time buyers do not revisit a small business to purchase a second time. As a result the goal should be to acquire those customers that are likely to purchase for a second time, even if there is an initial cost for the business owner. The focus of the marketing dollars should be directed towards customers that fit the profile of existing loyal customers. A loyalty program can retain existing customers by offering higher rewards through the accumulation of points. Most retailers notice positive feedback from their customer when they redeem the points accumulated, thus connecting the retailer and customer in a positive way. By providing a higher level of service, with the introduction of a loyalty program, offering extended hours during holiday periods, or having no hassle exchange and return policies a business owner will attract a loyal/frequent customer.
The acquisition of new customers through a loyalty program is largely dependent on how valuable and exciting the rewards are perceived to be by potential customers. New customers should be targeted by demographic profiles and be executed based on the history of existing loyal customers. However not all customers are beneficial to a business owners bottom line. Some customers can actually cost more to keep then the amount of purchases that they generate. For example when a retailer offers an incentive to bring customers in, i.e. door crasher, the customer that comes in only for that item actually costs the business money.
The recovery of an existing customer is 3-4 times more likely than acquiring a new one. Since there are advantages in knowing their purchase history and ways to reach them, a business owner should be vigilant in knowing when a customer may have been lost to a competitor. It is important to recognize this early enough to entice them back. By rewarding them for their loyalty most customers feel appreciated and recognized. Customers that are pleased with the product or service, are more likely to share their experience with others. This type loyalty cant be beat; creating brand advocates for your business.
