For the average retailer or restaurant, 66% of sales come from the top quartile of customers. Regulars are the lifeblood of any growing business, which is why many businesses have turned to loyalty programs to identify, engage, and retain these loyalists.
When done right, loyalty programs can be hugely profitable for the business—a 5% increase in customer retention can result in an 80% increase in profitability.
However, done wrong, rewards programs aren't generating loyalty at all. They can be disastrously costly and add too much hassle for the customers whose lives you want to make better: your VIPs.
If you're planning to implement a customer loyalty program to help drive sales and improve ROI, steer clear of these five common errors:
1. Asking customers to carry around plastic cards
There's a reason 60% of loyalty memberships are inactive. Just think of your last experience. You signed up for a new rewards program and were immediately handed a plastic loyalty card. Sigh.
Stop asking customers to jump through hoops, such as carrying yet another stupid piece of plastic around with them. We are lazy as consumers; we don't like doing extra work, especially when the reward feels so far into the future.
And when your customers are forgetting about your rewards program, asking employees to prompt them is often a lost cause. In fact, for many established rewards programs, only 26% of plastic cardholders remain active after six months. When you add in the fact that these old-school cards also cost up to $1 per, the cost of the program can get out of hand quickly.
2. Having customers scan QR codes
Eliminating the cost of cards is a key driver in moving loyalty to mobile. But there are smart, consumer-friendly ways to do rewards on a mobile device… and there are torturous ones.
When was the last time you scanned a QR code on your phone? Do you even know how? In the effort to eliminate plastic cards, some mobile-based solutions are even worse: unlock your phone, find the right app, open to the QR code screen scan it perfectly (increase brightness first?), etc. That hassle annoys customers, and it doesn't work long-term. Unless you enjoy making your best customers miserable, stay away from QR codes!
3. Ignoring your VIPs
One of the main reasons businesses implement a customer loyalty program is to determine who their best customers are. The problem, however, is that even with that knowledge many loyalty programs treat all customers the same. There's a reason airlines let their VIPs board first. Those big spenders deserve a little bit of recognition beyond the free flights that any of us can earn. After all, they're responsible for more than two-thirds of revenue.
The key is identifying the VIPs and personalizing their loyalty experience accordingly, ideally with rewards that have a higher perceived value than actual cost (e.g., early boarding). Focused targeting can reduce the cost of a loyalty program while simultaneously increasing its efficacy with VIPs. For example, airline loyalists often concentrate as much as 98% of their flying spend with one brand. Clearly, early boarding works!
4. Not having a strategy to win back customers
It's impossible for merchants to talk to and remember every customer that walks through the door. That's especially true for multi-location businesses. This problem is further exacerbated when you don't have a loyalty program that gathers customer data.
If you can't identify your top customers and figure out when and why they've stopped returning, you have a "leaky bucket" that may ultimately torpedo your hopes for growth. For most businesses, 70% of the customers who shop today won't be back in the next 4-6 months.
Don't follow Chipotle's lead … Facing declining traffic after a well-publicized health scare, the burrito giant was stuck blasting impersonal coupons to nearly every household in America because it had no way to specifically identify the loyalists who used to be top customers and had since stopped visiting.
A better plan is to create a personalized and meaningful offer designed specifically for high-value customers in the unfortunate scenario when their habits change. Use historical purchasing data to communicate personally with these lost loyalists to remind them why they used to love your brand so dearly. Give them a little love, and earn a chance to win back their love—ignoring the churned population is underusing your loyalty data and throwing money down the drain.
5. Giving up on loyalty programs altogether
With all the complexity associated with launching a good loyalty program, some businesses choose to give up. Or they launch a basic rewards program that just gives out discounts without building deeper relationships with customers and differentially focusing on VIPs. Discounts and loyalty are not the same thing.
But loyalty programs don't have to be hard.
Start by cutting out the hassle of integration. You don't have to bang your head against your archaic point of sale or install some new clunky piece of hardware to identify your VIPs. There are easier ways. And do the same for your consumers. If loyalty feels effortless, you'll see higher engagement than you ever thought possible.