5 Tips For Developing Effective Customer Loyalty

Author, Academic Director
Concordia University
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Customers that develop a loyalty to your business become big boons to your bottom line. A loyal customer will provide free word-of-mouth advertising, repeat business, the ability to increase pricing without turning customers off and predictable purchases that help you budget for your business’s future.

But building that rapport and loyalty with your customers can be a challenge. It takes more than providing needed services to develop loyalty, particularly if you have a lot of competition. A strong customer loyalty program will help develop this strong customer support base for your business to grow and succeed. Good loyalty programs aren’t necessarily cost-free to the business, and they aren’t necessarily just about throwing coupons at customers looking for a deal. Here are five tips for developing effective customer loyalty.

1. Look at what competitors are doing

A customer loyalty program that pales in comparison to nearby competitors will not only not build customer loyalty, it might actively turn off customers who realize your program is less generous (or in the mind of the customer, more stingy) than competitors they could easily access. In this respect, it is important to offer some sort of competitive advantage for your customer loyalty program.

Make an effort to match the discounts or benefits of local programs among competitors, or to establish a loyalty program sufficiently different enough that customers will either not be able to directly compare the two, or will consider your program something with an entirely different set of benefits. For example, if your competitors lean towards a discount program, you may want to consider something similar, but you can also incorporate free goods and services for certain milestones, or consultation services if relevant, going as far as offering luxury homes in Seattle.

2. Develop incentives beyond discounts

Discounts are certainly going to be the most popular option for customers in a loyalty program - more than anything, they want to know they’re getting a deal. However, discounts alone will not develop loyalty. Instead, it develops a customer base of people looking for the cheapest price - and if someone else has it for lower, they will shop there instead. Your loyalty program must go beyond sales and discounts and include services, access to products or information that customers who aren’t in the loyalty program don’t have, and gifts, particularly items they may not have purchased themselves. This will feel more special, and incentivize your customers to participate in your loyalty program, rather than just shop for discounts.

3. Give customers a boost in loyalty programs

Consumer researchers Joseph Nunes and Xavier Dreze discovered a phenomenon among customers called the endowment effect. Customers who are given an artificial advancement of some kind in their customer loyalty program are more likely to strive to advance in a program or fulfill the obligations of a customer loyalty program.

For example, Starbucks’ Gold membership requires customers earn a certain amount of points annually to retain membership, earned by purchases in store. However, the company will often offer extra points, up to two or three times the amount a typical purchase would earn, for particular items or for a particular customer in order to incentivize them to strive for the points. This makes customers feel as though their efforts, even mild efforts, are amply rewarded and motivates them to participate again in lulls.

4. Use customer feedback to develop your program

To improve your loyalty program, you need to figure out what benefits your customers would prefer in one - for example, would they prefer discounts and sales, or would they prefer extra services as a member racks up points? Develop your program taking these preferences into account. Once you have a program in place, you can improve it by asking customers how they feel about your loyalty program, and looking at how your business changes. Are customers who are enrolled coming back more than customers who aren’t? Are enrolled customers spending more? Are they visiting other shops less often, and has your program increased their opinions towards your store? This research will let you know if your program is on the right track.

5. Use customer service to bolster your program

Your program alone will not leave customers happy - you must ensure that you follow it up with high quality customer service, the ability to quickly resolve any issues or questions related to the program, effective advertising and opportunities to become enrolled in the program and the development of employee-customer relationships that make customers feel taken care of when they do shop at your store.

In order to develop a strong customer base, you need to put effort into developing a well-rounded customer service program. Don’t rely on cheap and easy tactics to promote sales - look at what makes customers want to come back.


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