May 18, 2016 | Customer Loyalty News

The 3 Most Expensive Customer Loyalty Program Mistakes

by Margaret Link — Marketing at Thanx

Businesses love their regulars — and with good reason: research shows that 25% of customers generate almost 70% of revenue! Even with money on the line, business owners still make these 3 critical errors when it comes to creating a loyalty program that actually retains customers. 

Investing in customer loyalty isn't just the friendly thing to do — when done right, it's hugely profitable for businesses, as it's 7x more expensive to acquire a new customer than to encourage an incremental visit from an existing customer.  Smart owners go out of their way to reward their regular guests — look at Nordstrom, Starbucks, and Amazon, for example

However, customer loyalty programs are tricky to get right. Many are plagued with critical errors that prevent them from being successful. Here's how to avoid destroying your business' most powerful revenue stream: loyal customers.

1. Plastic loyalty cards are expensive, tacky, and ineffective. 

Don't make your customers carry plastic loyalty cards around. I can't believe I'm typing this in 2016. 

Let's be real: Asking customers to hold onto an extra piece of plastic at all times is just unrealistic. Customers agree: Only 18% of plastic card-based users remained active after 3 months (vs. 83% for a card-linked loyalty program). Our merchant partners who switched from plastic card-based loyalty saw their loyalty programs surge with engaged customers, happy to participate in a program that didn't require hauling another card around at all times. 

What's more: many companies don't want their logo stamped onto a cheap looking plastic card — it doesn't convey the image of a brand that's keeping up with technology. It doesn't instill confidence that customers will be treated to an evolved experience. It's just another plastic card in the pile. 

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Putting it on a keyring makes it so much more convenient to carry around everwhere, right? WRONG.

2. Asking your customer to do extra work damages the experience.

Great business owners prioritize customer service absolutely; anything that distracts from a great experience cannot be tolerated. Requiring customers to scan their phones EVERY. SINGLE. TIME. they transact is unsustainable and annoying to guests. Asking them to enter a phone number or log into an account is outrageous. Restaurants are blatantly creating an extra step in their payment process — that can never work long-term.

Not to pick on QR codes again... but I'm going to pick on QR codes, here.

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"As a customer, here's what a business using QR codes is asking of me to experience their loyalty program:

  1. Remember my phone/make sure it's charged.
  2. Find my phone in the cavernous expanse of my purse
  3. Pull out my phone in the middle of a transaction/meal/shopping experience
  4. Unlock my phone
  5. Navigate to the correct branded app
  6. Find the camera/QR code within the app, adjust the brightness of my phone, make sure it's on portrait orientation, etc...
  7. Scan/snap a picture" -Source: Revolutioning the Loyalty Card App Experience

Customers won't engage with a terrible experience long-term; that's why you see QR code-based loyalty programs lose 60% of their customers in the first three months. If that isn't proof enough, riddle me this: when's the last time you scanned a QR code using your phone?

 

3. Ignoring your VIPs is a great way to lose your best customers.

Most loyalty programs communicate with all of your guests the same way: spend a certain amount, get a reward. 

As we all know (now), two-thirds of revenue comes from the top 25% of customers; less than 15% of revenue comes from the bottom 50% of customers. Why are your worst customers getting the same deals as your best customers? 

Here's what to do instead: create a VIP program specifically targeted for the top tier spenders. Design incentives to make sure customers come back — no "freebies" and giveaways to deal-seekers.  Rewards should enhance the experience for your best customers. Differentiation is key here: identify your highest-value customers and create offers that are personalized and meaningful. Gone are the days of "spray and pray" promotional offers and giveaways.

Bonus: Neglecting to create a loyalty program at all is like leaving money on the table. 

A loyalty program is so much more than a way to give away free stuff. It’s about elevating customer experience, communicating with guests even after they leave your business, and gathering data that helps improve the way you do business. Even the less sophisticated loyalty programs can still provide some value, granted they're not actively driving customers away (I'm still looking at you, QR codes...).

Either way, it's worth investing in customer retention to keep your best customers loyal to your brand. After all, if you're not retaining your customers, somebody else will soon be acquiring them! In the words of a very wise coffee merchant: “When our competitors have a loyalty program, it’s a pretty risky proposition for us to not have one.”Dunn Bros Coffee

 

Interested in revolutionizing your customer relationships? Check out our other blog posts, written by customer retention experts & merchants alike!

1. Checklist: Is your customer loyalty program working?

2. Learn about customer retention psychology and start using it today

3. See how your business can fix (and prevent!) bad Yelp reviews with this simple tactic

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Hey, you! We published “6 Critical Stats for Customer Loyalty," a  study designed to help merchants better understand customer behavior and make more money with marketing.

We dug through more than 20 million transactions to understand how customers make decisions... and we're making it available to Thanx Blog readers for free. Check out the eBook here:

 

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