LOYALTY DOES HAVE A PRICE

The decreasing identification of new generations with brands or products for their attributes. The increasing number of available products and services has overwhelmed consumers with an unprecedented range of options of all styles and qualities in everything they would want to purchase. Have you visited a mobile phone store lately? Have you noticed the number of brands of automobiles, or examined the offerings of consulting firms in the market? If you have, you know the vast offering of products, brands and options that consumers have available. If you haven't, do it and you will see that the significance of the support of a brand is not the same that it was for your parents and grandparents.


While people in the past used brands as definitive guides for the quality and functionality of a product, nowadays consumers see beyond this and evaluate their options in terms of attributes of a product and the additional benefits that are given to them. How many times have you made a decision between buying two mobile phones with similar characteristics because one included some headphones or free calling minutes, while the other one didn’t? This behavior of searching beyond the brand and the product seems to begin since early ages, with experiences like the ones at fast food restaurants. If you have small children and you have taken them to one of those restaurants, you may know that the main factor in the election of the meal is not the food, but the free toy that comes with the meal.

Loyalty programs are the only way to establish a link and a channel to offer clients the treatment they deserve and to exceed their expectancies. Actually, if you have had any direct contact with a consumer at the moment of a purchase, you were probably asked whether you offered any loyalty program. Clients ask for them openly by their name.

Virtuous Spiral


The main benefit and the reason for the implementation of a loyalty program is client retention. At this point, we mention again the fact that clients need more than just being satisfied with a product to make a repeat purchase. They want to feel appreciated, valued, and rewarded for their preference, and a loyalty program is the only way to honor their wishes. The formula is really easy: the higher the frequency of purchase, the higher the accumulated value for the client. The higher the accumulated value, the higher the stimulus to continue with the repetition of purchase, thus keeping and increasing the accumulated value. The higher the accumulated value for the client, the higher the amount realized for the company. It's as simple as that.

From this basic formula, we derive the other benefits that are added to create a virtuous spiral. Repeat purchase of a customer is increased, and purchases to your competitors are proportionally reduced. With this plan in place, you can beat the competition.

When a good loyalty program is developed, it is important to use it to open a dialogue with your clients. It is through communication and collateral materials of the program that members get to know their benefits. Apart from using this to communicate with them, you also have to take advantage of this to obtain additional information about them. What products do they prefer? How do they like to consume their products and what uses do they give to them? Do they have relatives and friends who can benefit from your services? Which products and services do they need today and which will they need tomorrow? Once you have satisfied a client by showing him appreciation and value in his relationship with you, you can collect from him all types of strategic information in order to improve your products, grow your market share, and strengthen your relationship.

A consumer who appreciates the relationship with his vendor is willing to pay for the added value he receives. With a good loyalty program, companies can focus on developing and giving value, instead of deteriorating their margins and spoon-feeding their clients with frequent and aggressive discounts to move products.

If the consumer is happy with the relationship that he has with you, he will recommend you when the time comes, and a referral is worth more than a thousand ads.


Costs and return on investment


One thing that is widely misunderstood about loyalty programs is their cost. When you make an investment in your best publicity campaign, what is your return on the investment? Surely you develop a sophisticated algorithm to try to calculate the impact made, referrals obtained and sales made. Once these have been calculated, you compare them with your investment and you contrast them with your minimum rate of return.

You probably even include in the return an additional quantification for the creation of a brand that you developed along with the campaign, independently from the derived consumptions. When you assess the return on investment of your loyalty program, the calculation is very similar, but with an important difference: The impacts made, the referrals obtained, the incremental sales, and even the creation of value are inferred, known, and calculated clearly by your program. Additionally, the effectiveness of your efforts improve significantly thanks to the focus you choose based on the information you have about your clients.

As a reference, depending on the industry, the field, and the audience to which it is directed, a loyalty program contributes between 1% and 5% of the gross sales of the product or service.

The return on investment depends on the desired goal, but, as a reference, just remember that obtaining a new customer costs five times as much as retaining an existing customer costs. How many promotion strategies bring you a 5 to 1 return?