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Customer retention is vital for every business, and implementing a loyalty scheme can be an effective way to keep customers coming back for more. Derek Williams, CEO of the WOW! Awards, explains how to create a successful customer loyalty scheme
Most small business owners appreciate the importance of attracting new customers. But few pay any attention to customer loyalty in the early years.
This is a crazy situation! It's like trying to run a bath without putting the plug in the hole. And running the water - or attracting new customers - can be expensive. So you need to put the plug in and make sure you retain your customers.
How to encourage customer loyalty
American marketing author Ron Zemke said customer decisions are influenced by two factors - outcome and process. To keep customers loyal, a business has to meet the customer's expectation of outcome - does the product or service do what you said it would do?
At the same time, the customer needs to feel good in the process of buying. Research suggests that up to 68% of customers switch supplier because they feel that the business doesn't care about them and their needs.
What are the advantages of a customer loyalty scheme?
Loyalty schemes, such as Tesco's Clubcard, reward returning customers with exclusive discounts, offers and freebies based on how often they shop with you.
A good loyalty scheme, with benefits that the customer values, will encourage them to shop with you more often and to choose you over your competitors.
The information you collect from your customer can also help you to target your marketing. For instance, someone who buys nappies on a regular basis is likely to be interested in offers relating to baby products.
Customer loyalty schemes in small businesses
Loyalty schemes can be quick and easy to put in place. For example, coffee shops often give customers a card that gets stamped each time the customer makes a purchase. After eight or ten purchases the customer gets a free cup of coffee.
Could your business do something similar?
How to create a successful customer loyalty scheme
- Set your objectives. Do you want more customers? Do you want to increase your sales to existing customers? Do you want to focus on customers of a particular type?
- Ask a sample of your customers what they think of your ideas, and tailor the scheme based on their feedback.
- Tell your employees what you're doing. They need to understand the reasons behind the scheme.
- Try the scheme out for a short period before committing yourself.
- Measure your average sales and how often the customer purchases from you. Is the loyalty scheme making a difference? If it's not working, then rethink it.
- Recognise that customers have different needs. Some people may be influenced by price and would be happy to receive a discount. Others may be more concerned with service.
- Use the data that you collect. Think about how you could use the information to enhance your customer relationships.
- Make sure that your loyalty scheme reflects your brand values and adds value for your customer.
Using customer loyalty schemes to build customer relationships
Loyalty schemes can encourage customers to become involved in your business. For instance, customers might like to know about planned changes and developments.
They might like to be consulted on future changes to your products and services. They might like to participate in a customer survey or customer forum.
Using customer loyalty schemes to improve profitability
Research conducted by Bain & Co suggested that a 5% improvement in customer retention could add between 25% and 125% to the bottom line. Do some simple calculations to estimate the possible financial impact on your business.
If you can improve customer retention, not only are you likely to increase your sales, but you may also reduce your marketing costs.