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What is a Loyalty Program and Why Do You Need One in Customer Marketing?

Feb 13, 2024 | 7 minute read

What is a Loyalty Program and Why Do You Need One in Customer Marketing?

Megan Wenzl

Content Marketing Manager

Quick Takeaways

In customer marketing, loyalty programs are one of the most effective tools a brand can use to increase customer lifetime value and drive revenue. 70% of customers say being part of a loyalty program leads them to spend more with the brand.

Brands have experienced several challenges in the past few years: fierce competition, high customer acquisition costs, and increasing customer churn. 

To stay competitive now and in the future, implement the right tools and strategies to build a foundation of strong trust and relationships with your customers in an ever-changing ecommerce landscape. One effective tool? Loyalty programs.

As the focus for brands shifts to both acquiring and retaining customers, implementing a loyalty program into your strategy to foster customer loyalty becomes essential, especially a loyalty program designed for your specific customer base. 

In previous blogs, we’ve covered the importance of loyalty and how to build loyalty. In this piece, we’ll cover the next part of the loyalty topic: loyalty programs. Learn what a customer loyalty program is and why you need one in customer marketing. 

What is a Customer Loyalty Program? 

Loyalty programs reward loyal customers with special incentives to say thank you for their loyalty. The incentives that customers receive encourage them to refer friends and family and drive repeat purchases to increase revenue for your brand. Loyalty programs also give brands an additional way to capture zero-party data to personalize communications and build personalized, positive experiences that increase retention. 

Loyalty program landing page

Why Loyalty Programs are Essential in Customer Marketing 

In today’s ecommerce landscape, customer retention is just as important as acquisition. Customer loyalty programs help brands improve retention by ensuring consistent customer engagement.  

When combined with a strong customer marketing strategy, loyalty programs strengthen the emotional connection customers feel toward your brand, helping customers feel appreciated, recognized, and valued. 84% of customers are even more likely to stay with a brand that has a loyalty program. 

Jason Anderson, Chief Operating Officer at Andzen, says, “While the world’s economies are tightening, consumers are looking for value rather than price. Racing to the bottom on your product cost damages brand equity and perception. However, a thought-out, convenient, and engaging loyalty program builds brand presence and gives customers a reason to shop loyally for the items they’re searching for now, and items they might want in the future.” 

Here’s why loyalty programs must be part of your customer marketing strategy: 

Increase Customer Lifetime Value 

Customer lifetime value (CLTV) refers to the total value a customer generates for a business throughout their relationship.  Customer loyalty programs significantly increase lifetime value over the long term because of customers’ consistent repeat purchases. 

Loyal customers also prove to be high-value generating customers through the actions they take to promote your brand. These customers are considered your Superfans, or customers who are highly engaged with your brand. 

Offering loyalty programs further engages and rewards your Superfan customer base to activate their advocacy,  which results in increased CLTV over time. We discuss more on Superfans below. 

Drive Repeat Purchase Rates 

When you reward customers through a loyalty program, you keep them engaged and incentivize them to come back and make more purchases with your brand. 

The more points a customer earns, the higher the tier they become, so they are more likely to purchase more for better discounts and rewards. One study found that 79% of consumers purchased from a brand more often because they were part of the loyalty program, while 70% of consumers say being part of the loyalty program led them to spend more time with the brand. 

Decrease Customer Acquisition Costs with Referrals 

A customer loyalty program encourages customers to be loyal to your brand, so you keep current customers without having to focus solely on acquiring new ones. Through a loyalty program, you’re retaining customers because you build stronger relationships and trust, showing appreciation for purchasing from your brand and that you care about them as more than a customer. 

Encouraging customers to refer friends and family through your loyalty program, you activate your Superfans (highly engaged brand advocates). Your Superfans provide you with a low-cost customer acquisition solution through referral marketing. With customer acquisition costs rising as much as 60% within a 5-year period, building a community of strong brand advocates decreases your reliance on traditional acquisition channels. According to Okendo’s research on loyalty and retention, 70% of customers are more likely to refer a brand if they receive an incentive. 

Capture Actionable Zero-Party Data to Personalize Experiences 

Maximizing the customer experience is a powerful way to stand out from the competition, and loyalty programs help brands do just that. Loyalty programs are one significant part of collecting customer data directly from the customer (zero-party data) as part of the customer feedback loop process. 

According to Okendo’s research, customers are more likely to provide you with their information voluntarily when they trust your brand, further proving the importance of a loyalty program — you increase trust with a loyalty program. The customer is then more likely to give your brand valuable data about themselves such as demographic information, their age, and more. 

Loyalty programs are also part of the customer experience itself. When done well, loyalty programs give customers positive, personalized experiences through a program that’s created for them. 

With a loyalty program product like Okendo Loyalty, you can collect actionable customer data in one unified profile to personalize customer experiences. Okendo’s unified customer profiles provide instant access to critical zero-party data from Loyalty, Quizzes, Reviews, Referrals, and Surveys. This complete view of customer behaviors, preferences, and events is a powerful foundation for crafting personalized marketing campaigns, including communications and relevant product recommendations.

The variety of ways to earn Loyalty points

Loyalty Programs Benefit Your Customers 

With loyalty programs, your customers benefit just as much as your brand. Customers save money because of the rewards you provide them. With points, discounts, and VIP tiers, customers are incentivized to buy from you and look away from other brands that do not give them the same benefits.

Loyalty programs also give customers a sense of community, knowing that they join with other like-minded people. It may be obvious, but customers are loyal to your brand for more than your loyalty program. They are also loyal because of the customer experience you provide, the quality of your product, and the values your brand stands for — these factors all help customers feel a real, genuine connection to your brand. Loyalty programs further deepen that connection and give customers a community to connect with. 

Read More: A Guide to Unified Customer Marketing

Use Loyalty Programs to Mobilize Your Superfan Community 

With a loyalty program, you further engage and mobilize your community of Superfans to help support fast growth and long-term, sustainable success. Superfans are necessary for both acquiring and retaining customers. Here’s why Superfans power your brand’s growth: 

  •  High Engagement Level: Superfans display remarkable involvement with your brand’s products, services, and content. They actively contribute to discussions, stay updated, and eagerly seek opportunities to make connections with your brand.
  • Advocacy: Superfans go beyond simply consuming your brand’s offerings; they actively champion them. They happily share positive experiences, recommend products to their loved ones, and proudly represent your brand as unofficial ambassadors.
  • Conversion Boosters: Word-of-mouth recommendations, reviews, testimonials, and user-generated content provide significant influence over potential customers as they navigate their decision-making process. Superfans have the power to foster prospects into devoted, loyal customers.
  • High Retention: Superfans play a vital role in retaining customers by consistently choosing your brand and showing unwavering loyalty. Their continued engagement sets a compelling example for other customers, cultivating a sense of community and fostering profound loyalty.
  • Feedback and Improvement: Dedicated customers frequently offer invaluable feedback that can fuel product improvements and enhancements. Their in-depth understanding of your brand lends their insights a unique perspective, making them especially valuable for the ongoing improvement of products, operations, and experiences. 

While loyalty programs are nothing new, they are an effective tool for driving revenue, increasing lifetime value, decreasing customer acquisition costs, and lowering customer churn with improved retention. Loyalty programs also help brands collect more zero-party data to improve and personalize customer experiences, leading to long-term success no matter what kind of ecommerce challenges lie ahead. 

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