In this article I explain the strategy of increasing customer loyalty through customer loyalty program. I will divide this article to several sections, they are:

1. Why most company implement customer loyalty program?

2. Customer loyalty program’s definition.

3. Goals of customer loyalty programs.

4. Several assumptions related to loyal customer that motivate the company run a customer loyalty program.

5. Short term vs. long term effect related to the customer loyalty program.

6. Cost of Entice new customer vs. cost of get current customer to buy again.

7. The examples of customer loyalty programs.

Now, let’s go to the first section in this article.

Customer loyalty program background

Competition is very tight. It triggers most company to run customer loyalty programs. Why they perform this program? Because they want to keep their current customer and encourage these customers to buy again and more, in addition to this, they want the current customer not to buy other brands. As a consequence, a company has to enhance its value (product or service) to make loyal customer do a next purchase.

What is customer loyalty program?

Customer loyalty program is the well-known marketing strategies among many companies. Basic strategy of loyalty program is, offering a valuable and additional incentive to current customer. Some industries have implemented this strategy, such as: Banks (have offered their customer with precious advantages), airlines (have implemented frequent-flyer program trying to treat customer with a valuable benefits), B2C business (offers member card with valuable advantages), etc.

Customer loyalty program’s goal

Fundamental goal of implementing customer loyalty program is, to bond customer with company (its product or service). It means by implementing this program, it can create more loyal customer so that customer will spend more or customer is willing to buy again.

Theory that is related to loyal customer

There are marketing theories and principles regarding loyal customer, they are:

1. Customer is likely to get involve in relationship with the brand he buy.

2. Some customers buy only one brand if they feel comfortable with the brand.

3. Frequent buyers are a profitable group of customer because usually they are less price sensitivity. Company should encourage them to be even more loyal and spend more.

4. With technology (like CRM system, database system), account manager can develop personalized engagement with customer to encourage them more loyal.

5. It costs much more to entice a new customer than to get a current customer to purchase again.

Loyalty program’s Short term vs. Long term effects

Loyalty programs are effective in the long term, to the extent that they entice more distributors to stock the brand or build presence in the marketplace.

For growing market share in the short term, a conservative and effective way is, to get more people to buy a product rather than try to get current costumer buying the product more often.

Fader and Schmittlein’s research suggests that one of the most effective ways to get more buyers is to gain more distribution outlets. You can see Fader’s research that is entitled “Excess Behavioral Loyalty for High-Share Brands: Deviations from the Dirichlet Model for Repeat Purchasing”

Please see below for more information:

a. List of Fader’s research

b. Research overview and citation in Google scholar

Cost of Entice new customer vs. cost of get current customer to buy again

1. Entice new customer's cost:

a. Ads campaign.

b. Brand building.

c. List building,

d. Meeting with prospect.

e. Cost of travels.

f. Entertaining prospect cost.

g. Pre-sales cost.

h. Marketing research cost.

i. Other marketing activities to generate leads and conversion cost,

and so on.

2. Loyalty program's cost:

a. Database creation and maintenance (CRM application) cost.

b. Rewards cost.

c. Customer activities/engagement cost,

And so forth.

Customer loyalty program examples

There are some programs that you must perform to increase the number of loyal customer. These are simple action, but actually it is difficult to perform persistently. But believe me, if you persistent to conduct things below, you will achieve good loyal customer. Why you should believe me? because it is based on my experience running a business. Below are programs that must be considered to improve customer loyalty:

1. Customer bonding

To enhance customer loyalty, marketers can carry out customer bonding. According to Richards Cross, things to do are:

a. Adding financial benefits: granting rewards for customers who are frequently buying and/or perform a lot of buying. You can gather them in an special event then give them points or prizes.

b. Adding social benefits: treating the customer as a partner through personalization, such as membership programs, and others.

c. Adding structural ties: add structural ties, activity in this regard include training, gathering, and something like that.

2. Make customers happy and deliver a great experience.

If the customers happy, it indicates they are satisfied. I've explained in previous articles that if customers are satisfied, then you will get more customer loyalty. Programs in this regard include:

a. Deliver services and products that have not expected by customers. Customers will be surprised. It can raise the level of their loyalty.

b. Try to strive achieving zero level of defection (zero error rates). It is intended to allow customers happy and reach their loyalty.

c. Get used to always delight the customer, simple examples but very powerful influences: say greeting, say thank you, and do not be stingy to smile at them, immediately apologize if there are errors in speech or your service to them.

3. Foster familiarity with customers

This programs are related to step number two. If you have close relationship with them, it makes them get intimacy with you and they will happy. The ideal things to do are:

a. Develop closeness with customers, build relationships with customers prior to purchase as well as post purchase.

b. Try to adjust the product to the specific needs of each customer by delivering total solutions and provide personal advice.

c. Embedding a manner to all employees and top management (not just a marketer team) to have a commitment to developing solutions and helping customers to understand exactly what they need.

d. Develop a culture to prioritize specific solution and focus on the customer relationships intimacy.

4. Increase value added for customers

Based on my experiences in running my own business, programs that should be implemented are:

a. Anticipate customer needs and expectations in the future. To conduct this action, collaboration between the marketing team and the Research& Development team is needed.

b. Focus your attention on customer enthusiasm, e.g. quality, uniformity treatment, operational effectiveness to serve customer, service before and after the purchase, reputation, and others.

c. Treat customers as a core important people, pay attention to their interests, provide personalized solutions to them.

5. Organizational commitment

This is an important thing to consider. All of the above will run smoothly if all personnel within the organization commit to execute a strategy to increasecustomer loyalty.

Programs in this stage are:

a. Form a steering committee to concern customer loyalty led by one person who responsible for this, for example: a chief customer officer.

b. Understand the very actual potential thing for customer loyalty and retention.

c. Formulate a joint mission of customer retention program in the steering committee.

d. Apply customer defections analysis, start from the anticipation and analysis of every possible customer shortcoming up to persuade them to return to become your customers.

That's an example implementation of the strategy of increasing customer loyalty rate by performing customer loyalty programs based on my experience running my own business.

Summary

The customer loyalty programs that work is, the program that integrates the product. For example:

a. Exclusive member card that give some points if the customer spend a particular amount of money, then if accumulation point has been reached, the customer can buy a limited or exclusive product with less amount of money or can purchase a new product with some discounts.

b. In the frequent-flyer program, a customer can get free air travel to special destination when points accumulation are reached.

Finally, as an component to enhance your understanding of customer loyalty, you should read the article below:

Customer loyalty research

Build customer loyalty

Definition of customer loyalty

An introduction of customer loyalty - a customer loyalty basic concepts

Also this article is inspired from do customer loyalty programs really work from Sloanreview