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Customer Loyalty Programs: Why Retailers Need Them

We have already established that there is cutthroat competition present in the e-commerce and retail industries. This is forcing many brands to re-evaluate how they deliver value and stay relevant to customers. Retailers want to understand what drives their customers to visit their stores and make purchases, and how to reinforce those loyal behaviors.

Loyalty programs is one method to help achieve these goals like increased foot traffic, repeat visitors, build deeper engagement and reap a successful financial return on this loyalty investment. Customer loyalty programs are becoming increasingly popular and they offer a lot of benefits, to both the retailer as well as the customer.

Nielsen found that 84% of consumers are more likely to choose retailers that offer such a program, and 59% report that they’re available where they already shop.

Retailers need to capitalize on this interest in loyalty programs and create an active user base that eventually keeps them engaged with the brand for a long time.

What is a Customer Loyalty Program?

The idea is simple: The more you shop and spend, the more you receive in return. Nielsen describes them as “marketing programs that reward members with purchase incentives.”
With these programs, retailers can track and incentivize purchasing behavior and reward customers for their loyalty to their brand. This is a powerful customer retention tool as it motivates existing customers to continue engaging with the brand and therefore, spend more.

Different types of Customer Loyalty programs

Customer Loyalty programs come in different forms. Some retailers use only one type while some others create combinations of two.

Loyalty Points
This tactic can be seen especially in the grocery chains where customers get points for making purchases or perform certain actions such as providing some personal information.

Social Media
In this approach, retailers abandon the traditional approach to purchasing a product. They award certain points to their customers for social engagement with their brands such as sharing, liking or commenting on an ongoing campaign. Many brands even run contests and raffles that reward loyal fans with amazing prizes.

Paid Programs
Not every reward program is free. Some of these programs require their customers to pay a certain fee that could be a one-time payment or a recurring payment in order to enroll. Amazon Prime is a great example of this type of model.
Furthermore, these programs can also include partnerships with credit card companies who may provide special benefits and offers in exchange for reward points. Some of these benefits may include discounts, cash-backs, free shipping, access to exclusive shopping events, free services, upgrades.

Retailers may use these programs to modify buying behavior by incentivizing the action they want their customers to take. These programs also provide data to help retailers understand their customers more deeply. With this kind of data on purchasing behavior, it’s easier to segment, create personas, and gain insights to help guide new initiatives.

Role of AI in Customer Loyalty Programs

AI has found its way to many retail companies across different verticals and now have slowly made their way into loyalty and marketing programs as well.

Customers as well, to an extent have become familiar and comfortable with using these technologies. A research states that customers are increasingly willing to rely on algorithms and smart devices for enhanced and personalized retail experiences. This, in turn, fosters an expectation for convenient, low-friction shopping experiences with loyalty programs. AI and machine learning may help in streamlining customer experiences, but they are apt for managing and interpreting customer data captured by loyalty activities and customer interactions. A marketing strategy with an integrated AI and machine learning technology can create a single customer view dynamically, in real time. This can help brands and retailers with large footprints or multiple locations can understand their customers faster and predict trends and offers accordingly. Moreover, this helps them to stay ahead of the competition. Of course, enthusiasm for these technologies is at a high point, and there are many varied predictions about the impact AI will have on the world at large.

Summary

A research shows that retailers spend 5 to 10 times more to capture a new customer than to retain the currents ones. With Customer loyalty programs, engaging with the existing customers could cost less, and reap larger benefits in the future. Effective execution of these programs can increase the customer lifetime value and ROI. There is a huge chunk of consumers that modify their spending amounts in order to maximize points. Hence, program members are more likely to shop on a regular basis. Furthermore, they also activate word of mouth marketing as one customer’s experience with a brand can influence another’s choice or preference for a brand.

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