Commentary: Loyalty marketing drives sales and brand affinity
In January, Starbucks shared some statistics to prove once and for all that loyalty marketing drives sales and brand affinity.
In its most recent earnings announcement, the company president reported that the My Starbucks Rewards program grew by more than 400,000 members in December 2011 alone – now totaling almost 4 million members. Just as impressive, 1 in 4 customers are using rewards cards instead of cash at the till, which create many other advantages. And in terms of sales impact, Starbucks' president said that the loyalty program is contributing to the topline in a significant way.
So, what does this mean for smaller QSRs? If your business is like most, you don't have the millions of dollars and other resources to do what Starbucks has done. But that doesn't mean loyalty marketing isn't a fit for your business. Perhaps you've tried punch cards in the past, but were unable to track the benefits of the program. Well, the landscape has changed in the past five years and here are three themes that will bring you up to speed on loyalty marketing today:
Not all Customers are Created Equal
Loyal customers can drive more than half of your sales. According to the Center for Retail Management at Northwestern University, about 12-15 percent of a business's most loyal customers contribute 55-70 percent of the company's total sales. These customers not only give their patronage to your business – they are also a source of growth. In a recent study by Granbury Restaurant Solutions about customer loyalty programs in restaurants, 82 percent of loyalty program members referred at least one person, and 42 percent referred four or more. Your most loyal, VIP customers are a powerful asset!
Just imagine what your business could be like if you were able to turn some of your regular customers into loyal VIPs. For example, at Perka, our loyalty revenue calculator was designed to help assess the spending habits of your current customer base and estimate, in advance, the impact that a loyalty program could have on your bottom line. The result could mean thousands dollars in additional annual sales.
Loyalty Programs are a More A Sustainable Alternative to Daily Deals
In recent years, you may have felt a lot of pressure to join the daily deals bandwagon. Some small businesses have found success with them, but in truth, that group is the minority. Although deal campaigns may bring in a handful of new customers, these programs don't promote long-term patronage and can be financially detrimental to small businesses as steep discounts gouge your bottom line. According to Beyond Customer, it costs nearly seven times more to recruit a new customer than it does to keep a current one. And since we know loyal customers refer friends, investing in your VIPs is the most sustainable way for small QSRs to increase your customer base.
Loyalty programs have also proven financial gains for companies who use them. The book, The Twelve Laws of Loyalty, cites a Bain Consulting study, which found the average company loses 20-40 percent of its customers every year. By decreasing customer attrition by just 5 percent, your business can improve its bottom line profits by 25-85 percent. Similarly, increasing customer loyalty by 1 percent is equivalent to reducing costs by 10 percent.
Forget Paper Cards, Loyalty is Mobile
If you've tried paper punch card programs in the past and found them cumbersome and difficult to track, you're not alone. Many small QSRs have avoided or stopped running loyalty programs because of that reason. But according to Deloitte Consulting, companies that track their customer loyalty are up to 60 percent more profitable. And in the past five years or so, technology has drastically improved tracking convenience.
Enter the mobile phone. Experian Simmons reported that more than 33 million U.S. consumers use mobile phones for shopping and many loyalty programs are recognizing the need to go mobile.
What business owners love is that mobile-based loyalty programs remove the anonymity of punch cards. You can know your best customers by name and build a relationship with them. Provide targeted offers based on their spending habits and best of all, mobile applications track the results of your program for you – you'll easily be able to see how the spending habits of your customers change and to what extent your loyalty program is growing.
Major companies like Starbucks are realizing the benefits of loyalty marketing and many QSRs are missing out on some degree of financial gains. Loyalty works: regardless of your industry, regardless of your size. And technology has made it easier than ever to get started. Your customers and bottom line will thank you.
Special thanks to Christopher Youngers at Cafe Trio for sending us this article!