Loyalty Marketing 101: What it Is and Why it Matters

Discover loyalty marketing in the business lens and understand how it’s evolved from your traditional stamp collection to mobile-first platforms.

Customers who are loyal to a brand will continue purchasing from the brand. Loyal customers are also more likely try new products.

With a strong base of loyal customers, businesses can see consistent profits and growth.

Having said that, it is imperative that your businesses strategy in 2022 includes customer loyalty.

According to a Forrester Research, it costs 5 times more to attract a new customer than to retain an existing one? With this logic in mind, let’s take a closer look at loyalty marketing and find out how it can truly benefit you.

So what is loyalty marketing?

Loyalty marketing is a strategy based on growing and retaining loyal customers. Loyalty programs are the usual medium for this, offering return customers incentives such as point collection, milestone rewards, and exclusive discounts in exchange for purchases, store visits, or any kind of interaction the company may set.

In the textbook on Marketing Metrics, companies have a 60-70% likelihood of selling to an existing customer, while only 5-20% of new customers are likely to make a purchase. Again, this echoes the importance of focusing on current customers instead of chasing potential ones with no end in sight.

So while current marketers are heavily investing in acquisition, you can put yourself in the smarter position of placing your money where the real value is—your current customers.

Here are some of the top benefits you’ll gain from implementing a loyalty marketing strategy.

5 Ways Loyalty Marketing Can Improve Your Business

  1. Retaining valuable customers

Of course, the main goal of loyalty marketing is to keep your customers coming back. But aside from returning aspect, your current customers also play a crucial factor to the success of your business.

According to global research and advisory firm Gartner Group, 80% of your company’s future revenue will come from just 20% of your existing customers. Sephora’s Beauty Insider program is a leading example for this statistic.

Bridget Dolan, VP of Interactive Media at Sephora, has stated that 80% of all their current transactions are made by members from their Beauty Insiders program.

With a loyalty program that offers endless rewards that their customers see true value in, it’s no wonder their business has raked in such success.

2. Gaining new, informed customers

Of course, a business cannot survive on existing customers alone. The bridge between loyalty marketing and the acquisition of new customers is through referrals.

Consumers these days are bombarded with ads from every device and platform, giving them limitless options in the types of products and services they desire.

Companies and brands battle each other with sensational features, dramatic results, and time-sensitive discounts, but the advice from a trusted friend, colleague or family member about a product speaks measures to a potential customer.

Existing customers who already have prior knowledge and experience with your brand are the key to convincing more people to buy from you.

3. Lowering operating costs

As loyalty marketing builds your base of returning customers over time, their tendency to purchase more from your company increases, and your operating costs to serve them will decline.

Customers who know and love your brand are more likely to pay a premium to continue to do business with you rather than to switch to a competitor with whom they’re neither familiar nor comfortable with.

4. Alleviating low-revenue seasons

Each industry has its low seasons when generating revenue and hitting targets become more difficult tasks to achieve. A loyalty program has the capability to help you boost business during these times by providing customers an incentive to shop.

One of the methods companies use during these slower seasons is to provide better rewards and include an expiration date so that customers must redeem them within a certain timeframe.

5. Providing actionable insights

At the end of the day, if you’re not collecting data from your customers and their habits with a loyalty program in place, then you’re missing out on an extremely valuable marketing tool.

If you invest in a loyalty marketing service that has great analytics, it can help you to optimize your strategy and scale faster based on actual data.

While each of these benefits can be achieved with most loyalty service providers on the market, it is important to choose one that aligns with your needs, provides a seamless experience, and can help you reach your goals.