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Does your loyalty programme measure up?

World events have escalated how companies are investing in and prioritising their loyalty programmes. They are no longer a luxury; instead, people have come to expect them as a standard. But considering that, according to HubSpot’s customer loyalty guide, existing customers will spend 67 percent more than new customers, it seems that loyalty programmes are worth the investment.

Here’s what South African companies should consider to build successful loyalty and reward programmes:

According to the 2022 South African Loyalty Landscape Whitepaper, 73% of economically active South Africans are currently using reward or loyalty programmes, belonging to an average of 9.2 programmes, almost triple the 3.6 average from 2014.

While these programmes help shoppers during tough economic times, they also have a direct impact on revenue and are essential for customer retention, as they enable companies to maintain a continued relationship and engagement with their clients beyond simply providing a service or product.

Every interaction within a loyalty programme yields highly valuable data about consumers that would be difficult to gain otherwise. This data allows companies to track the spending habits of their most loyal customers to get a better understanding of how they respond to incentives and what products they prefer.

This translates to more engaged customers who spend more at that store or on that brand. In fact, a 2021 McKinsey report quotes that 64% of loyalty consumers are more likely to purchase more frequently and 75% of members of top-performing loyalty programmes changed their behaviour, which generated more value for the businesses.

A 2019 report by Bain & Company also found that customer loyalty has a major impact on a company’s bottom line, stating that in the financial services industry, for example, firms that retain just five percent of their customers increase their profits by 25 percent or more.

Not all loyalty programmes are created equal

While not all loyalty programmes are created equal, rewards alone don’t necessarily create loyalty. In fact, a reward often brings a customer in for just one more transaction at a time and the traditional rewards equation can create the perception that the item has a lower value than its listed price. It tells the customer to make their choice based on the price tag alone, thus prioritising low cost over quality, convenience and value alignment — the transaction over the relationship.

According to Andrew Weinberg, Group CEO of fintech and customer engagement group AKELO, whose subsidiary Retail Engage has been designing and operating loyalty programmes in South Africa for more than 10 years, successful reward programmes should be a subset of a more holistic customer engagement programme. ‘The rewards component is often based on the customer behaviour changes the organisation seeks, while loyalty encompasses this plus “softer” metrics such as average revenue per user (ARPU), number of products, gamification participation and others.’

Weinberg also highlights that loyalty and rewards programmes provide numerous benefits to brands and retailers, such as differentiation in the market, driving customer retention and spend.  ‘Benefits to brands include attracting customers to their product over their competitors on a retail store shelf, increasing category share and attracting new customers to experience the brand. For retailers, gains include attracting more customers through savings and the ability to communicate with its customers outside of their store digitally.’

However, Weinberg cautions that creating a loyalty programme that successfully cultivates consumer attachment requires careful planning and preparation. ‘If a programme is not properly designed, customers may start to expect a reward before they’ll buy and it can erode margins unnecessarily. It’s important to employ the right tech requirements and qualified resources, while keeping an eye on costs and margin erosion, and the need for continuity when designing an effective programme. And a key consideration is that the best loyalty programme in the world cannot replace bad products or services.’

It’s all about knowing your customer

Research shows that people prefer simple loyalty offerings that amplify their typical behaviour and they don’t like working hard to claim them. A PWC report indicates that 48% of US respondents prefer discounts or rebates on products they regularly use, with 43% saying they prefer programmes that have flexibility in their rewards. This speaks to the power of personalisation and in the South African context, this tends to be cash.

Weinberg agrees. ‘Know who your customers are to create programmes that truly enhance their experience with your brand. No single programme fits all and every company has its own nuances, market perception, audience and brand loyalty. Benefits and rewards must be relevant and accessible to your customer base. For example, it’s no use providing discounted airline tickets to a very low-income customer base as these are inaccessible for them. A better option here would be grocery or fast food discounts.’

A good loyalty or rewards programme feels truly rewarding to customers, so build yours with these three principles in mind:

– Is the programme convenient and relevant for your customers?

– Are the rewards adequate to keep them loyal?

– Is the programme generating useful data that will help you enhance your customers’ experience?

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