Experienced entrepreneur, former MD/surgeon & founder of Mindbox, a MarTech company trusted by hundreds of companies & international brands.
In light of economic crises and predictions of a recession, companies are trying to save money and optimize loyalty programs. My marketing technology company, Mindbox, has launched hundreds of programs for both large and small businesses over the years. As CEO and founder of a martech company, I want to discuss whether a loyalty program is needed in a crisis and give tips for how to successfully integrate one into your existing business model.
How A Loyalty Program Can Help
In my experience, a loyalty program is more likely to help with retention than attract new clients. It can also raise the average order value and boost customer loyalty. Businesses track the actions of program participants, which means they know their preferences, purchase history, average ticket and personal details. This information can be utilized to create more targeted email campaigns and special offers as well as calculate lifetime value and make more detailed forecasts.
That said, conscious implementation is the key to reaping long-term benefits. When times are tough, companies must carefully analyze the financial benefits of loyalty programs, predict the share of repeat sales and consider technology and specialist expenditures. When the economy is thriving, companies can implement rewards programs solely because competitors are doing it, too. But when there’s an economic downturn, businesses must optimize expenses, making planning, testing and analysis crucial before implementation happens or program changes are made.
Five Tips For Introducing A Beneficial Loyalty Program
1. Pre-test the program.
The most basic form of preliminary A/B testing might look like this.
• The company introduces a loyalty program for one store or channel.
• Within a month, the company evaluates the results, including how customers react and how financial metrics such as average order value, revenue and repeat sales change.
• At the end of the month, it compares the statistics to another branch where the results were similar before program implementation.
As long as user segmentation is done properly, it’s simple to track a loyalty program’s influence. With positive results, the program can then be implemented throughout.
2. Replace discounts with points.
Personal discounts, promotions or points that can be accumulated are all examples of loyalty programs.
It’s impressive the first time we visit Amazon and see a million discounted items. When customers visit for the tenth time and see the same discounts, they know they’ll be there year-round, so there’s less urgency or loyalty. In my opinion, this is why points are the future. Everyone offers discounts, but if a consumer has accumulated a large number of points, they are more inclined to continue purchasing from the same place. A point system also enables businesses to watch for a significant increase in indicators like average order value, frequency of purchases and units per transaction, boosting customer retention capabilities.
3. Experiment with offers.
A/B testing is the most commonly used method when working with loyalty programs. This is an experiment in which two versions of something are tested and compared to determine which is better.
For example, one of our clients that offers a floral delivery service tested a welcome discount for new customers. They sent $10 and $15 promo codes to separate cohorts and found no difference in purchase frequency between the two. Doing this saved them $5 per customer without impacting the efficacy of the program in motivating customers to purchase.
4. Personalize the customer experience.
Well-designed and properly targeted marketing offers or point systems can greatly reduce the overall cost of attracting and retaining customers. For example, we assisted in developing a rewards program for the Burger King fast food chain in two European countries. We separated the clients into categories using A/B testing and database analysis. Some people come to Burger King only on weekends, so we targeted them with bonus offers that are only available on weekdays to encourage more visits. Those who ate fast food more frequently during the week were given discounts on weekends. The tests resulted in a clever rewards program that encourages customers to spend more by taking their preferences into account.
5. Implement bonuses with an expiration date.
Bonuses are sometimes granted to clients indefinitely, although most of the time, they have an expiration date. This is a common sales incentive trick: Spend it soon, or the bonuses will expire. To optimize a loyalty program, use analytics results to set appropriate expiration dates.
Many businesses, for example, conduct A/B testing with an expiration date for welcome bonuses. One group of people receives bonuses for one week while another receives them for two weeks. They observe which group purchases more and integrate the best option into their program.
Endless bonus points are unprofitable for the company because its “point debt” grows indefinitely this way. However, there’s a flip side to this: A too-short time limit for keeping points may turn off customers. You must strike a “Goldilocks” balance to be effective. “Hot” deadlines, for example, should only be set for extra points, but regular ones should be spendable throughout the year. It’s better to consider the bonus deadlines during the program’s implementation phase rather than optimizing during the process. Legally, changing the terms of the loyalty program can be difficult because you have to notify all participants and re-sign the documents.
In conclusion, a loyalty program is not a magic pill to effortlessly improve sales or retention rates. These systems are only profitable when they are thoughtfully designed, carefully tested and continuously tracked and analyzed. Without a deliberate approach, it’s impossible to see positive results, so businesses should carefully consider all aspects of a rewards program before implementing one, especially during a crisis.
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