Loyalty programs are a valuable tool to use for all companies, as it is the company's loyal customer relationships that increase sales and profitability. But what is the key to retaining your customers and encouraging them to make recurring purchases?

Today, more and more companies are implementing loyalty programs to increase the value for their customers and strengthen the loyal bond. The customer is then rewarded through benefits, which triggers them to come back more quickly in the relationship that increases trust in the brand. This affects the customer's attitude and feelings, which in turn affects the buying behaviour. With the help of loyalty programs, the customers' purchase decision process is simply streamlined, which makes customers more inclined to make recurring purchases increasing customer lifetime value and customer retention. If a customer is dissatisfied, the loyalty program will not matter, but as long as they are satisfied, it is what creates long-term customer relationships.

Before we go into more about why loyalty programs are good, we need to understand what customer loyalty means and the importance of maintaining our current customer relationships. "Customer loyalty means the tendency to continue shopping in a certain store or a certain brand" - Blomqvist, Dahl & Haeger 1993. More and more companies are realising how important it is to retain customers, as competition and costs mean that the opportunity to finding new customers is made more difficult. According to Invesp it costs five times more to acquire a new customer relative to retaining an existing one. Also, your existing customers are 50% more likely to try a company's new products and they also on average spend around 30% more than new customers.

5 reasons why you should cherish your loyal customers:

1. It is more cost effective and time efficient. New customers are harder to convince and usually require a longer process and more support before they understand your business processes, unlike your loyal customers who already have the trust you have already won.
2. Customer loyalty is based on a result of satisfied customers and positive customer experiences. Your customers will simply be more likely to make recurring purchases.
3. Say goodbye to competition. Loyalty programs create stickiness for your brand or product, therefore reducing the odds of customers shopping at your competitors. 
4. Word of mouth! Loyal customers tend to share their experiences with others. Your company gets a good reputation, which results in more revenue since peer validation is one of the biggest drivers of sales.
5. Loyal customers are less sensitive to price. They are usually more likely to pay more for the same product if they feel familiar with your brand, trust the product, and are part of a community.

In short: Loyal customers form the basis for growth. Without satisfied customers who buy products or services from you, eventually no business will survive.

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Different forms of loyalty programs

Customer loyalty programs appear in many different shapes and forms. In the following section we shall give you an idea of how loyalty programs are applied by leading companies in practice.

Bonus system - Bonus Card (“Bonuskaart”) Albert Heijn

Albert Heijn is the biggest supermarket in The Netherlands and uses a loyalty program in the form of the bonus card (“bonuskaart”). It is one of the most successful loyalty programs in the country. According to Spaaza Based on a 2018 survey, the industry digital magazine distrifood  suggested that Dutch people are more likely to carry an Albert Heijn Bonuskaart than a driver’s licence.

The success of the bonus card lies in big data. Albert Heijn uses in-store discounts that can only be redeemed by scanning the bonus card at checkout to incentivise data collection. Through the bonus card it is able to track an individual’s purchasing behaviour and tailor discounts to there needs when they use their digital shopping channels. They are one of the pioneers of omni-channel customer loyalty in the Netherlands, and are of great inspiration of MyStamp.

Unlike Albert Heijn, however, which as a corporate is privileged to be able to offer these functionalities to their customers, MyStamp will make these kinds of functionalities available to the 300,000+ local businesses in The Netherlands. Digital loyalty programs should not be solely available to the Albert Heijn’s, Starbucks’s, and McDonalds’ of our time.

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Membership - Amazon Prime
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Amazon offers a loyalty program called Amazon Prime. In this program it offers perks to its customers in the form of free shipping and access to additional services like video streaming.

Although it does not make a lot of money directly on the subscription which only costs $14.99 a month, it creates stickiness to their ecosystem causing customers to spend more in their e-commerce store and it has proven to do so significantly. The following chart highlights that Amazon Prime members on average spend about 5 times as much on the platform than non-Prime customers. 
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‍‍Digital stamp cards - Cafecito

It is 2022 and customers are tired of constantly losing inconvenient paper stamp cards. Digital stamp cards are a sustainable and consumer friendly alternative to paper stamp cards, where customers of coffee places, beauty salons, and restaurants are rewarded when they have returned a pre-determined amount of times to make a purchase at a particular business.

The most prevalent example of a stamp card is one that is used at coffee places. Usually, the 10th coffee is for free. This future outlook toward a reward incentives customers to come back more quickly which increases the customer lifetime value of the respective customer.
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Cafecito is a modern coffee concept in The Netherlands that currently uses MyStamp for digitising their stamp cards at four locations in the Netherlands. MyStamp has currently saved Cafecito over 1,000 paper stamp cards, and increasing the amount of returning customers significantly.

The process is as simple as scanning a tablet in-store after the purchase and storing the stamp within the MyStamp app.

One may think, nice for the consumer but what is in it for the business offering the stamp cards digitally? The business collects data from their discount-sensitive customers and is able to engage with them through highly targeted marketing messaging in the forms of push notifications and coupons which further increases the frequency with which a customer returns and the money spent at your store. ‍

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Conclusion

To sum everything up, a digital loyalty program are a very effective way of increasing the value that is extracted from a single customer. It does so by giving companies the ability to incentivise customers to make recurring purchases, and increases stickiness of your brand. Thereby it often gives you the ability to utilise a combination of on- and offline channels to create an omni-channel retention marketing strategy. In other words, the data that you collect in-store can be used to send out targeted digital promotions increasing customer retention and lifetime value.