Quantity with Quality: Why Frequency Rewards Make The Best Customer Loyalty Programs

As competition for the same customer base heats up in just about every industry, more and
more companies are offering loyalty programs to try and maintain their hold on customer market
share. After all, if a company has a high number of customers churning to competitors every
month, they aren’t really making gains and expanding. Due to this ongoing problem, many
companies have allocated resources towards a loyalty program in an effort to retain their
customers and keep them from taking their business to competitors.

What is a loyalty program?

A loyalty program is essentially a marketing system that a business creates to reward
purchasing behavior, providing customers with a buy-in to stay loyal to the company for their
future product or service needs. These rewards can include store credit/gift cards, VIP status
when they visit your site or location, prize drawings, and any other applicable benefit that could
be offered in exchange for continuing to choose your business over your competition. Obviously,
every company will offer a different rewards program based on their company’s budget and
needs, but they can be broken down into two basic categories: customer tier programs and
frequency rewards.

Customer Tier Programs

This type of loyalty program ascribes status to customers based on their accumulated number
of purchases with your business. For example, a hotel chain may offer customers with enough
stays a “platinum-level membership” that allows perks such as occasional free upgrades for
their room or discounts on services for laundry and room service. Customers like to feel value
and highly prized for the amount of business they do with your company, which is why these
customer tier programs can be so effective. However, most marketing studies have shown that
frequency rewards are far more effective in maintaining customer loyalty.

Frequency Rewards Programs

Rather than a membership or special status that is achieved after a certain number of
purchases, frequency rewards are a once and done for the company and the customer. When a
customer makes purchases for goods or services, they accrue reward points. These points can
be cashed in for one-time rewards like price drawing entries, free service upgrades when
applicable, or for other rewards the customer values like gift cards or tickets to public
performances and events. An excellent example of a frequency reward program would be
frequent flyer miles for those who travel by air on a regular basis.

Why do customer loyalty programs matter?

Here’s a rundown of all the reasons your business needs to implement a loyalty rewards
program:

Loyalty programs boost growth

No one loyalty program guarantees growth, and results can vary wildly, but the fact remains that
loyalty programs have consistently demonstrated an increase in real growth and customer
retention over time for numerous companies. If you aren’t making an effort to retain repeat
business, one of your competitors will.

The cost of loyalty programs is lower than you may expect

While programs to retain customers may seem like a major allocation of resources that may or
may not work, it is far less expensive than the cost of acquisition for new customers. A recent
article in Forbes magazine made the assertion that retaining existing customers can be up to 7
times less expensive than adding new customers. Sure, in the short term you will need to spend
additional funds to initiate and maintain a rewards program, but 700 percent savings in the long
term is hard to argue with.

Which loyalty program is more effective?

In terms of customer retention numbers and overall satisfaction, frequency rewards programs
outperform customer-tier programs every time. Long term, customer-tier programs don’t expire
and do not offer any incentive for customers to make further purchases once they have maxed
out their ability to rise to new tiers. Without the ability to earn additional benefits, customers
begin to look elsewhere.

Frequency rewards, on the other hand, offer customers fresh reasons to keep purchasing every
time, especially if you set expiration dates on their points (“use-’em-or-lose-’em points).
Customers don’t want to lose the benefits they have accrued with their previous purchases, so
they will often make purchases to avoid losing reward point benefits. Not only does this offer a
superior customer experience in terms of earning as you spend, but it also benefits your
business in making it easier to retain customers who have accrued a lot of points and don’t want
to lose out on their rewards by leaving or allowing them to expire.

Ultimately, your business needs to institute a customer rewards program in order to reduce
churn and reduce cost-per-acquisition in the long term. Given the high cost to onboard new
customers and the significantly less expensive option to spend a little now to retain customers
longer, your focus should be on keeping the customers you have while adding new customers at
a steady rate. Stop your churn cycle now, and offer your customers a quality frequency rewards
program. After all, the happier and more loyal your customer base, the better your long- term
prospects as a business. perQify can help you develop a custom program to service your businesses unique needs while also providing the strongest contact engine your business can have through SMS and MMS Text services to all your subscribers.

Contact us today at 330.449.0717 to schedule a no obligation free demo and consultation.

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