Courtesy of Richa Anand
- Customer loyalty programs incentivize customers to engage with and support their favorite brands.
- Two small-business owners told Insider their loyalty programs helped them create personalized experiences for customers.
- They found that making personal connections through loyalty programs garnered more repeat customers and better feedback.
- This article is part of "Marketing for Small Business," a series exploring the basics of marketing strategy for SBOs to earn new customers and grow their business.
About five years after Lemon Perfect launched its lemon water products, the founders decided to reward the company's most loyal customers. So in March 2022, they debuted a loyalty and rewards program.
The program works by awarding customers 10 points for every dollar they spend, which they can redeem for between $5 and $20 off their orders, Richa Anand, the company's director of brand marketing, told Insider. Customers can also rack up loyalty points for following the brand on social media, leaving a review, and referring a friend.
Anand said the program has been "essential to our ecommerce model" and that it keeps customers returning, helps them track customer preferences, and drives sales.
"Our loyalty and rewards program has led to a 90% repurchase rate from loyalty members," she said. "It has also incentivized consumers who do not yet have Lemon Perfect in their local retailer to shop online."
Loyalty, or reward, programs are marketing tactics that incentivize customers to make repeat purchases and keep engaging with a company. The programs might offer discounts, freebies, or perks like early access to new items in exchange for interacting with the company through purchases, referrals, subscribing to a newsletter, or following a business on social media.
Incentives can compete with convenience shopping
Customers who join loyalty programs are 64% more likely to purchase from that company multiple times, 50% more likely to recommend it to a friend, and 31% will pay more to shop with that brand, according to a 2021 McKinsey & Co study.
Courtesy of Clark Trim
"We knew that convenience was playing a very large role in where business was going and why it was going away from our store," Trim told Insider. "We started brainstorming and developing new ways to address that, and one was customer loyalty."
Colonial, which has been in business for more than 30 years, offers loyalty members one point per $1 spent, and when shoppers reach 250 points, they get a $2.50 discount.
However, Trim calls the program "bare bones," and is working to revamp it in the next couple of months to include a tier system, and offer extra points for referrals and for purchasing specific products.
Learning about customers helps provide personalized experiences
Loyalty programs are a source of customer data and insights, giving companies a holistic picture of their customers, according to McKinsey & Co. Businesses typically ask customers for personal details, like birth dates, email addresses, and other information about themselves when they sign up for rewards programs, so they can track their purchasing behaviors and preferences.
Businesses can use these details to better meet customers' needs, Trim said. "We look at customer loyalty like a learning machine. We learn all kinds of things from our customer loyalty program."
For instance, at Colonial Wines & Spirits, Trim can identify the customers who spend more on bourbon and create discounts or sales on bourbon just for them. They can also send deals to loyalty members to encourage them to visit the store during times when they know the store isn't as busy.
"We can develop campaigns that target those different segments," Trim said. "Some of the results that we can see from all this data is increased per-customer revenue, increased repeat purchases, and all of that equals increased profit."
When consumers feel like a brand understands their needs — for example, by recommending products based on past purchases — 83% are more likely to be repeat customers, according to a survey by Yotpo, an ecommerce marketing brand.
Customers who feel appreciated come back
Seeing customers return and continue to purchase from Lemon Perfect has been the biggest benefit of its loyalty program, Anand said. She credits the program's success with building a strong customer base and a foundation of customer service first.
"It's been incredible to see the rate in which our digital customers repeat their purchase," she said.
The Yotpo survey also found that loyalty programs accounted for more repeat customers than other touchpoints during the sales process, like having a positive experience using a brand's website.
"We see every day that customers like to be recognized and want to feel important," Trim said. "They like to get something a little extra and learn and experience new things. We've found from our loyalty program that when it comes to attracting and retaining good customers, the only thing that may be second to a strong loyalty program is excellent service."
Loyalty program members also tend to spend more with companies and refer them to friends and family, according to a Forrester report.
"A loyalty program is essential in building a business," Trim said. "It's not enough to just offer a great product and hope that customers come into your store. You have to do something proactively to get them into your store, and once you get them there, you have to keep them coming back. Perks are very important."