Loyalty programs may seem like a fun way to interact with your customers. The truth is that they're actually effective at achieving specific goals. In this post, we'll discuss four effects of implementing a customer loyalty program. Keep reading to learn more.
Longevity Effect
The longevity effect increase customer lifetime value by upping their switching costs. Switching costs are the cost associated with moving to a new company's products. For example, a hotel rewards program member may endure some inconvenience rather than spend money at another hotel. They already saved up points toward a free stay. Existing customers are more inclined to continue with you to use their points.
One way to increase switching costs (thus, customer retention rate) is offerings that make customers feel valued. A retail store may offer discounts to reward customers for spending more money. A gym may have guest passes as a reward so members can bring in new customers. Your loyalty program should encourage repeat purchases and referring friends.
Blocker Effect
The blocker effect encourages loyal customers to “block out” messages from competitors. It works this way:
A value of being a loyalty member is customers don't need to spend time or effort shopping around. Since your customer base isn’t shopping around, they ignore messages from competitors.
The blocker effect relates to switching costs too. Rewards program members usually want to avoid the cost of shopping around. They also don't like the hassle of having to start over with a new loyalty rewards program.
Spreader Effect
The spreader effect refers to loyalty members try related products from a marketer. For example, spa customers who also earn points for retail purchases, creates more revenue for the business. Same for gym members that buy private training sessions for points.
The spreader effect becomes even more pronounced when cross-promotion adds to the mix. If your rewards program is hosted by Perkville, you can use it to promote local partnerships. Cross-promotions encourage loyalty program members to try more products from more producers.
Accelerator Effect
Loyal customers make more repeat purchases to move to the next level of reward programs. This is the accelerator effect. Many businesses can capitalize on it by:
- Making it easy for customers to track their reward progress
- Notify customers when they are close to reaching subsequent rewards
You can encourage the accelerator effect at your business with a frequency bonus. Customers get rewarded when they hit weekly or monthly targets. For example, a yoga studio can offer a bonus for 12 classes attended in a month to motivate customers to come in 3x a week. You can also use a Promotion Bonus to drive short-term, customer behavior. For example, a retail store may host a double points weekend to get customers closer to rewards.
No matter what leg of loyalty you're looking to account for, having a rewards program can bring you closer to your business goals.
Learn more about loyalty programs
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