In the US, there is currently a staggering 3.8 billion memberships spread across numerous customer loyalty programs. You may be asking yourself, why are so many brands investing in this tried-and-tested customer strategy still when there are more innovative solutions available.

Although the approach has been in place for decades, the dynamics of loyalty programs are always changing to appeal to the interests of newer audiences, meet the needs of the moment, and keep up with the ever-increasing competition.

What Is Customer Loyalty?

Loyalty among customers is defined as the act of consistently choosing the products and services of a certain company above those of its competitors. When someone is loyal to a certain company their purchasing decisions are not impacted by price or availability considerations. Most people would rather wait – and even pay more – to receive the same product and quality of service that they are accustomed to and value.

How Customer Loyalty Programs Work

A customer loyalty program is a marketing strategy that recognizes and compensates customers who make repeat purchases or engage with a brand on a regular basis. Customers who spend more money with a company may be rewarded with points or privileges, and their loyalty levels may rise as a result. As such, loyalty programs can have lasting effects on customer retention.

Advantages of Loyalty Programs

1) They establish an emotional connection. For example, curating a variety of third-party promotions (such as access to restaurants, theaters, spas, and merchants) can help to create a sense of community and a “lifestyle” perception among customers, which will aid in emotionally connecting them to your business. If you’re able to combine this with personalization, the impact will be even greater.

2) They create repeat customers. Existing customers are 50% more likely than new customers to try new products. They also spend 31% more per purchase. And attracting a new customer can cost five times as much as keeping an existing one. Finding new customers is important for growth, but keeping existing ones is the key to long-term success. A customer loyalty or incentive program can help you prevent high turnover rates by building important, long-term relationships with existing consumers. (It’s also a cheap way to boost sales.)

3) They engage customers. Customer engagement has a direct impact on the long-term viability of a brand. A brand that fails to connect with its target audience has a low recall value – and has difficulty establishing a trustworthy image in the marketplace. A customer loyalty program is an excellent method of promoting client involvement. When customers are members of a loyalty or rewards program, they are more receptive to receiving emails or other marketing materials from the business. These programs can provide comprehensive client engagement and contribute to the strengthening of the relationship between the brand and its customers.

4) They create brand advocates. A satisfied customer is a happy consumer. Implementing an effective and relevant customer loyalty program can help nurture brand advocacy through a loyal customer base. Brand advocates have a favorable impact on their network of family and friends, and serve as an ambassador for the brand’s message. A referral program can aid in the creation of brand supporters as well as the generation of additional referrals.

5) They deliver insights. Loyalty programs should be designed to provide the greatest possible benefit to your customers – while also benefiting your business. Today’s digitized rewards programs give you access to real-time data about how your customers interact with the program and with your brand as a whole. This information allows you to design unique and successful ways for boosting not only your loyalty program but also your reputation.

Digital features enable you to experiment with different incentives, find the prizes that are most appealing to specific types of clients, and detect the rewards that aren’t receiving as much attention. Rewards programs can also help you gain a more personalized perspective on your customers’ purchasing habits.