Jun 2, 2017

4 Effects of Implementing a Loyalty Program

Loyalty programs may seem like just a fun way to interact and engage with your customers, but the truth is that they're actually incredibly effective at achieving specific goals. Depending on how you structure your rewards program, you may see one or more of the following four effects of customer loyalty.

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The Longevity Effect

The longevity effect lengthens the lifetime value of customers by increasing their switching costs. Switching costs are the cost associated with moving to a new supplier. For instance, if you are a member of a hotel rewards program, you may put up with some inconvenience rather than switching to another hotel because you have points saved toward a free stay.

With a rewards program, your customers are more inclined to continue with you because they want to be able to use their points. One way to increase switching costs (and therefore, loyalty) is to create offerings that are valuable to your customers. Your loyalty program should keep them coming back for more.

The Blocker Effect

The blocker effect encourages loyal customers to “block out” messages from competitors. The blocker effect works this way: the personal value of being a loyalty program member is enhanced because the customer doesn’t need to spend any time or effort shopping around. Since the member isn’t shopping around, there is no need for them to pay attention to the marketing communications of a competitor.

The blocker effect is related to switching costs too. Members of your loyalty program may want to avoid the cost of shopping around, as well as the hassle of having to start over with a new program.

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The Spreader Effect

The spreader effect refers to the fact that members of a loyalty program are likely to try related products offered by a marketer. For example, a member of a health club’s rewards program who also earns points for retail purchases creates additional revenue for the club, as does the member’s purchase of a private training session for points.

The spreader effect becomes even more pronounced when a cross-promotion is added to the mix. If your rewards program is hosted by Perkville, you can use the Perkville Marketplace to promote your services in other loyalty programs and vice versa. Cross-promotions such as these encourage loyalty program members to try even more products from more producers.

The Accelerator Effect

Loyal customers buy products more frequently in order to move to the next level of their loyalty programs. This is called the accelerator effect. Businesses can capitalize on the accelerator effect by making it easy for members to track their progress and notify them when they are close to reaching subsequent rewards.

To improve frequency at your business, activate the Frequency Bonus to reward customers who hit weekly or monthly targets. For example, a yoga studio can incentivize members to attend class an average three times a week by offering a frequency bonus when the customer attends their 12th class in a month.

The accelerator effect can also be used with promotions that create short-term, loyalty behavior. For example, a retail business may use a Promotion Bonus to reward double points for a weekend promotion to get customers closer to rewards.

No matter what leg of loyalty you're looking to account for, having a rewards program in your business can bring you closer to your goals. 

Learn more about loyalty programs