Why a Customer Loyalty Program Drives More Sales

It’s common knowledge among marketers and business owners that 80% of your company’s profits come from only 20% of customers.

This means customer loyalty goes a long way. If you can keep customers engaged with your brand, they’ll keep coming back or stay for the long haul.

But engaging customers enough to keep their loyalty is often easier said than done. How do you actually encourage customers to stay with your brand and improve sales?

So in this post, we want to show you a few things. First, we give you some compelling reasons why a customer loyalty program actually generates more sales for your business.

Then we walk you through the steps to set up your own program and wrap up with best practices to ensure you get your customer loyalty program right the first time.

How Customer Loyalty Programs Generate Sales

As promised, let’s take a look at why customer loyalty programs actually work to encourage more sales from existing buyers of your brand. We narrow it down to three reasons.

1. Reframes existing buying behaviors
2. Encourages referrals
3. Provides brands with valuable user-generation content (UGC)

1. Reframes existing buying behaviors

First, customer loyalty programs drive long-term sales growth by influencing customers' buying habits.

So next time this customer might go shoe shopping again, they may remember the great offer you promised — all because your customer loyalty program compels them to make the most of a generous deal.

They’re more likely to want to check your online store first for any new pairs that suit their fancy, even before any other store.

And sometimes, even if they find similar pairs from other brands, because you offer something extra to make their purchase more special, the chances are higher that they check out the pair of shoes from your store over anyone else’s.

Real-world examples highlight how this plays out effectively in practice. Gidon Sadovsky, founder of Overnight Glasses, a same-day glasses delivery store, implemented a loyalty approach that rewarded repeat buyers with faster service and exclusive perks.

Similarly, tools like Eyebuydirect’s virtual try-on for glasses demonstrate how digital features can enhance convenience and keep a brand top of mind for customers.

2. Encourages referrals

Depending on your customer loyalty program mechanics, you might be able to turn repeat customers into brand champions.

This means customers aren’t just repeat purchasers; they also encourage their peers, friends, and network to buy from your brand.

And this could become a virtuous cycle of getting new customers through referrals, turn them into loyal fans, and make them brand champions who attract more new customers.

Many customer loyalty programs, as you’ll see in the next section when we talk about the steps you need to create one, don’t have to be complex.

They can be as simple as rewarding customers with a promo code for sharing. Alternatively, you can offer them a generous incentive if they successfully refer a new sale.

3. Provides brands with valuable user-generated content (UGC)

In customer psychology, we know that social proof and testimonials are fantastic ways to increase sales. We also mentioned earlier that loyal customers are more likely to become champions and refer others to your brand or service.

One way this can work well is that loyal customers may talk about your brand through content they post on their personal social media accounts.

If a customer is keen to earn more rewards through your referral program, they will share their personal story or testimonial with their network. They may talk about their experience since buying or share their favorite things about your brand.

No matter what content they create, make the most of it. Turn these into user-generated content to post or share on your social media channels.

Source: wedevs

User-generated content can take many forms, leveraging customers’ experiences and creativity.

In the example above, Starbucks previously launched the White Cup challenge to encourage users to doodle on their plain white coffee cups, driving sales of the limited-edition white cups among loyal and creative customers.

5 Steps to Create an Effective Customer Loyalty Program

1. Set a clear goal for your customer loyalty program
2. Solicit feedback from existing customers
3. Identify customer actions to reward
4. Choose a rewards system
5. Set up the redemption process

Now that you’ve seen how a customer loyalty program can truly generate more sales for your business, it’s time to see how to make one yourself.

We’ll keep it simple with 5 steps to help you create an effective customer loyalty program that keeps customers coming back for the long haul.

1. Set a clear goal for your customer loyalty program

Goals and metrics are key to any marketing campaign. Your customer loyalty program is no different.

The goals you set for your customer loyalty program will influence the actions you take to launch and promote the program, so be very clear on what you want to achieve with this tactic.

2. Solicit feedback from existing customers

Next, speak with your existing customers. This can be a great time to get into their heads and ask about their experience with your brand and products.

What do they like most? What do they dislike? What’s something they would love to get from your brand?

Make the most of this opportunity by also asking about their purchasing habits outside of your brand. Do they buy from your competitors? If so, what do they purchase, and how often? And why do they purchase from the brands that they do?

Any insight you can gain about your customer goes a long way. Make it as easy as possible to collect data and information.

Use form builders to create a customer survey for collecting mass responses, or invite a few willing customers on a more detailed phone call.

Use POWR’s free online form builder to collect customer feedback faster and easier.

3. Identify customer actions to reward

Once you’ve set your goals and gathered customer insights, it’s time to develop your customer loyalty program.

For example, if you know that loyal customers purchase your physical goods at least once every quarter, you might want to set up rewards if they make a monthly purchase or reach a certain number of purchases in a quarter.

If you run a software company or sell digital services, you might want to reward customers for successfully referring new customers to you.

Here are a few other ideas for customer actions you might want to reward:

• Social sharing
• Daily or regular action in your app or software
• Completing a checklist or onboarding process
• Purchasing specific products from a particular collection
• Participating in a challenge

4. Choose a rewards system

Once you’ve identified which customer actions you want to reward, you can now move on to picking out a rewards system for them.

There are several ways to reward customers for specific actions. We go through a few examples here.

Points system

For each specific action a customer takes, they receive a set number of points. Points can then be redeemed for great prizes, such as free items or significant discounts.

Source: The North Face

The North Face has a simple rewards system where customers can redeem points at its online shop or in-store.

Tier system

In a tier system, customers are challenged to unlock tiers that unlock additional rewards. To reach a tier, you might encourage customers to hit a certain threshold, either in purchases or points.

Source: e.l.f.

Beauty company e.l.f. rewards loyal customers with a tiered system that improves with each unlocked tier.

Cashback system

In a cashback setup, customers will get something in return by supporting your brand, particularly cashback as credit for future purchases in your store.

This means customers can choose when to redeem their credit for future purchases and receive a significant discount.

Source: Gap

The Gap has an interesting cashback program that rewards customers with their own in-store “currency” called Gap Cash, which works just like a points system but can be used as cash for future purchases.

Freebie system

Sometimes, a customer loyalty program is simple at its core: for every purchase a customer makes, you give them a freebie they couldn’t otherwise get if they shopped for the same thing somewhere else.

This is especially effective if your company retails products from other brands or curates products and services in a single store or marketplace.

Charity system

Not all customer loyalty comes from getting free gifts and perks.

Some customers might be encouraged to support your company if they knew that their purchases or loyalty went to a good cause they also support.

The Body Shop allows customers to redeem loyalty points for donations to its partner charities.

5. Set up the redemption process

Finally, now that you’ve chosen your rewards system, it’s, of course, time to set up your redemption process so customers can easily redeem rewards.

For many rewards systems, features such as tracking points or cash back are automated, so customers can simply redeem their rewards in stores.

Accounting tools can work great together with POS systems, ecommerce store payment providers, and rewards program tools to track each transaction, automatically dispense points, and record when customers redeem rewards.

If you have a catalog of items eligible for rewards, create a separate category page in your online store so shoppers can easily purchase them.

Best Practices to Observe For Your Customer Loyalty Program

1. Always focus on providing value
2. Double down on your customer experience
3. Make your mechanics clear and easy to understand

Let’s wrap up this post with some best practices that are key to the success of your customer loyalty program, especially in the long term.

1. Always focus on providing value

Another tip to ensure the success and returns of your loyalty program is to keep giving value. A good rule of thumb is that the value customers derive from your loyalty program must outweigh the cost.

Value definitely pertains to the rewards themselves, but try to think outside the box. We’ll tackle this more in the next section below.

2. Double down on your customer experience

Finally, customer experience is absolutely key — not just in customer loyalty programs but especially so.

This also points back to value. If your customers don’t feel they’re having a great experience with your loyalty program, they’re unlikely to participate or continue engaging.

Make it easy for customers to ask questions or contact your brand with any queries, concerns, or complaints.

Identify proactive ways to improve the customer experience rather than waiting for issues to arise.

Can you make your redemption process even easier or better? Can you implement changes that make customers feel even more special when they shop with you?

3. Make your mechanics clear and easy to understand

Nobody likes confusing loyalty programs.

The harder it is for customers to understand how and what they might get from your program, the less likely they are to participate.

It’s also worth noting that customer data is becoming a bigger concern for consumers, so don’t forget to be transparent about how your loyalty program uses your shoppers' data.

Key Takeaways

Customer loyalty programs can be the one thing that turns a casual customer into a customer for life. Of course, the success of your own loyalty program depends on your planning and implementation.

Follow the tips above to ensure you launch an effective customer loyalty program that drives sales among the most engaged consumers.

FAQ

Author Bio

Kevin Payne is a content marketing consultant who helps software companies build marketing funnels and execute content marketing campaigns to drive inbound leads.