It is well established that selling to an existing customer is about five times cheaper than to acquire a new customer. 44% retailers (or SaaS vendors) focus more on customer acquisition, 40% give equal focus to customer retention, and only 16% give more emphasis on retention. Not only that, but existing customers spend 67% more than new customers and as research shows, a modest 5% increase in customer retention can increase profits anywhere from 25% to 95% (source: The Economics of E-Loyalty).

Add the fact that the existing customer is indifferent about the marketing and advertising campaigns focused on benefits of the product or service. Given the limited avenues, it becomes hard to provide the customer with additional value, especially in the services industry where the product does not change.

One way to deal with this challenge is Loyalty Management:  a series of activities aimed at better serving customers, by further adding value. It explores ways to make a customer move up the relationship pyramid towards being an advocate for the brand. “Loyalty exists when a person regularly patronizes a particular (store or non-store) that he or she knows, likes and trusts.”

Loyalty programs though are marketing strategies rolled out by retailers to encourage users to continue using the services and products, they frequently involve elements of relationship management and brand management.

Who should use loyalty management?

  • Services with low barriers to entry
  • Services related to finance or payments
  • Brands looking for brand loyalty
  • Services depending on advocacy for customer acquisition, reviews

Multiple brands now use mobile apps to drive customer loyalty. They do not just target a rewards program but introduce additional services for customer satisfaction. These include examples like Amazon Prime (includes faster delivery, music, videos, discounts, cloud storage), Starbucks (provides advance order, payments, music and knowledge about coffee) and multiple airlines with their red, silver and gold tiered memberships (includes more miles, discounts, priority service, exclusive club).

How should loyalty management function and what should be the rewards?

 Loyalty management programs are about adding value to the customer. HBR categories ‘value-adds’ as Functional, Emotional, Life-changing and with Social impact. While functional value adds are easy to perceive, emotional elements may include rewards or freebies, therapeutic or wellness (e.g. music), badges etc. Life-changing elements provide motivation, hope, affiliation/belonging (e.g. mile-high clubs). In general, the more elements that are provided, more significant is the loyalty.

The elements selected in a programme should be based on the Japanese concept of ‘ikigai’ which asks the following

  • What you love? (company’s vision)
  • What are you good at? (company’s expertise)
  • What can be paid for?
  • What the world (user) needs?

Saksoft has developed and deployed a loyalty program for the most significant bank in India and implemented it across products and services. Know more here