Here's How Loyalty Programs Can Enhance Customer Retention


Apr 16, 2023 • 7 min read

loyalty program dan customer retention

Customer retention is an important key for every business in achieving long-term success. This is because retaining existing customers is more cost-effective than acquiring new ones.

However, how to enhance customer retention? One of the solutions you can approach is to have a customer loyalty program.

Loyalty Programs and Customer Retention

Loyalty program is a program designed to retain loyal customers by providing certain rewards or incentives for customers who have purchased products or services from a company.

Then, what is the role of loyalty program in enhancing customer retention?

1. Increase customer loyalty

Loyalty programs are designed to provide benefits for loyal customers. With a loyalty program, customers tend to be more interested in buying products or services from the company because they feel valued and recognized as loyal customers.

This is not just an assumption because according to a study by Bond, 79% of loyal customers said that loyalty programs make them more likely to make repeat purchases from the same company.

2. Increase purchase frequency

Loyalty programs can also help increase the frequency of purchases from customers. By providing certain incentives or rewards, such as points that can be redeemed for rewards or special member discounts, customers tend to buy products or services from the company more often.

This is in line with the results of a study by Accenture which found that 77% of loyal customers said that loyalty programs made them more likely to make more frequent purchases.

3. Increase basket size

Loyalty programs can also help increase the basket size of customers. By providing certain member-specific rewards or incentives, such as discounts or free gifts, customers are more likely to purchase higher value products or services.

Interestingly, according to a study by Colloquy, customers enrolled in loyalty programs tend to spend 13% more money than casual customers.

4. Increase profitability

In the long run, loyalty programs can help increase the profitability of a business.

By retaining loyal customers, companies can save on marketing costs to find new customers. In addition, loyal customers also tend to buy products or services at a higher value, which can increase the company's profit margin.

According to a study by Bain & Company, a 5% increase in customer retention can increase a company's profitability by 75%. This shows how important customer retention is in increasing business profitability, right?

5. Increase brand advocacy

Customers who feel valued and given incentives or rewards through loyalty programs tend to become more loyal and form strong emotional relationships with brands.

This can have a positive impact on promotion and brand advocacy because loyal customers tend to recommend brands and products they like to people around them.

According to a survey by Forbes, 92% of consumers say that recommending products to others is the most effective action in influencing purchasing decisions. Therefore, an effective loyalty program can help companies build strong brand advocacy and significantly increase customer loyalty.

6. Reduce new customer acquisition costs

Acquiring new customers usually costs more than retaining existing customers. According to Bain & Company, retaining existing customers can reduce new customer acquisition costs by 25%-95%.

An effective loyalty program can help companies reduce these acquisition costs by retaining existing customers.

By providing certain rewards or incentives, customers tend to be more loyal and will not switch to competing brands, so there is no need to focus too much on attracting new customers because existing customers also provide good margins for the business.

7. Companies can make informed decisions based on data

Loyalty programs can also help companies gain valuable customer data, such as purchase preferences, purchase behavior, and demographics.

By analyzing customer data obtained through loyalty programs, companies can identify customer trends and preferences, and develop more effective and efficient marketing strategies.

According to Accenture, companies that use customer data effectively can increase profitability by 20%-30%. Therefore, a well-designed loyalty program can help companies acquire and use customer data more effectively, thereby increasing long-term success and profitability.

How to Effectively Use Loyalty Programs to Increase Customer Retention?

To ensure that a loyalty program really has a positive impact on customer retention, there are several tips to keep in mind.

1. Know your customers well

Companies must be able to understand customer preferences and needs, and find out what makes them feel valued.

By understanding customers, companies can design loyalty programs that are more targeted and meet customer needs.

2. Create a program that is easy to understand

Loyalty programs that are too complicated or difficult to access can lead to customer frustration and reluctance to participate. Therefore, companies should ensure that loyalty programs are easy for customers to understand and widely accessible to customers.

The company should provide clear and easy-to-understand information on how to participate in the loyalty program and how to earn points and rewards.

3. Provide the best rewards based on customers’ preferences

One important element of a loyalty program is providing the right rewards or incentives to loyal customers.

The company must ensure that the rewards match the customer's preferences and needs. Inappropriate rewards can worsen customer perception and damage the company's reputation.

4. Continuously innovate and improve the program

An effective loyalty program must continue to innovate and improve itself to remain relevant and attractive to customers. The company should always monitor the performance of its loyalty program and make changes or adjustments according to customer feedback.

5. Effective communication

The company must communicate the loyalty program effectively to customers. Clear and regular communication about rewards, incentives, and program changes will help customers feel valued and involved in the program.

The company should provide communication channels that are easily accessible to customers, such as email, WhatsApp, push notification in the app and so on.

Wrap up!

Your existing customers are a valuable asset for increasing your profits, as they are more likely to purchase from you than one-time customers.

To make the most of this opportunity, you need a tool to cultivate and maintain your relationships with these customers – a loyalty platform like Tada.

By implementing a loyalty program, you can efficiently collect and organize customer data, track customer engagement activities, and manage your sales pipeline. This data can then be leveraged to not only retain customers, but also increase their satisfaction and drive profits - all while reducing the costs associated with acquiring new customers.

Ready to get started? Request our free demo now to see how Tada's game-changing solutions can be a game changer for your brand.

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