Retaining customers and growing customer loyalty is not an easy task, but it's far less expensive than acquiring new customers. In fact, the odds of selling more products to existing customers is 60% - 70% higher than getting brand-new customers to even walk into your store or visit your ecommerce website. With odds like that, it's no wonder that customer loyalty rewards programs have become so popular among retailers.
U.S. consumers collectively have 3.8 billion customer loyalty program memberships.
Customer loyalty is critical for the success and longevity of your business, regardless of what industry you serve. But when it comes to implementing a loyalty program in order to retain customers, retailers must ask themselves whether a traditional or digital loyalty program will best help them achieve their business goals. These two types of customer loyalty programs have not been created equal. Read on for a comparison of the two so that you can make an informed decision about which one you would like to invest in.
PROS OF TRADITIONAL LOYALTY PROGRAMS
"Traditional" customer loyalty rewards programs are the original loyalty programs. No-tech, low-tech, and extremely easy to understand, these programs include either a paper punch-card or plastic scan card, and they typically follow a structure of "buy #X, get 1 free" that many coffee shops, for instance, have made popular.
71% of consumers join loyalty programs for discounts-off-every-purchase rewards while 63% of consumers join to get free products as their rewards.
There are real benefits to using a traditional loyalty program over a digital one. Here are the four top reasons to launch a traditional customer loyalty rewards program.
Easy to Implement
Traditional loyalty programs are as straightforward as they come, just make sure your staff has enough paper punch cards printed and ready to go. If you've upgraded from paper to plastic scan cards, the sign-up process for new enrollees is fast using your retail POS system.
Simple to Use
Setting up promotional sales strategies is very simple with traditional loyalty programs. Stick to rewards like one free item after a predetermined number of items have been purchased, and an exact discount percentage. This way, the program will be easy for your employees to explain and easy for your customers to understand.
No Graphics Required
Typically, traditional loyalty programs revolve around either paper punch cards or plastic scan cards, and the earned rewards balance is generally printed on the customer's receipt with every transaction. This means that there's no need to create digital images and graphics as part of your marketing efforts.
Inexpensive to Maintain
If you have limited funds and resources at your business, then a traditional loyalty program will better align with your budget than a digital program. Rather than investing in website design and app development, you merely have to cover the cost of printing paper or plastic cards.
CONS OF TRADITIONAL LOYALTY PROGRAMS
Though traditional loyalty programs can serve your business goals and effectively cater to your less technology-savvy customers, there are downsides to using this type of program, as well. The popularity and familiarity of card-based loyalty programs could result in your customers having a loyalty card for every store they've ever set foot in, which means you don't actually have an edge over your competition.
56% of shoppers abandoned a potential purchase after learning their points had expired.
Another downside is the risk of members losing their earned points due to rewards expirations. Loyalty members are more likely to miss out on redeeming their points when checking their account balances isn't so easy to do. Unlike with digital programs where members can open the loyalty app on their smartphones and with the touch of a button see their balance and how long they have to redeem their points, traditional programs require far more effort to see these kinds of simple stats.
Cannot Collect Data
The more personalized and targeted a loyalty campaign, the more successful it is, and unfortunately, traditional loyalty programs are not able to collect the valuable customer data that digital loyalty programs can. This means that a traditional program can only offer broad rewards incentives that speak to the lowest common denominator of their customer base.
People rarely forget their mobile smartphones when venturing out, but they do forget their loyalty cards from time to time, especially paper punch cards. Plastic scan cards can be misplaced just as easily, though mini scan cards that attach to car keyrings fare significantly better in terms of always being within a customer's possession.
Loss of Earned Points
When a loyalty rewards program is set up with expiration dates on earned points, the loyalty member must keep an eye on those expiration dates and be sure to redeem their points before they expire. This can be harder to do with a traditional loyalty program because the member has to do a lot of legwork to see the details of where their points stand.
Prone to Fraud
Most unfortunately of all, traditional loyalty programs are prone to fraud far worse than digital programs. Paper punch cards can be fraudulently punched, and member accounts that stem from plastic scan cards can be hacked due to the fact that they're connected to online POS systems that can be breached by experienced scammers.
PROS OF DIGITAL LOYALTY PROGRAMS
"Digital" customer loyalty rewards programs are either website based, app based, or both. These days, consumers have grown accustomed to relying on their smartphones to do just about everything from checking their bank balances, buying a cup of coffee, navigating their trips to new locations, and even leading them through guided meditations during their spare time. For technologically-inclined individuals, only a digital loyalty program will do.
78% of consumers prefer digital rewards programs they can access online, compared to 22% who prefer their rewards incentives by mail.
Digital loyalty programs that are web and app based, and have been built with machine-learning A.I. (artificial intelligence) have the power to make the lives of business owners and loyalty members much simpler and much more rewarding. With a comprehensive app in place, your digital program can save you time, money, and headaches, as well as save your customers money while exciting them about your products, services, and brand.
Digital loyalty rewards programs encourage customer interaction thanks to the convenience and accessibility that apps can offer. When members receive push notifications that contain promotions for products that are personal to them, they will be more likely to act on those promotions, which means increased engagement and sales for your store.
Collects Customer Data
When you are able to track your customers' shopping activity, record what items they buy and how much money they spend per visit, you can leverage that information into personalized promotional campaigns. Collecting this kind of customer data is only possible with a digital loyalty program.
Artificial intelligence and machine learning are the greatest technological advances to impact digital loyalty programs. Rather than business owners having to monitor their customers' purchasing histories and analyze shopping trends, the A.I. capabilities of digital programs can handle all of that and implement smarter marketing as a result.
Successfully Circulate Points
Ideally, you want your loyalty members to quickly redeem their earned points and keep those rewards points circulating through your store. Thanks to the immediacy of the communication methods that come with digital loyalty programs, i.e. SMS text message and mobile app push notification capabilities, you can automate targeted promotions to members every time there's an incentive relevant to their interests.
CONS OF DIGITAL LOYALTY PROGRAMS
While digital customer loyalty rewards programs are forward-thinking and represent the future of where all loyalty programs will soon end up one day, currently there are downsides to this type of program, too. Not all consumers are tech-savvy. A digital program that comes with a mobile app will surely attract millennials, but it could just as surely repel older generations that haven't fully embraced digital technology. It could also repel consumers of all ages who have begun to reject developing technologies for altruistic reasons. It might be hard to fathom, but not everyone is comfortable with the labor conditions that contributed to the manufacturing of their i-Phone, for example.
48% of consumers blocked or disabled SMS text messages and app push notifications when their loyalty program contacted them too often with sales promotions.
Even for a consumer who eagerly signs up for a digital rewards program, if that program contacts them too frequently with texts or push notifications, the consumer could drop out of the program just to avoid the spam. Just because members are easy to reach, doesn't mean they want to receive a plethora of sales promotions.
Requires Campaign Design
Unlike traditional loyalty programs that print rewards balances on receipts and keep things physical rather than virtual, digital programs are almost entirely virtual, which means that visuals matter. Your loyalty website will require design, as will your loyalty app. Every promotional campaign that goes out must include photos, images, and graphics.
Must Frequently Launch New Promos
In step with creating stunning graphics to accompany your digital marketing efforts, you will be responsible for launching new campaigns when new products, services, discounts, and other promotions arise. Whether you can commit to contacting members via emails, text messages, or push notifications daily, weekly, or monthly in order to keep them engaged, you will have to maintain the frequency.
Includes Development Costs
Digital loyalty programs are significantly more expensive to get off the ground than traditional programs. You will have to either hire website and mobile app designers or go with white label companies to handle your website and app. And you may have to hire an in-house employee to generate and manage your loyalty campaigns if you don't have time to oversee the day-to-day of the program yourself.
More Capabilities Means More Administration
In addition to the actual cost of potentially hiring an in-house marketing manager for your digital loyalty program, you will also end up dedicating your own time as well as your employees' time to properly training your staff on how to tell customers about the program. Also, someone will need to monitor and assess the strengths and weaknesses of each promotional campaign. In other words, the greater the technology, the more administration will be required to manage it.
BUILD CUSTOMER LOYALTY
It's possible to build customer loyalty whether you've implemented a traditional program or a digital one. If you would like a more in-depth look at how to build loyalty, now would be a great time to read How to Grow Customer Loyalty for the New Year and Strengthen Customer Loyalty with a Mobile App. Otherwise, here are the bullet points of what to focus on when structuring your customer loyalty rewards program:
- Listen to what your customers want
- Make it easy for members to redeem points
- Give members access to everyday benefits
- Personalize the rewards incentives
- Don't be spammy with your promotions
- Provide "surprise and delight" rewards
- Give members a reason to speak positively about your brand
- Award points to members who promote your brand on social media
- Don't schedule earned points to expire too soon
- Make sure rewards are truly exclusive to loyalty members
So, which type of loyalty program are you going to implement, traditional or digital? Hopefully, this Loyal~n~Save article has laid out helpful information to assist you in weighing the options. If you would like an expert assessment of your business from one of our loyalty strategists to help you determine what would be best for your customers and your business, you can Contact Us anytime.
This article was written by Loyal-n-Save, an omni-channel customer loyalty solution for retailers looking to increase customer retention and new customer acquisition.