Discover how to build loyalty marketing strategies that keep your customers coming back by exploring the latest trends shaping the landscape. In the marketing world, it’s widely recognised that acquiring a new customer can cost five times more than retaining an existing one. Another prevalent concept is the Leaky Bucket Theory, which suggests that businesses are continually losing customers. To maintain their market share, businesses must attract an equal number of new customers to plug this figurative leak.
Clearly, addressing this issue is essential for ensuring sustainable growth, both in the short and long term. This is where loyalty marketing and loyalty programmes come into play—a business strategy that aims to retain and engage customers by offering rewards, bonuses, incentives, and personalised experiences to foster long-term loyalty and repeat purchases.
The History of Loyalty Marketing Schemes
Loyalty marketing schemes are not a novel concept. Their origins can be traced back as far as the 18th century when American merchants offered copper coins or tokens to returning customers for redemption in their stores. As we move forward a few centuries, we encounter the first modern loyalty programmes in the 1980s. For example, ‘AAadvantage’ was one of the pioneering loyalty programmes introduced by American Airlines. Its primary goal was to eliminate travel agents from transactions and motivate customers to book flights directly through American Airlines. Frequent fliers were offered free flights based on miles flown on flights booked directly with the company. These programmes laid the foundation for the loyalty marketing we know today.
Fast forward a few decades, and we find ourselves surrounded by companies offering lucrative loyalty and engagement schemes.
Let’s explore 5 current loyalty marketing strategies companies use to retain their customers:
1. The Role of Subscription
This business model charges customers on a recurring basis for access to products or services, often monthly or annually. For businesses, it ensures a steady stream of revenue and encourages ongoing customer relationships. Loyalty marketing plays a key role in the subscription business model by focusing on customer retention. It involves creating personalised experiences, offering exclusive rewards, and maintaining customer satisfaction to reduce churn (cancellation of subscriptions) and encourage long-term commitment. Companies that truly prioritise subscriptions tend to shift their entire focus toward enhancing the customer experience, ensuring stable growth, improved perceptions, and brand recognition. Today, we can use subscription for many purchases that never required this before. PactCoffee offers coffee beans subscription to households; Hotel Chocolat offer home barista and/or chocolate subscription.
2. Loyalty Partnerships
Brands often collaborate on loyalty programmes to jointly offer benefits to customers. They aim to provide value and also benefit from expanded reach and brand awareness. For example, O2 partners with Greggs, offering O2 customers vouchers via their Priority app for weekly free snacks and pastries at Greggs. Both companies benefit from this arrangement. While O2 adds value to its existing customers, Greggs reaches new customers and attracts them to their stores.
3. Gamification
Gamification enhances the digital experience within loyalty programmes, aiming to make brand interactions more engaging and enjoyable. Lidl, for example, has been popularising the Lidl Plus loyalty app since 2020. In addition to discounts and point collection, the app features digital scratch cards, allowing customers to win discounts on relevant products and freebies, introducing an element of fun to the loyalty experience.
4. Personalisation
By leveraging AI, businesses can use personalisation to offer better-tailored loyalty programmes that make more sense for their customers. Marriott’s Bonvoy app, for instance, provides tailored experiences, recommending hotels, rooms, and special offers based on past behaviour, loyalty status, and location. The app aims to be a useful travel tool, simplifying booking, check-in, and travel based on personal preferences.
5. Mixing Digital and Physical Experiences
Customers now expect a seamless transition between their physical and digital brand interactions, giving rise to the ‘phygital’ concept—blending both realms. In the context of loyalty, customers expect the brands they engage with to understand them and offer extra support. Actions such as self-checkout, using the company’s website and app in-store for better browsing, or scan-and-go are becoming essential for many brands in delivering a cohesive and satisfying customer experience.
Wrap Up
These 5 loyalty marketing strategies represent just a few examples of the evolving landscape of loyalty marketing in 2023. Surely, we can expect a lot more innovation from brands competing across the digital and physical space.
This post was written by Kalust Manukyan a lead tutor at Oxford College of Marketing. If you are interested in finding out more about how to successfully deploy loyalty marketing campaigns, why not check out our range of marketing courses.