Loyalty programs play critical role in success

When companies begin thinking about how to spend their marketing budgets, loyalty programs should be considered an important aspect of their strategy. By creating a truly engaging system where the benefits of membership are clear and relevant, any business can create a more passionate customer base and improve its bottom line in the process.

There are few companies out there today that provide as strong proof for this idea as Starbucks. Loyalty360 noted that the leading coffee shop chain achieved an incredible 9 percent increase in same-store sales during Q3 2013. During the same quarter, profits rose by 25 percent, and Starbucks’ leadership believes its loyalty initiatives played a critical role in this significant success.

“Starbucks Q3 results represent the best across-the-board third-quarter performance in our 42-year history,” CEO Howard Schultz said in a conference call, the source reported. “Our more than 19,000 store global footprint, our fast-growing CPG [consumer packaged goods] presence and our best-in-class digital, card, loyalty and mobile capabilities are creating a ‘flywheel’ effect elevating the relevancy of all things Starbucks and driving profitability.”

Why loyalty works
But what is it about loyalty programs that is actually helping the company maintain its position as an industry leader? According to Business Insider, Joe LaCugna, director of analytics and business intelligence at Starbucks, explained at the recent Big Data Retail Forum in Chicago that a big part of the equation is taking a highly personalized approach.

Loyalty cards are beneficial to companies in a multi-faceted way: The more customers use these tools, the more insight the business gains into their habits and what they might want. From there, companies such as Starbucks use the information to “[set] up rules based on [members’] purchase behavior,” which allows them to determine which loyalty rewards to send certain individuals. LaCugna noted that often, these offers go to customers who are seen as at-risk of not returning, as showing these people they are cared about and their relationships with Starbucks are valuable through the right discounts and offers can bring them back from the brink. Members who are already highly loyal might not need to receive certain types of loyalty rewards as frequently, as Starbucks knows these customers intend to keep buying beverages even without constant incentives.

The way Starbucks segments customers based on data related to their past purchases can benefit any business, especially because it can save firms money. When companies know which particular loyalty problem members are more likely to consider leaving for a competitor, they can strategically send out discounts at the right time. Furthermore, this also means they won’t use up their budgets sending these offers to customers who are less likely to redeem them. The most loyal customers might be better served by other types of exclusive benefits, including gestures of appreciation that surprise and delight.

Additionally, having an excellent loyalty program improves customer experience, which can widen profit margins by making people more receptive to opening up their wallets. SalesForce pointed out that in its studies, only 10 percent of customers who are satisfied with their interactions with a business are concerned about price, compared to 74 percent of those whose expectations haven’t been met. The source stated that Starbucks is an excellent example of this concept in action. People are consistently willing to pay more for their drinks because the company provides them with higher-level care.

Implementing the right private-label loyalty program that supplies customers with highly personalized, valuable rewards is a recipe for success. Happy members fuel great results, and it’s never too late to start the journey toward a more successful, customer-driven business.

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