Want to Know How to Build Customer Loyalty?

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Want to Know How to Build Customer Loyalty?

By Allan Haims, CEO, StepsAway - 05/31/2016
Recently Starbucks was named to Fortune magazine’s “Top 10 World’s Most Admired Retailers,” along with other giants like Apple, Amazon and Target. For years Starbucks has run a successful loyalty and rewards program, totaling an impressive 11 million members. The incentive program is designed to attract new customers and keep them coming back for more.
 
The gist of the program is that customers earn one point or “star” for each purchase they make, regardless of the amount of money they spend. For every dozen stars collected, a reward can be redeemed for a variety of items at different price points.
 
However, beginning in April, Starbucks announced that they are revising the current program. Going forward, the company will reward customers for the amount of money they spend rather than the number of purchases they make. Based on the social media response, many loyal customers don’t view this as a greater incentive to frequent Starbucks, but rather as a negative.
 
Not Your Average Loyalty Program
 
If you have visited a Starbucks, you no doubt have experienced long lines  - even long enough to walk away. Starbucks does not have a customer acquisition challenge. They’ve already created an extremely loyal customer base. Their challenge is to generate more revenue per customer. The upcoming modified rewards program incentivizes their loyal customers to spend more to earn their free reward. Hence, the focus for the retailer has shifted away from increasing the number of transactions to generating higher average dollar sales.
 
With the old program, one only had to earn 12 stars to receive a reward, but under the new program one would need to spend $62.50 to earn a reward. The motivation and cost to add up those stars will perhaps cause some current customers to more readily go elsewhere or at least visit less frequently.
 
An Engaged Customer is a Loyal Customer


But, Starbucks clearly garners loyalty and frequent visits that extend beyond just the “stars.” Loyalty at Starbucks is the result of offering benefits that their core demographic of customers are interested in. Starbucks was one of the first retailers to offer free Wi-Fi in their stores, originally offered to only AT&T customers but then transitioned  to Google Wi-Fi, which has not only faster connection speeds, but is available to everyone. The end result is that people are encouraged to sit there in the store longer-- and the longer they sit there the more they’re likely to buy.
 
The retailer also offers free mobile phone mat chargers in many locations, which engender customer loyalty and stand out as a competitive differentiator in comparison to other coffee shops. Moreover, Starbucks has introduced apps within their app, where one can explore free music, camera apps, and productivity apps. In a very real sense, Starbucks provides much, much more than just a cup of coffee.
 
What Are Others Doing?
 
Groupon is used as a tool by any number of retailers and service providers to introduce customers to their brand by offering discounts. While this price incentive often works as an “I’ll try it” it also turns out that many current customers just want to get the discount – and would have shopped at the store with or without the extra incentive. On the hand, it often doesn’t sustain future customer engagement for the retailer. Price is still the biggest “hook,” but something else needs to keep customers returning to build profitable loyalty.
 
What kinds of rewards are brick-and-mortar retailers giving their customers in their loyalty programs, besides a simple discount? The French cosmetics chain, Sephora, offers free samples and complimentary makeover services with a purchase of a $50 gift card along with other in-store promotional events with Sephora stylists.
 
Other businesses have found that cross-promotion can be a highly effective strategy for gaining customer loyalty. Retailers create partnerships between destinations, airlines, and hotels, if they are brand appropriate. For instance, when a customer rents a car from limo company X, they receive points for airline Y. The end result is that the customer becomes more loyal to that particular limo service because they received points for something that they deemed valuable.
 
Keep Communication Simple
 
While price incentives are one of the most effective ways to influence consumer behavior, simple and easy communication between retailers and potential consumers is key to loyalty. We have found that if communication is too complicated, consumers will never get “hooked” in the first place.
 
In the case of Starbucks’ loyalty model shift, consumers are likely to keep returning even though it will take longer to earn rewards on average. Starbucks’ customers are tuned into the full breadth of benefits they receive – well beyond just the rewards for making purchases – and that keeps them coming back.