Investing in Customer Loyalty

Customer Loyalty
Customer Experience
With companies spending time and money to acquire and retain loyal customers, some merchants are joining forces to take part in collaborative loyalty program.

Customer loyalty is precious and highly sought by organizations. Business leaders know that loyal customers are not only going to come back to do business with that brand, but will also likely recommend that firm to their friends, family, and social media connections.And companies are spending a lot of money to acquire and retain loyalty. McKinsey & Company notes that in the United States alone companies are spending a staggering $50 billion a year on loyalty programs, which can generate up to 20 percent of a company's profit. (For more figures, see 1to1 Media's latest infographic: A Look at the Loyalty Investment.)

Since loyalty programs are intended to reward loyal customers, it's imperative that customers feel they're getting something back from brands they regularly do business with. "There's an increased focus among customers on getting the best deals," notes Tom Beecher, president and CEO of Cartera. "Customers are more rewards savvy."

While large organizations, like airlines and hotels, have been at the forefront of developing loyalty programs, smaller merchants might find it difficult to set up a standalone loyalty program that gives added value to loyal customers. Beecher notes that an important consideration when creating a loyalty program from the ground up is to making sure customers will be able to collect enough currency to make it worthwhile for them.

In order to overcome this hurdle, Beecher says some are joining forces with other small businesses or even larger organizations in joint loyalty programs. This strategy allows customers to collect cumulative points when doing business with different merchants and redeem them wherever they want.

And it's not only customers who benefit from this strategy by being able to collect loyalty points from different merchants, but also participating companies since the programs are aimed at rewarding customers for their loyalty and retaining their business.

Beecher also notes that this strategy differs from daily deals because it rewards clients for repeat custom. "Daily deals are predisposing customers to only shop with you when they get a deal rather than rewarding loyalty," he says.