As a business owner, you might be familiar with this scenario—you focus on tomorrow, less on today. That might include thinking about new customers versus the loyal customers you already have. This can be a real disadvantage, especially considering that it’s more expensive—like 6-7 times more, to attract a new customer than to keep an existing one.
So how do you find the sweet spot for growing your business? By cultivating customer loyalty. This was the topic of a recent MerchantAdvantage webinar featuring Chris Luo, Vice President of Marketing at FiveStars, the most widely used customer loyalty network for small and medium sized businesses in North America. Read on for some key takeaways from his conversation.
Challenges facing SMBs
When it comes to attracting and retaining customers, SMBs face many of the challenges as large businesses. The average American company loses 20-40 percent of its customers every year. The main difference between small and large businesses is in the resources available to meet these challenges. And according to Luo, many small businesses have been going about it the wrong way.
“While big businesses have been focusing on retention for quite some time, smaller merchants have typically put their resources toward getting the word out about their business,” explained Luo. “It’s important to recognize that marketing involves two things: customer acquisition and customer retention. It’s a two-sided coin.”
With loyalty program members generating 12-18 percent more revenue than non-members, Luo said small businesses need to be thinking about customer loyalty and retention programs. As he noted, the most efficient way to grow is to get people who are already familiar with you to come back more often.
The retention opportunity
Sixty percent of customers don’t return to a business after their first visit. But when a business can get a first-time customer to come back a second time, that customer is likely to keep returning, and the chance of them becoming a regular customer rises 80-90 percent.
At its heart, retention means getting customers that have visited to visit more frequently and to spend more. And, according to Lao, the key to retention is customer identity. By personalizing the customer experience, small businesses have a way to capture customer identity. And loyalty programs enable personalization.
“Merchants need to stop thinking about rewards programs as ways to give away free stuff, and instead as a way to get customer identity in order to deliver personalized experiences which drive transactions and frequency,” explains Luo.
How loyalty drives business
According to Luo, loyalty drives business in three key ways:
- Frequency – Loyalty programs are designed to get customers to come back more often. As customers get closer to a reward, the time in between their visits shrinks.
- Spend – Loyalty programs drive increase in spend– on average 15% higher per transaction. Customers perceive that points and rewards have value, and are incentivized to spend more because of that value.
- Win backs – Loyalty programs can track customer buying habits, and tie identity and visits with customer communications. A personalized birthday message, for example, offers a way to reach out to a customer who hasn’t visited in a while.
5 ways to cultivate loyalty without investing in a structured program
Merchants that aren’t ready to invest in loyalty programs like those offered by FiveStars can still take some simple steps to start driving loyalty. These include:
- Get to know your customers. Greet them by name, or at least let them know you recognize them. Do things to engage customers personally by knowing when they come in and what they like to purchase. Make sure staff is trained to get on a first-name basis with customers. Little things like writing the customer’s name (instead of the order) on their coffee cup can make a big difference.
- Start an email contact list to keep in touch with customers. Send offers and promotions and let customers know about changes or new things happening with your business. Luo recommends putting efforts into an email contact list over maintaining a Facebook page.
- Build a VIP program that rewards your most lucrative customers. Recognizing and making these customers feel special builds appreciation and keeps your best customers coming back. It can be as simple as offering a simple membership program where customers pay a one-time fee and enjoy special perks at your business.
- Focus on employee retention. Happy employees provide better service and bring customers back. When employees enjoy their job, they are more likely to invite friends and family in, who are also potential new loyal customers.
- Maintain a community presence. Supporting nonprofits and other community organizations builds good will. Consumers want to support businesses that are interested in the things they care about it.
If you think your business is too small to benefit from customer loyalty efforts, think again. The fact is that cultivating customer loyalty is exactly the thing small and medium businesses need to compete with their larger counterparts. To view the webinar this article was based on, visit the MerchantAdvantage page, and click on “3 ways loyalty grows your business.”