Tom Caporaso, CEO of Clarus Commerce
Customer acquisition isn’t everything—and you don’t have to look far for proof.
Many of this decade’s startup giants followed a growth-at-all-costs model that put profitability on the back burner. Consider the many Silicon Valley startups that expanded rapidly, only to see steep falls and consistent quarterly losses. Despite aggressive customer acquisition strategies, these companies struggled to turn a profit.
This “go for broke” growth mentality is no longer attractive to investors, because it’s not an effective long-term strategy for retailers. Instead, profitability holds the key to sustainable growth, especially in an uncertain economic climate. And the most effective way to ensure profitability is to focus on customer retention.
Boost profitability by turning occasional customers into loyal customers
Customer retention drives profitability—and that translates to sustainable growth for investors. It costs five times more to attract a new customer than it does to retain one, and increasing customer retention by just 5% leads to a 25% to 95% increase in profit.
To boost customer retention, you must incentivize current customers to engage more with your brand. One of the most effective ways to increase engagement is a premium loyalty program.
While traditional programs are a great start for collecting data on occasional customers, retailers often see them as margin killers that provide discounts but fail to generate loyalty. Premium programs—which consumers pay to be a part of—build long-term loyalty that comes with high levels of engagement. Here’s what sets these subscription-based loyalty programs apart:
- Benefits that customers want: Premium loyalty programs are grounded in data, which makes it possible to continuously optimize and adjust benefits over time based on the benefits your most loyal customers enjoy. This includes a healthy mix of both transactional benefits like instant discounts and free shipping with experiential benefits like exclusive in-store experiences. By offering better benefits that are instantly available to customers, premium loyalty programs encourage members to engage regularly. More than half of all premium loyalty participants shop at that program’s retailer at least once a week. Even more, when brick-and-mortar shopping isn’t possible (due to a pandemic or other factors), member benefits like free shipping and returns can go a long way toward encouraging engagement.
- Long-term, loyal customer relationships: The retail industry, customer expectations and your business all evolve over time, and so should your loyalty program. If members don’t continuously experience value, they won’t renew. Look for ways to adapt benefits based on trends in customer data. For example, determine which benefits are used most by which members, and then adjust the program accordingly. When members are satisfied with benefits that evolve with their needs, they are more likely to be fiercely loyal to your brand—87% of premium loyalty members would choose that program’s retailer even if another retailer offered a lower price.
In today’s retail climate, profitability hinges on strong customer relationships and premium loyalty programs are simply the best tools for bolstering your brand’s relationships with your best customers. It doesn’t hurt that premium loyalty programs are ROI-positive from day one. Subscription revenue plus customer loyalty gives your brand the boost it needs to succeed now and achieve sustainable growth over the long term.
Clarus Commerce specializes in the design, development and implementation of premium customized loyalty programs for retailers.
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