According to a study by Constant Contact, the two leading concerns among U.S. small business owners are finding new customers and retaining existing ones. Although obvious, it makes sense – a business simply can’t exist without customers. What’s the best way to accomplish this, and is there a method that can keep existing customers happy while attracting new ones?
Whether print or online, marketing can be expensive. Choosing where to advertise takes expertise, and designing an effective ad is just as difficult. Businesses are often left experimenting with different advertising methods and messages to gauge effectiveness, spending a lot of time and money in the process. Even with an effective ad, customers need to return several times to offset the cost of attracting them in the first place. Business owners are putting their faith in potential customers to justify the cost of advertising, while neglecting to reward the loyal customers who keep their business alive.
Some businesses try daily deal type sites to gain new customers, but those also have problems. Businesses offer deep discounts in hopes of getting new customers in the door to spend more, but it rarely works that way. According to research by SpringBIG, most deal grabbers don’t buy more than what’s included in the deal, and only 20% will return after their initial visit. After a business offers 50% off normal prices and gives half of the sales to the daily deal site, they’re left with only 25% of the normal retail price. Daily deal sites do nothing to encourage loyalty, and you can bet that most users will switch brands as soon as they see a better offer elsewhere.
Luckily, there’s a better method, and you’re probably already familiar with it: Loyalty Programs.
Loyalty Programs Work
According to a study from General Mills, about 89% of U.S. shoppers belong to a loyalty program. Even better, according to Experian, 75% of companies that offer loyalty programs see a return on their investment. That’s big – it proves that people are interested in these programs, and companies are seeing results. Customers are happy to receive discounts and promotions that reward their continued patronage, while businesses gain valuable customer contact information, purchase data, and the ability to increase profits.
Increasing Loyalty to Increase Sales
It’s true that loyalty programs are focused more on existing customers than attracting new ones, but for a business, it makes financial sense. It’s widely agreed that retaining existing customers costs less than attracting new ones, anywhere from 5-7 times less depending on the source. Instead of spending thousands on traditional advertising, why not make your existing customers happy while providing incentives to them to buy more, and more often? FiveStars’ Customer Loyalty Study found that loyal customers account for 80% of a business’ total revenue. If a business increases the number of loyal customers, profits will increase as well, giving businesses a faster and larger ROI than traditional advertising ever could.
Loyal Customers Attract New Customers
Loyalty programs can be used to attract new customers as well. By providing loyal customers with incentives to share their love for a brand on social media and referral codes that offer a discount, businesses turn loyal customers into brand ambassadors. According to Nielsen, 92% of consumers trust referrals from somebody they know. Instead of spending hundreds on impersonal advertisements, potential customers see credible, real-life examples of the value brands offer, for a fraction of the cost. Plus, what would influence a potential customer more – a paid advertisement, or someone they know?
Ideally, businesses should incorporate multiple tactics in their marketing strategies, but that isn’t always possible for small businesses. To get the biggest return on investment, loyalty programs are the way to go!
SpringBIG, a provider of flexible loyalty programs, has been added to our vendor lineup. NBP members get discounts starting at 30% off package rates.