Shoppers Patronage

Sales promotion is a tried and true way to ramp up your sales, acquire new customers, and take advantage of seasonal opportunities. Sales promotions are a short-term marketing tactic to create urgency and increase sales.

Turning customers into brand loyalists is no easy feat. For one thing, you need a predictable and repeatable strategy for incentivising customers to buy from you again — which is where loyalty programmes come in.

A customer loyalty or rewards programme is a marketing strategy that rewards customers who frequently engage with a brand. By rewarding recurring engagement you can increase loyalty and ensure continuous growth. The idea behind an effective programme is simple: the more loyal customers are, the more rewards they get.

Seven programmes that work

1 · The point programme

The points system rests on the principle that the more you spend, the more points you get back. Every time a customer makes a purchase, they earn points in proportion to what they spent.

The North Face makes it easy to understand: customers earn 10 points for every $1 spent online and in retail stores, and five points for every $1 spent in outlets. Points go toward future purchases. To increase engagement further, they built an app where users manage their account, buy products, check point status and redeem rewards.

By rewarding customers with redeemable points you increase average order value and encourage them to invest in your brand — which makes them less likely to switch to a competitor.

2 · The paid programme

Paid programmes invite customers to pay a monthly or annual fee to join a VIP club. For this to be effective you need to market it to existing customers or frequent buyers — new customers are unlikely to join a rewards programme unless you are a big, recognisable brand. Most importantly, a paid programme must include member-exclusive benefits, or it loses its value.

Barnes & Noble’s VIP programme costs $25 a year and offers discounts, free shipping and other benefits. Show the value of the programme compared to its cost, and give a final nudge using testimonials from existing members to trigger social proof.

3 · The charity programme

You can build your business values into a programme to build a stronger relationship. If you structure a loyalty programme around mutual values, customers are more likely to become brand loyalists.

The Body Shop has nailed this by making animal welfare part of the programme. Besides earning rewards and VIP benefits, members can choose to donate their rewards to Born Free USA, an animal welfare charity. The Body Shop’s customers share those values, which makes the donation option even more valuable to them — and environmental responsibility is a core value of the business besides.

This type of programme creates an opportunity to connect on a deeper level, which strengthens the relationship.

4 · The tier programme

Offering tiers is a great way to engage customers and keep your brand top of mind. Tiers play on gamification: members reach higher levels the more they play.

e.l.f.’s Beauty Squad loyalty club has three levels — Extra, Epic, Icon. The more points a member has, the more exclusive the rewards. If you want to motivate members to climb, include percentages for each tier showing how many members have reached each level. That drives members upward to gain social status among the tier they aspire to.

5 · The community programme

This gives members exclusive access to a community of like-minded people, where they can connect with each other, find inspiration and sign up for exclusive events.

Sephora’s Beauty Insider uses both a point system and tiers, and adds that community layer. Sephora has used the club to build a brand community where users interact with each other and with Sephora — which gives it a great deal of consumer insight to use for product development and conversion optimisation.

6 · The progress programme

Progress is a great motivator. The nearer people believe they are to a goal, the more committed they are to reaching it. This is the endowed progress effect, and it is an effective psychological trigger for encouraging repeat engagement.

Nike promotes an active lifestyle with several training apps that help members reach their goals. Nike Run Club and Nike Training Club reward users with badges and other rewards every time they hit a milestone, such as finishing a first 5k. Nike also knows that the more success their customers have with training, the more loyal they will be — and customers attribute those results back to the brand.

Why? Because people always link their success to the person or brand that made the difference. If you want to learn a language and use Duolingo to do it, you will attribute any success to the platform.

7 · The subscription programme

A newer type of programme. Rather than offering rewards and benefits, you offer your products on subscription.

Bean Box offers different types of coffee beans as subscriptions so customers never worry about running out. Selling coffee this way increases lifetime value, and they use a “Save 20%” incentive to push customers toward the 6-month plan over the one-month plan — because inviting a customer to commit for six months is worth far more than a single purchase.

The loyalty lie

Here is the uncomfortable part.

Most loyalty programmes do not generate loyalty. A 2012 benchmark study from Edgell Knowledge Network surveyed the loyalty programmes of 60 retailers and found that customers of retailers offering a programme were not recognisably more loyal than customers of those that did not.

Worse, the same study found that 81% of loyalty programme members do not even understand what their rewards entitlements consist of, or how they are redeemed. Which should not surprise anyone, considering the average household belongs to eighteen loyalty schemes.

These findings were echoed by a 2017 Accenture study, which suggested almost a quarter of consumers have either a negative or non-existent response to loyalty programmes. And the real punch: according to a 2015 Colloquy study, only 42% of loyalty programme members are active or engaged at all.

Further research shows that, as consumers, we are most likely to seek out programmes with brands we already like. So retailers are spending mountains of money to retain the very customers they had the least chance of losing — in essence, subsidising purchases that would have been made anyway.

Put another way: very few people will drink four bad cups of coffee simply because every fifth cup is free. While it pays to have loyal customers, you cannot simply pay customers to be loyal.

Paid loyalty: thinking outside the box

So what if a business could turn transient loyalty into something deeper, more committed? What if the relationship between retailer and consumer could go from transactional to transformational — and best of all, what if instead of paying customers to be loyal, those same customers paid the retailers they want to be loyal to?

By definition the distinction between free and paid seems obvious: one is free to sign up for, one requires a repeated fee. But paid loyalty programmes go beyond membership fees to create a unique relationship with customers who appreciate the brand and are looking for exclusivity.

In 2016 the consumer loyalty management market was valued at $1.93 billion. By 2023 that figure was expected to reach nearly $6.95 billion — a compounded annual growth rate of nearly 21%. In the US alone, consumers hold more than 3.8 billion loyalty programme memberships.

What Amazon understands

In one recent quarter, Amazon grew its paid Prime membership ranks by 47%. Prime members spend 250% more each year than non-members. An astonishing 82% of US households with incomes over $110,000 per year are Prime members.

And while standard loyalty programmes tend to bleed engagement over time, Prime members become more engaged. Consumer Intelligence Research Partners noted that 73% of 30-day trial subscribers end up paying for the first full year, 91% of first-year paid subscribers renew for a second, and 96% of second-year subscribers renew for a third.

The difference is that Prime is not a points or rewards system but a carefully curated ecosystem of value, service and content — the key to the kingdom of everything Amazon has to offer. Special pricing, promotions, streaming music, on-demand video and fast free shipping are among the benefits members will spend $99 a year to access.

Amazon is merely the tip of a growing spear of retailers awakening to the power of paid membership.

For $10 a year, Sephora’s Flash programme offers unlimited free two-day shipping with no minimum purchase. GameStop’s Power Up Pro and Elite programmes, at $14.99 and $29.99 a year, offer a set of gifts, discounts, benefits and privileges. Restoration Hardware’s RH Member programme costs $100 a year and includes free interior design services and early access to promotional events.

What’s love got to do with it?

What Amazon, GameStop, Sephora and Restoration Hardware understand is that there is a difference between loyalty and love.

Loyalty means you have managed to put a card in the customer’s wallet. Paid membership means you have secured a place in the customer’s heart. Membership — even for a small fee — forms a sense of exclusivity and transforms the experience in a way traditional loyalty programmes simply cannot. Getting a customer to lay down a membership fee forms an entirely new degree of mutual commitment; even a small sunk cost makes a customer implicitly more engaged.

By the same token, charging a fee creates an onus on the retailer to deliver value against the heightened expectations it creates.

Membership fees are true and present revenue a retailer cannot afford to lose — unlike the potential, future revenue traditional loyalty programmes hope to realise.

Perhaps the most compelling reason of all is that consumers clearly want it. Research by LoyaltyOne suggests 62% of consumer respondents would consider joining a fee-based rewards programme if their favourite retailer offered one. Among millennials the numbers are more compelling still: 75% of 18–24 year-olds and 77% of 25–34 year-olds say they would pay to belong.

Lastly, for retailers with a genuine interest in understanding customers across channels, membership is the holy grail. A membership is true and unfiltered permission to engage, and eliminates any ambiguity about the relationship. Paying members are more inclined to share personal information because they understand that doing so shapes their own experience — and it is that level of transparency that lets brands understand customer actions across their whole ecosystem.

Five reasons to consider a paid loyalty programme

1. Your best customers want the best experience, and are willing to pay for it. Top-tier customers want to feel like VIP members — and offering VIP benefits only after earning points does not work for them.
2. Paid loyalty makes your MVP customers even more valuable. When customers pay to belong, they are committed and engage more regularly, which raises average order value and order frequency.
3. It builds emotional connection. Affinity is what makes the overall experience hard to replace elsewhere, even when a competitor is cheaper.
4. It is an opportunity to differentiate. Technology has made differentiation more necessary than ever. It is not about the discounts; it is about offering something special to your best customers.
5. The fees are an incremental revenue stream. Even if only the top 20% of your customers invest, the dues add up — which lets you keep offering better benefits to your best customers.

Nine discount strategies you can use today

Discounting has long been used to incentivise a purchase. It is not a new strategy, but it is an effective one when marketers follow a few best practices.

The problem is that marketers often offer sitewide discounts to their entire audience without considering where visitors are in the buyer’s journey. That might drum up more sales, but it hurts the bottom line in the long run. The solution is to strike a balance between when, how often, and which segment.

1 · Nudge new visitors with a special offer

When a visitor first enters your site they may not be ready to buy, so a code to use immediately is not always the best move. Ask for a smaller commitment instead — an email address in exchange for a discount code.

• Target a specific visitor segment. Place a cookie in new visitors’ browsers so you can track new versus returning visitors and show or hide campaigns accordingly.
• Personalise the copy. Make sure the segment knows the offer is exclusive to them; relevance increases conversion.
• Give people a reason. As Robert Cialdini writes in Influence, “people simply like to have reasons for what they do.” It works even when the reason is obvious — such as being a new visitor.

2 · Reward loyal customers

Offer an incentive with an expiry date to nudge on-the-fence buyers into action — a 10% discount on a category, for instance. The value of the reward should depend on the number of points earned: the more points, the bigger the reward, and the more likely a repeat purchase.

Alternative. There is always an alternative to a discount. To reward loyal customers, offer free shipping instead.

3 · Increase sales during holidays

During specific holidays many consumers go online to shop for gifts because promotions increase. Capitalise on that traffic and guide visitors to relevant offers.

Real Coffee’s Black Friday campaign showed on every page of the site except the offers page itself. Click the campaign and you go straight to a landing page holding all the Black Friday offers — nothing else — which makes it easier for prospects to work through the selection and decide.

4 · Use early-bird discounts for new products

When you launch a new product you want as many people to buy it as possible, which is why many online stores promote a pre-order discount.

Red Rooster Coffee Roaster added scarcity by limiting the discount to the first 30 orders, which made the offer seem more exclusive and drove more traffic to the new product.

Be careful here: discounting a product before launch can devalue it in the prospect’s mind. Keep discounts on new products small.

5 · Reduce abandoned carts

Sixty percent of online shoppers abandon their carts because of unexpected extra costs, so offering a discount to abandoning shoppers recovers some of that revenue.

Nicehair uses exit-intent campaigns to reduce cart abandonment. They ran it as a time-limited experiment and recovered a 44.76% overall conversion rate — almost half of abandoning visitors returned to their cart.

Use cart discounts sparingly. If you always offer one on exit-intent, visitors will come to expect it and abandon deliberately to avoid paying full price.

6 · Reward referrals from existing customers

According to ReferralCandy, 83% of satisfied customers are willing to refer products and services — yet only 29% actually do. Discounts are an effective incentive for closing that gap.

Bonobos offers a discount to both the referrer and the referral, so both parties are incentivised to buy:

Do us a favour and tell your friend we’d be good together. Talk us up, mention our great fit, and how they’ll get 25% off their first purchase. And if they like us back — i.e. get something awesome? Then you’ll get 20% off your next order. You’ll be one well-dressed Cupid.

Alternative. Send a free gift or a product sample when a customer has referred friends.

7 · Retarget visitors with a custom offer

The best way to drive more sales is to target visitors with personal messages — in emails, ads, or on-site. If you use Facebook ads to drive traffic, create a custom offer for visitors who arrive through them. Get creative with the copy and make sure that segment knows the offer is exclusive to them, and them only.

8 · Offer discounts on subscriptions

Consumers are looking for convenience above all, and the quicker and easier they can get what they need, the better. Harry’s, MeUndies and Brushbox all offer subscriptions to improve retention.

To push prospects toward a subscription over a one-time purchase, discount the subscription. Most companies can afford this because they know it increases lifetime value and recoups on the back end. MeUndies highlights the benefits of its subscription three times on the product page, including a discount and exclusive member colours.

9 · Follow up with event attendees

If you host or attend events, there is a lot of potential in following up afterwards. Email attendees promoting the products you showed, and link to a page on your site holding them. Track the link, then add a campaign to your site specifically for those visitors and promote your discount there.

Conclusion

Offering customer loyalty programmes is a great way to get more loyal customers and keep your brand top of mind. The key to making it work is understanding your customers and improving how you provide value to them.

Using discounts is all about balance. If you use them sparingly and offer them at the right place, at the right time, to the right prospect, you will see great results. Keep the user journey in mind, and do not offer discounts to everyone and everywhere.

And remember: you should not use discounts just because everyone else does. There is always an alternative if you decide you do not want to discount your products.