Customers can be a fickle lot, and turning a one-off customer into a loyal, repeat buyer isn’t always easy.
Since it’s a lot cheaper to retain an existing customer than to get out and find a new one, businesses are constantly looking at how they can keep their customers loyal to their brand, product or service.
One common scheme to keep customers coming back for more is loyalty cards, but there are a number of tactics you can use to ensure you get the best results from your card, says DANIEL EDWARDS, the account manager of local firm Posterboy Printing.
A 2006 study by Professors Joseph Nunes and Xavier Dreze looked at the effect of loyalty cards and identified what aspects and features made loyalty programs more effective.
The art of loyalty cards, is, it seems, quite scientific.
In one study, at a car wash, customers were randomly given one of two cards:
1. The first card had 8 car wash icons, each of which was stamped at each visit. The 9th car wash was then free.
2. The second card had 10 car wash icons, but the first 2 were already stamped. Customers were told this was a special promotion run for the day.
The difference in response rate was massive, even though with both cards, the customer received a free car wash after they’d paid for 8 visits.
The first card had a 19% response rate, while the second card (the one that already had 2 of the icons marked off) had a 34% response rate.
The perceived progress of already being some way towards the free car wash obviously had more appeal than a card that showed zero progress when handed out.
But how much perceived progress works best?
In the next study, university business students were broken into two groups and told about a new loyalty program from a local restaurant. Each group was given a different offer:
1. The first group of students were told they were getting 2 bonus points on a card that required 12 points before earning a free meal. This group was effectively 17% towards completion.
2. The second group of students were told they were getting 5 bonus points on a card that required 15 points before earning a free meal. This group was effectively 33% towards completion.
The results indicated a slightly higher preference for the 33% completion offer (15 points with 5 already stamped), but the customers felt that this was a one time offer and so the higher number of purchases required to reach the benefit was not sustainable in the long term.
Two conclusions were drawn from this test:
1. The percentage of perceived progress does not influence behaviour
2. The number of required purchases before claiming the bonus does influence behaviour
And how should the offer be framed?
In the next study, at a liquor outlet, customers were told about two offers:
1. If they purchased 10 bottles of wine over $10 each, they would receive a free bottle of wine worth $20
2. For every bottle of wine purchased over $10 each, they would receive 10 points, and when they accumulated 100 points, these could be redeemed for a bottle of wine worth $20
Each group was then broken down further into 4 sub-groups:
1. Group 1 were told there was no reason for receiving the bonus points
2. Group 2 were given a bogus reason for receiving points
3. Group 3 were given a realistic reason for receiving points
4. Group 4 were given no reason for the bonus
This study found that the point system was much more effective than the purchase system – so consumers are more interested in accumulating points that can be used towards something than they are towards recoding purchases to earn something for free.
Additionally, the study found that consumers who were given a reason for the bonus found it more attractive than those who were simply given a loyalty card with no reason for the bonus.
In a nutshell…
The Nunes and Dreze study identified some practical things you can do to encourage repeat business and improve the success of your loyalty program – and they’re pretty simple to implement:
1. Customers are more likely to use your loyalty card if you’ve helped them on the way with some progress already pre-stamped.
2. Use points that can be spent on what the consumer wants, rather than pushing them into a single reward.
3. Give them a reason for the bonus stamps – even if it’s because the sun is shining and the sky is blue, so you’re celebrating with a special offer.
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