On average, returning customers spend 67% more than new customers. Returning customers account for 40% of online sales but only 8% of site traffic. In fact, thanks to the high cost of advertising, brands spend five to 25 times more selling to new customers than to returning customers.
Years ago, stores could rely on location-based loyalty from customers who did not want to leave town to find a product. The Internet has since opened the floodgate to other options, including international options. Customers no longer return – or become loyal – to brands simply because they are nearby.
Now, brands must provide a great experience to inspire brand loyalty. To consumers, a “great experience” includes excellent and knowledgeable customer service, easy shopping, and quick check-out. Essentially, consumers aren’t only interested in a high-quality product. They want a high-quality process as well.
In response, brands have started to implement VIP programs and loyalty programs. These programs typically reward customers based on the tier to which they subscribe.
For example, cosmetics company Sephora hosts a VIP program called Beauty Insider. Through Beauty Insider, the brand offers to all customers a birthday gift, access to the brand’s rewards bazaar, and access to the brand’s online community. This “free” tier is called Insider. Customers who subscribe to the next tier, VIB (“Very Important Beauty Insider”), for $350 a year receive everything from the Insider tier as well as a monthly gift and one custom makeover. The highest tier, VIB Rouge, costs $1,000 annually, but subscribers receive everything from Insider and VIB. They also receive multiple custom makeovers, free two-day shipping, access to a private brand-run hotline, and invitations to exclusive events.
Another example is Amazon’s Amazon Prime program. For $120 a year, customers enjoy free, two-day shipping on millions of products without worrying about a minimum purchase total. Prime members also enjoy access to 24-hour streaming services. The services feature television shows, music, and movies. Additionally, some featured shows and movies are Amazon productions available only through Amazon Prime or purchase via the company’s site.
Amazon loses over $1 billion per year by offering Amazon Prime, but Prime members’ increased purchases cover the loss. On average, Prime members spend $1,500 per year while non-Prime members spend only $625 per year.
In order to succeed, tiered loyalty programs and VIP programs must serve both brands’ and customers’ objectives. Brands want to make money while customers want to save it. As such, brands have the difficult task of developing a loyalty program that offers enough to draw customers without sacrificing revenue.
One common program development strategy is offering brand products and services. By doing so, brands save money that they would have spent on third-party products or services, such as spa days or concert tickets. For this reason, brand products and services are popular contest prizes.
Another common program development strategy is padding each tier with small swag items and coupons for varied products and services. Swag items are cost-efficient, especially if they are brand products. Additionally, customers have their own preferences. The brand that offer coupons for varied services and products ensures it appeals to the widest target audience while making sure that audience doesn’t use every coupon available.