Using loyalty schemes to increase your sales

Marketing plays a vital role in selling your product. Without it how will you reach your market and let potential customers know you exist?

There are many ways of marketing your product, one of these is to use a customer loyalty scheme...

What is it?

A customer loyalty programme is a simple and effective way of encouraging your existing customers to continue to buy or use your products or services more frequently or in larger quantities, and to dissuade them from going to a competitor. Schemes can range from the high-tech - such as smart cards and air miles - to less sophisticated, but nonetheless effective, programmes - such as issuing a voucher with money off the next purchase.

How you do it?

Firstly, decide what type of purchasing behaviour you are seeking to encourage and which segment of your customers, in particular, you wish to reward. Work out your budget for the scheme and decide whether you can deliver an incentive that your customers really will value - you will need to do some market research at this stage, even if it means just asking a sample of customers what they would be interested in.

Ensure that your business is able to cope with a significant rise in demand for your product or service and that you really have investigated the financial impact of a successful scheme. You must also be clear and realistic in what your objectives are and what you expect to achieve by your scheme (be specific). It is important that you can measure the success or failure of your customer service scheme.

Remember that every contact with your customers is an opportunity to gain more insight into what makes them tick and even a relatively unsuccessful programme will give you information that will help you to devise an improved scheme next time round.

What it's good for?

Acquiring new customers is a costly business. It often requires advertising in one form or another, perhaps buying a mailing list or hiring out a stand at a show to up the profile of your business. Loyalty schemes can drive repeat business and lock customers into your brand.

Analyse the lifetime value of your existing customers - how much they'll spend with you over a long period of time (if you can keep them on-board) - and you will see just how important they are to the long term success of your business. The loyalty of your customers is paramount - lose them and risk losing your competitive advantage if they go to your business rivals. Finally, loyal customers are a huge asset since they will recommend your business to their colleagues and friends by word of mouth (viral marketing).

What it's not good for?

One argument against loyalty schemes is that they can attract the type of customers that you don't really want anyway, namely customers that are likely to change their buying behaviour just to chase a bargain. Also, if the scheme is not of real value to customers or too complex, there is always the risk that they feel less valued than they would if there were no scheme in place at all.

What it costs?

Costs vary enormously from scheme to scheme. When deciding how much to spend on each customer it's crucial that you work out how much it will cost you per customer, and how much this cost will impact upon your profits. If, for example, a sale generates £50 worth of profit for you each week, there is little point in offering customers £100 discount unless, of course, this is part of a longer-term marketing strategy.

How you can measure it?

The best way to measure the success of your loyalty scheme will be to compare the results against the objectives. The take-up rate of any offers enable you to make a judgement as to whether your offering is valued by customers and gives you the opportunity to develop more relevant new products or services.

Another way of measuring the success of your mailing campaign is to send two or three different messages out - changing the special offer or the wording on each one - and monitor the subsequent replies to assess which approach works best.