A recent YouGov poll quoted some very interesting numbers about consumers opinions of customer loyalty card programs.

• An estimated 70% of sales revenue is linked to their loyalty card, which means that Boots has a very clear understanding of who spends what in its stores.
• 52% of loyalty card holders convert rewards to money off at the till.
• 33% of holders redeem coupons and vouchers sent as part of a loyalty card scheme.
  Only 21% of loyalty card holders save up rewards to help pay for something they need.

• 1 in 10 loyalty card holders collect points but rarely, if never, redeem them.
• 51% of holders say ’it’s really worth my while collecting points’.
• 10% of card holders say that the loyalty cards rewards are too small to be worth collecting.

Despite the occasional detractor, I would say that takeup and consumer appeal of customer loyalty cards are extremely strong based on these numbers.

Even in 2010, Tesco are still attributing increased sales to their clubcard loyalty card scheme.

It’s amazing how such a mature program can still be delivering benefits in the competitive supermarket industry, many years after their initial investment in the program.

And the great and motivating factor for us at LoyaltySpace is that these cards have perhaps more potential for small businesses and within other industries.

It’s one year to the day since I pushed a very, very early version of my startup web application to the public.

It’s called LoyaltySpace and is a tool which allows small businesses to setup and manage a customer loyalty card program.

I wanted to share a little bit about the lessons learnt and the experience so far, and will also share some numbers about conversions and profitability at the end of this post.

Lessons Learnt

First, the lessons I’ve learnt along the way. These are undoubtedly all a function of my own website (which is by no means perfect), my own approach, and my specific small business market. However, I share them here as they have genuinely surprised me along the way, and are all relatively ‘actionable’.

Web is much less important than I expected as a sales channel
Despite plenty of visitors to my website, at least 90% of my customers have come through other routes other than the web. Direct sales, a leaflet campaign, word of mouth marketing, and resellers are my main channels, in that order. As a techy I obviously focus on web as it’s where my strengths lie, but once you start selling, you realise how important offline is.

No success with Adwords
Related to the above, I don’t think I have ever had a single conversion attributable to Adwords, despite spending a few thousand pounds on there for very niche and related terms. Adwords was crushingly bad and expensive for a small business as a means of customer acquisition. It just seems to attract surfers and researchers rather than those actively looking to buy.

Nobody reads your website in detail
I get frequent questions where the answer is clearly explained on the website. I don’t really mind this as it’s good to make contact with the prospect, but it’s surprising how few people go straight from ‘landing page’ to ‘contact us’ after looking like my product might be of interest. Lesson learnt – scale back the website content so as not to dilute key sales messages.

People like to talk on the phone
Potential customers like to call and talk through the process and product even if they have understood it perfectly and just want to say hi. It’s clear that customers take a lot of confidence in knowing a human is available and contactable – more so than I expected. Though this is possibly the nature of the beast in selling to small businesses, selling pure SAAS to business without phone contact would be very tricky.

Customers come in extremes with regards to price
My customers either seem to be ‘very price sensitive’ or ‘not price sensitive in the least’. The latter just have a problem and want it solving so they can concentrate on their own businesses. These customers are infinetly better and more fun to work with – not just for financial reasons. I personally have always wanted to sell to lots of customers for an amazingly low price, but I’m just not sure how scalable that is.

Resellers are worth their weight in gold
LoyaltySpace is a very generic product, applicable to all kinds of industries. I’ve found a lot of value in linking up with industry specialists who are looking for a white labelled solution to resell. Though I am only now getting to work with these guys and deliver white labelled systems, I think this route to market could dwarf anything I could achieve and lead to higher value customers. Next time, I would even consider a reseller only model.

No SEO magic required
Having found how important offline sales are, I have let the website drift a little. I haven’t followed any of the conventional wisdom about social media, SEO, but have still watched my website drift to the top of Google for my two key search terms. These are now doing the business, more than Adsense ever was. SEO just takes time and relevancy. A little effort can go a long way here.

Common Theme!

Looking back on the above, they all tell the same story. Sales is hard work, requiring lots of hand holding, lots of customer contact, lots of real work to convince, educate, and close the deal. Hence my love for resellers.

I had this vision of producing a beautiful website, A/B testing it into a lean, mean, converting machine, and then throwing Adwords traffic at it until retirement. How wrong I was!

Let me say it again, building a web application is easy, selling it is a hard, hard slog. I would estimate that building is less than 1% of the effort.

Numbers

I also wanted to share some numbers about how the business has been doing this past year.

Let me be clear, LoyaltySpace has been a very small part of my life this year. With full time consulting projects and being involved in another 2 startup projects, sales activity has amounted to maybe 2 hours per week. I plan to pick this up in the new year, and work more closely with resellers rather than selling direct.

The numbers below are estimates as I’ve moved analytics a few times and also collect payments by various routes. They are as close as possible to today – some have risen over the year as I have climbed Google for my key phrases.

• Website visitors: ~25 per day, ~9000 visitors in total not including big social media spikes.
• Conversions per day to free trial: ~2
• Conversions per week to paid customer: ~3
• All time free trial customers: ~300
• All time paying customers: ~59
• Current subscribed paying customers: ~46
• Monthly revenue: ~£1000
• All time revenue: ~ £8000 + equity stake in a new venture
• Marketing costs: ~ £3000 (mainly PPC, now scrapped)
• Freelancer costs: ~ £1000
• Net profitability: ~ £4000

So I won’t be retiring any time soon, but I’m fairly happy with the results and outlook so far given time invested. I can see a route to turning this into a salary or a viable small business within the next year. As that was my goal from day one, that would be a real result.

Loyalty card programs are those kinds of programs that ensure that the customer buys from the company/outlet whenever possible. Thus their loyalty to the brand is taken by involving them in loyalty card programs. Once the customer is hooked to the brand/company then the profits immediately rise. A loyalty card is of various types and offers various benefits and privileges to the customer like additional purchase, discounts and sale benefits. Physically, this card looks no different than a credit/debit card and has the name of the customer and the card number embossed on it.

A loyalty card is known by different names in different countries. In Canada it is known as a rewards or a point card. In the United Kingdom, it is known as a loyalty card and in the United States it is known as a club card. These have a barcode at the back which enables scanning in the computer systems. These kinds of loyalty cards sometimes also act as identification cards for the customers who prefer frequent the retail stores or other luxury places like lounges, clubs, and airports lounges. Banks also provide loyalty cards to their customers so as make their banking procedures convenient.

In the United States, loyalty cards holders in supermarkets and medical stores get special prices and discount offers. Most supermarkets here keep upgrading their loyalty card programs to keep their customers hooked and attracting other customers. Another new aspect of the loyalty card program offers fuel discounts when the purchases ensure maximum points limit. These luring offers sometimes make the customer exceed their shopping budgets to make use of the offers available after the purchase. Some stores even have partnerships with other brands and even airlines and thus they offer free or discounted airline tickets and other branded gift vouchers in their loyalty card programme.

Another loyalty card programme offers points that are earned on purchases and are redeemable in terms of money value or discounts. These offers however are for a limited period of time for a limited amount of customers on first come first serve basis.

In Canada, loyalty card programs offered by various companies and brands give out currency looking coupon which is similar only in look and not purpose. These coupons offer special and prizes and attractive gifts. Pet smart, a retail store in Canada offers all its loyalty card member a fixed amount of discount on anything that is offered in the store or i under display. These kinds of discounts are available throughout the year but the customer is charged a fee annually. These kinds of programs are offered at all the fuel/gas stations in Canada where a discount of 3.5% is given to loyalty card holders each time they come for a fill-up.

In Australia, it is said that there are more than 10 million loyalty card holders of all firms. Among these more than five million users hold fuel discount cards and two million hold the frequent flyer discount card. Most of the banks in Australia provide reward programs on purchase of their credit/debit cards. The points earned through this program are redeemable in the gas discount program or the frequent flyer program. Rewards Central is the largest online reward program as it has over one thousand five hundred loyalty programs with over 2 million firms and associations.

In the UK, the loyalty card users are given more importance than the regular customers. The very first rewards program introduced in this country was the “Pass card” program which was later known as Passkey and gave a considerable amount of discount to all its users at various retail stores. This program is said to be introduced in 1981 and it still remains in a
modified version. The loyalty card holder in the United Kingdom offer great benefits when purchases are made with credit cards are they are in partnership with the banks. The points offered as often redeemable for cash back discount. LADBROKES is the first betting loyalty card program that was introduced in Europe for the first time in 2005. Here, the users earned points on every bet they made which could later be used during the game to get desired cards.

Thus, loyalty card programs are now popular worldwide with users increasing with every passing second. Brands and firms now hire special teams to launch their customised loyalty card programs which will lure more future customers and retain the present ones. However, some critics feel that these loyalty card programs often manoeuvre the users mind and shift
their loyalty to sometimes the wrong company.

According to Loyalty 360’s CEO Mark Johnson, 2011 will be the “Year of Customer Loyalty” given the fierce competition seen in the market, and the fact that it is ultimately only the loyal customer base that determines success. He suggests that 2011 will see companies focusing more than ever, on devising strategies to retain customers and build a loyal clientele. The Loyalty Marketers Association (Loyalty 360) predicts trends that will be witnessed in 2011, to establish an unstained reputation to attract and retain new customers, and ensure the return of existing ones.

Per Johnson, the year will see the marketing industry realizing that ‘customer loyalty’ is not about just a scheme or program, but the very route AND the sole goal of every business. In contrast to how it has always been understood, planned and executed, customer loyalty schemes will be aimed at building long-term relationships, and not just create initial sales. The programs or strategies will be based more on emotional factors, rather than absolutely material incentives. So far, they had been devised rationally, but since behavioral economists have established that as much as 70% of all economic decision
making can be influenced by emotions, experts will be seen focusing on it. Reports have revealed that customer ‘loyalty’ will be quick and easy to shift, unless the connection is ‘passionate and engaging’. Engaging, because this could be one of the most effective ways to creating a personalized level of relationships, including the ‘passion’ that is targeted. In fact, a study poll conducted by Gallup in 2009 has also revealed how the ‘loyal customers’ base can multiply several times, with just appropriate ‘customer and employee engagement’.

According to another study conducted by IBM recently, establishing connections with the customer, and working on shortening the customer-brand bridge will be the prime business strategy globally. More than 1500 CEOs across 60 countries confirmed that the ‘voice of customer programs’ will be imperative for success. A combined research by The Logic Group and Ipsos Mori has suggested that as much as 50% of the customers’ decision making could be influenced by deals relevant personally to them. The brand that customers choose to go with, could have a lot to do with details or offers that would affect them, or matter to them as individuals. Schemes such drafted could pull the customer’s loyalty with conviction about how their needs are seemingly exclusively being provided for.

2011 would also witness much focus on ‘in the moment’ advertising, exploiting all routes to ‘touch’ the consumer. Brand building may see new strategies being built based on factors like current market needs or issues, or could more possibly be location-based. Hoping to reach the potential customers in the most economic and effective manner, companies could use unconventional means of messaging as well as communication, including mobile advertising.

Another survey conducted by Cone recently has proved that cause related programs, especially combined with corporate social responsibility could be a ‘magnet’ for the retention of existing customers, and a major ‘pull’ for potentials. Undoubtedly, social and environmental awareness has drastically been increasing and customers could see their participation in aligned schemes as their contribution to the cause(s). Simultaneously, there’s better realization of the need for quality personal time with family and friends, if not alone. This will see being well satisfied through rewards in the form of dine-out vouchers
or restaurant gift cards. The year is expected to bring a relatively larger number of loyalty rewards in the form of these.

According to market experts, the demise of debit rewards is a myth and 2011 will clearly prove so. They admit that the trend has somewhat faded, but are confident that it will re-emerge much stronger and more effective, with just basic model modification. They believe that creating a functional ‘currency’ is what will make this fashion much alluring to customers. Lastly, they’ve stressed on how social meeting areas online will be given much attention and prove to be a successful scheme promotion medium. There’s no doubt about how certain www places have become social hubs for interaction and entertainment. Social networking and gaming websites will be the targeted means to reach their users, numbers of which see
multi-million additions each month.

With the market demands and conditions changing so rapidly, it wouldn’t be literally possible to make accurate predictions for 2011. But undoubtedly, consumers have never been so aware, and marketers have never been more focused on building customer loyalties. Undoubtedly, 2011 will see the best levels of both, and prove to be the ‘year of true customer loyalty’.

Building customer loyalty is the secret to success for every business. Attracting new clients is not the key. The key is providing enough attraction and dependable reasons for clients to return. This is what customer loyalty is all about.

Given that current lifestyles and market competition doesn’t leave any space for errors or unpleasant experiences, building customer loyalty schemes could be the sole strategy worth working on; for an unblemished reputation and guaranteed success. In fact, research has established that a loyal customer’s worth is far more than a few years of new clients. In fact, members of loyalty programs constitute the most profitable and best customers.

According to reports, there are over 1.8 million people enrolled in customer loyalty clubs and schemes in the USA, with the average being 14 for the number of loyalty programs each home holds memberships for. However, in spite of the member numbers being that large, it takes more than just enrollments to reap rewards from customer loyalty schemes. Currently, less than half of the total loyalty scheme members are really and literally ‘loyal members’ or active customers. So the key to success is not really the number of members holding customer loyalty scheme memberships, but the number among them that are active. And only a well drafted customer loyalty scheme can ensure such.

There is no dearth of creative minds that work on devising attractive customer loyalty schemes, but the route to failure can be as easy as one tiny mistake in the strategy. Let’s take a look at the most damaging and commonly made mistakes that businesses make when building their customer loyalty scheme.

Companies should not promise more than what can be delivered. Overpromising is more often than not, the prime reason clients choose to not return. Businesses, especially new ones, end up making impractical and unreasonable promise, and with time, realize, they’re not really deliverable. Enrolling into a customer loyalty scheme with high expectations, and ending up with much less, could be the biggest annoyance for clients, tempting them to shift their ‘loyalties’.

Just as hazardous overpromising is, delivering too much can be equally damaging. Enthusiasm or desperation to win ‘loyal’ customers often sees companies giving away too much to retain clients. This could seem like a successful idea initially, but can eventually land the business in major trouble. It is vital that the company considers long term affordability when extending offers and promises; so that they can deliver well on what they can afford, without creating pressure on their management, or finances. Extending great offers to allure ‘loyal customers’ is as much a responsibility of the management, as is maintaining the balance between customer expectations and what the company can manage to deliver.

The size of the order shouldn’t be among the primary determinants of reward size. For any loyalty scheme to be successful (read profitable), the company must understand the difference between high profit customers and high volume customers. Once the difference is well identified and analyzed, it will be realized that although high volume seems so, it may not necessarily mean high profit. The definition often lies in long-term assessment of the customer’s needs and purchasing philosophy. For example, the individual who has once ordered a hundred t-shirts may be less worth than one who orders 10 t-shirts every half year. This analysis could be the most difficult part of devising the customer loyalty scheme, but for how influential it can be, it is totally worth the effort.

Another important factor that can go a long way in determining and cashing on customer loyalty is identifying the difference between loyalty and disloyalty; and consequently rewarding accordingly.

Although this shouldn’t be any more than mere common sense, companies often end up being fooled into ‘rewarding’ customers who’ve not really been ‘loyal’. For example, credit card companies often ruin their balance sheets due to members who sign up, cash in or redeem the sign up bonus and thereafter cancel the card. So, not rewarding the ‘disloyal’ customer is just as important as rewarding the truly ‘loyal’ one.

The fifth most commonly made mistake could be positioning the company’s rewards and schemes according to that of the competitor’s. A failed customer loyalty program is often the victim of ‘becoming another in the crowd’, because companies struggling to remain in the race forget the very way to winning; and hence end up offering awards similar to those offered by the competitor. Sometimes, the trick is nothing more than just uniqueness.