What Is a Customer Loyalty Program? What Benefits Does It Bring to Businesses?

Vũ Khôi

Author at Wotech Electronics Blog

In an increasingly competitive market, businesses that want to secure their position and brand value while maintaining stable revenue need effective solutions — and customer loyalty programs are one of them. According to data from the US-based market research firm Forrester, acquiring a new customer costs a business five times more than retaining an existing one. If a company keeps chasing new customer markets at the cost of neglecting existing customers, it will lose its competitive edge and spend a considerable amount on finding new buyers.

That is why a customer loyalty program is essential: it helps businesses build loyalty among existing customers while sustaining long-term operations.

What Is a Loyal Customer?

Loyal customers are those who have used, and continue to use, your products and services. There are many definitions of a loyal customer, based on factors such as product value, purchase frequency, and trustworthiness ratings. If you have ever shopped at supermarkets like Vincom, Lotte, or Coopmart and used their point-accumulation programs or member-only deals, then you are a loyal customer of theirs.

What Is a Customer Loyalty Program?

By the most basic definition, a customer loyalty program is a set of efforts by a business to build a "bridge" with customers so they continue to use its products and services again and again. To achieve that, a loyalty program needs to focus on building a "long-term strategy" that fosters engagement and lasting relationships with customers — rather than aiming at short-term sales boosts.

Customer loyalty programs are also known by other names: frequent shopper programs, point-accumulation programs, rewards programs, or loyalty programs.

Benefits of a Customer Loyalty Program

A Customer Loyalty Program Creates Genuine Emotional Connection

Loyal customers are willing to spend on your products and services even when many other options are available. They return to shop 32% more often and spend 46% more than other customers (according to research by Gallup).

A customer loyalty program always aims to personalize the customer experience and deliver core value to each member. Once customers become loyal members, they receive exclusive privileges based on their membership tier. This makes them feel like valued customers who are treated specially and matter to the business.

Through the loyalty program, they also become the first customers to experience new products. Members are the earliest to hear about promotions and enjoy highly attractive deals reserved exclusively for members.

A Powerful Tool for Driving Sales

Thanks to this emotional connection and the satisfaction of its customers, a loyalty program can boost repeat-visit rates by up to 54% (annexcloud.com). Loyal customers stay longer and purchase at a rate roughly 67% higher than that of a new customer. As a result, they generate a significant revenue stream for businesses that implement loyalty policies well and effectively.

A New Strategy for Brand Promotion

With a loyalty policy, a business can expand its customer base by encouraging members to refer friends and relatives to learn about and join the program. Members receive incentives for each successful referral. In this way, the business spreads its brand value to others.

In addition, rewarding customers who write product reviews or send feedback is an effective way to build trust with other customers. Businesses can also encourage customers to share their experiences at the moments and with the products where they felt most satisfied and happiest during their journey with the loyalty program.

In short, a customer loyalty program benefits a business in many different ways. Depending on the program's goals, the business can adopt different customer care policies. A loyalty program helps a business ensure that its customers always feel appreciated and are cared for wholeheartedly. It is a customer retention strategy that keeps customers connected to the business and expands its customer base.

Strategies for Building a Customer Loyalty Program

Point Accumulation, Discounts, and More Coupons/Vouchers

This is probably the most common and simplest idea, yet it delivers the greatest results for the Food and Beverage industry in building post-service customer relationships. Customers earn reward points after each purchase or receive discount vouchers for future purchases. At the same time, they can track their points via a card, an online account, or a mobile app. Precisely because of this seamless experience, point-accumulation strategies are very popular on e-commerce platforms like Shopee, Lazada, and Sendo, as well as in coffee chains like Highlands and The Coffee House.

Advantages

• Simple and easy to implement

• Easily attracts a large number of customers

• Low risk

Disadvantages

• Does not create much differentiation from many other brands on the market

• Only builds a short-term bond with customers

• Overusing discounts/coupons/vouchers can damage the brand image

• Customers develop the habit of only buying when there is a discount

Cashback Shopping Program

A cashback shopping program is a scheme that returns a certain portion of the money to customers when they shop and pay for products. Although very popular around the world, this program only emerged and took off in Vietnam in the last few years. So why do customers receive money after shopping? It is because retailers and brands typically pay a commission for discounted advertising through these apps. Therefore, whenever someone buys a product, the app receives a payment, and the app then passes part of that commission on to the customer. Today, cashback comes in the following forms:

• Cashback via credit cards: Some online shopping websites connect with banks to give customers cashback when they pay by card. In addition, banks now issue cashback credit cards for shopping. For example: Techcombank runs cashback programs for its Techcombank F@stAccess, Techcombank Visa Debit, and Vietnam Airlines Techcombank Visa Debit cards; HSBC offers HSBC Visa Cashback; and VIB has VIB Cashback.

• Cashback via e-wallets: These are wallets customers can use to pay for products that support them. To encourage usage, leading e-wallet apps like Momo, Airpay, and Zalopay always run very attractive cashback promotions when customers shop on Shopee or Lazada or pay for other bills (phone bills, electricity and water, and so on).

Advantages

• Similar to the point-accumulation program format

• Simple, easy-to-understand participation process

• Increases customers' likelihood of repeat purchases

• Makes it easy to collect customer information

Disadvantages

• Rewards take longer to receive compared to a points program

• Not appealing to customers who do not shop frequently

• Does not create much differentiation from many other brands on the market

Tiered Loyalty Program

With this program, the business sets up separate rules for each membership tier, with each rank offering highly special perks, features, and gifts. Customers therefore have to complete "missions" to reach those tiers. A standout example of this format is the Beauty Squad program by cosmetics brand E.L.F. Based on the reward points customers earn, the brand built point levels divided into 3 groups — extra, epic, and icon. Customers reach the icon tier when they earn 400+ points within a year.

Advantages

• Builds long-term engagement with customers

• Makes customers feel important: when they reach a higher tier and own exclusive gifts available only to that tier, buyers feel they have "status" and matter

• An engaging program format that differentiates the brand from many others

Disadvantages

• Requires a highly skilled technical team to build and manage the program effectively

• Does not generate much excitement among customers in lower tiers — those who do not shop frequently

• The program must be designed to be as simple and easy to understand as possible, because some customers may feel discouraged when starting from the lowest tier

Manage Customers More Effectively with SimCRM

Once you have built a loyalty program, what should the business do to manage it and evaluate its effectiveness? Today in Vietnam, many companies have adopted software to solve that problem. SimCRM is a CRM suite that includes modules for Employees, Projects, and more — with the CRM module standing out thanks to the following advantages:

• Customer information management: Beyond basic customer details such as name, phone number, and Gmail address, businesses can also store information such as customer status/needs to grasp buyer psychology more quickly.

• Reduced marketing costs: Personalizing and designing offers for specific customer groups helps optimize the effectiveness of marketing campaigns (such as emails and push notifications) without spending heavily on ads.

• Creating and sending marketing emails: Since SimCRM integrates with the Mailchimp email marketing software, businesses can draft, schedule, and send marketing emails for customer care or customer surveys.

• Reporting and performance measurement: SimCRM's CRM module provides detailed reports on follow-up customer care activities, as well as tracking sales and KPI progress, allowing businesses to evaluate program effectiveness quickly.

Conclusion

Through this article, we have explored the definition of a customer loyalty program and its benefits, along with how businesses use loyalty strategies effectively. If you are interested in the SimCRM customer relationship management software or have any questions, don't forget to visit the website for a chance to try it free for 30 days!

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