Loyalty is an old-fashioned word traditionally used to describe fidelity and enthusiastic devotion to a cause or an individual. In a business context it describes a customer’s willingness to continue buying from a firm over the long term, preferably on an exclusive basis, and recommending the firm’s products or services to friends and associates.
Customer loyalty is seen as a key determinant of a firm’s profitability. Your goal should be to make your customers feel good about shopping with you – and want to return.
For example, many Apple customers show complete loyalty to Apple. Apple purchasers identify with its brand and cherish its design, integrated and smart solutions and excellent product quality. These customers integrate the use of several other Apple products such as their MacBook, iPod, iPhone and iPad and they frequently download and buy software, songs, apps and ebooks from Apple’s Store and iTunes.
Despite the strong marketing efforts of competitors these customers have a deeply held commitment to buy only Apple products and services in the future, whatever the cost.
Why your business needs customer loyalty
Customer loyalty encourages consumers to shop more consistently, spend a greater amount of money and feel positive about their shopping experience, helping attract consumers to familiar brands in the face of a competitive environment.
Keeping customers loyal for longer can lower marketing expenditure. This is because it costs far less to retain loyal customers that return repeatedly, than to acquire new ones.
Loyal customers are less likely to go elsewhere once they have established a positive feeling of loyalty towards your store or brand - and are likely to increase their spend with your business over time.
Smart pricing strategies that inspire customer loyalty
It's all very well and good to have found customers willing to part with their money for your products or services - but how do you keep those customers coming back for more?
You don't have to be a genius to realise that the more repeat purchases a customer makes, the more likely they are to continue buying from you. In a perfect world what you should be aiming for is the "I'll only shop with you" mentality.
It shouldn't just be about throwing out loyalty vouchers like confetti, what you want to aim for is rewarding shoppers for consistently buying from your store, or offering the type of discount they can't find elsewhere.
Here are some loyalty inspiring pricing strategies that you could implement to retain customers:
Promise a reward after they make a purchase
The strategy of applying coupons or discounts for first-time buyers only might alienate returning customers who feel "left out" from the reward.
Try drawing new customers in with a reward for making that first purchase. As an example, rather than offering £5 off a first order, you could advertise a coupon code for £10 off a customer’s next order being sent via email once a purchase is completed. That way you have their email address too.
Even if it doesn’t offer an immediate reward to your customers it benefits you by:
- Bringing back your customers for a second order (especially if you make the post-purchase offer really attractive).
- It also doesn’t have to be limited to new customers, which makes you look generous to both first-time shoppers and customers who are considering you for their second or third order.
If a shopper knows you’re willing to reward them, they’re more willing to be loyal to your store.
"Instant gratification is nice, but loyalty programs and rewards go over better with customers."
- Nicole Kohler 2016
Reward customers for bulk purchases
Bulk purchasing is when consumers capture part of the benefits of economy of scale for themselves by doing with the retailer what the retailer does with the wholesaler, i.e. paying a lower price per unit in exchange for purchasing much larger quantities.
This allows the consumer to satisfy more of his demands at a lower total cost by acquiring more value per pound spent, a pricing strategy that encourages loyalty.
"Buy one, get one free", "Buy one, get one", "two for the price of one", "two for one" or "2 for 1" is a common form of sales promotion that can engender loyalty if these promotions are used wisely.
While not always presented to customers in acronym form, this marketing technique is universally known in the marketing industry by the acronyms BOGO, BOGOF, and BOGOHO (Buy one get one half off).
Retailers use many promotional offers to increase sales, attract new customers, and keep their regular customers loyal.
Some countries have laws requiring products to be sold at full price for a specific period of time before they can be put on offer. Promotional offers are crucial to the retail industry and their many benefits play a large part in increasing sales, profit, revenue and loyalty.
Reward customers who have purchased from you a specific number of times
As an example, after a customer has placed five orders with you, you could place them in a preferential group that gets 10% off all items, or periodically send them special coupons.
This is a pricing strategy in which a product has different prices based on the type of customer, quantity ordered, delivery time, payment terms, etc. Also called discriminatory or multiple pricing
Retailers can lower their prices for special groups of customers - some stores offer military/veteran discounts, but you can experiment with offering, say, 20% off for teachers/pensioners/students or 10% off for customers who have made 5+ orders with you during the year and so on.
Consider members-only pricing
If you buy your groceries from a supermarket, chances are you have their membership card. These cards are usually free, but with them you get special savings that non-members don’t.
Some more members-only pricing strategies to consider:
- Regularly change which items have a members-only discount or lower price, which increases loyalty for existing members and make non-members more likely to sign up if they’re attracted by the offers
- Create different membership tiers and increase the discounts as the tiers ascend - for example, Bronze members might get 5% off, Silver 10% off, and Gold 15% off
- “Unlock” savings on additional products when a member reaches a higher tier, e.g. a Bronze member can only advance to Silver after three orders
"Memberships" aren’t a perfect solution for every store, but they can prove to be an incredible way to inspire loyalty… and to encourage plenty of repeat purchases.
Dynamic pricing (also called real-time pricing) gives you a way to reward customers for making smart buying decisions - and it's completely automatic using pricing software.
The pricing software allows for a highly flexible approach to setting a price for a product or service sold over the Internet. Prices are adjusted automatically "on the fly" in response to market demands.
Changes are controlled by pricing bots, which are software agents that gather data and use algorithms to adjust pricing according to certain rules. Typically, the business rules take into account such things as the customer's location, the time of day, the day of the week, the level of demand and competitors' pricing.
With the advent of big data and big data analytics, however, business rules for price adjustments can be made more granular. By collecting and analysing data about a particular customer, a vendor can more accurately predict what price the customer is willing to pay and adjust prices accordingly.
The general public has learned to accept dynamic pricing when purchasing airline tickets or reserving hotel rooms online. The approach, which is sometimes marketed as a personalisation service, can be used to reward customers who have purchased from you previously.
There can also be an option to discount items in a different category based on the purchase of a specific item. For example, if a customer purchases a laptop, the retailer could automatically discount the price of a laptop case by 20%.
These pricing models encourage customers to make bigger purchases, and can also boost a shopper’s feeling of loyalty towards your store.
Customer Loyalty Schemes
Customer Loyalty Schemes are used by many businesses to offer perks and incentives to their most loyal customers. This ensures that there is a positive association in the customer's mind with the business.
For example, in October 2015 M&S launched its first retail loyalty scheme, 'Sparks'. This scheme enables users to earn points on spending to unlock discounts and priority access to sales.
Members can earn the following:
- 10 'sparks' for every purchase made across M&S's food, fashion, home and beauty range, plus 1 spark for every 10p spent. If, for instance, you spend £1.20 in-store or online at M&S, you'll get a total of 22 sparks points.
- 25 sparks for product reviews online at M&S.
- 50 sparks when they 'Shwop' – where customers donate an old item of clothing to M&S when they buy something new, and it's then given to
The sparks don't have a monetary value, so there's no direct cashback as part of the loyalty scheme. However, once the customer earns a certain amount of points, they can 'unlock' benefits. These are:
- 3,000 sparks: A preview of new season stock.
- 5,000 sparks: 24 hours' advance access to the M&S sale.
- 14,000 sparks: Can attend invitation-only events and masterclasses such as food tasting, shopping events and catwalk shows.
- 17,000 sparks: Can enter competitions, such as to win a trip to an M&S South African vineyard, or to have M&S pay for your Christmas Day.
Members also receive a personalised welcome offer and personalised offers every fortnight, such as a discount on a specific category, for example 10% off knitwear, 20% off Mexican food range, or a "value-added offer" such as an upgrade on the dine in meal deal so they receive a bottle of Prosecco rather than wine.
When customers sign up to the scheme they are asked to list their interests, which M&S uses to generate appropriate offers.
Martin Lewis, founder and editor of MoneySavingExpert.com, says: "This is a very different offering. Normally these schemes are effectively a form of cashback or price reduction as points have an effective monetary value. Here the gains are mainly soft marketing incentives rather than hard cash, which means the cost to the chain will be low. M&S is trying to retain existing loyal custom."
"Clubcard is our way of thanking you for shopping with us." Tesco Clubcard website.
By using a Tesco clubcard customers collect points on groceries, fuel, fashion and all the things that Tesco sell. 150 points turns into £1.50 in vouchers which can be used for savings on shopping or with reward partners.
Points can be picked up from, amongst others, Sainsburys, Argos, BP and Debenhams. Customers can pay for an item with accumulated points. Offers are updated weekly to give more choice and more points - and tailored to the customer.
How will you spark customer loyalty?
When you first started out in business, probably the most important thing was to get the first few sales "under your belt". It was vital to get the price of your products right in order to draw in customers.
Now that your business is established you need to have a different mindset and focus on pricing strategies that will turn your existing customers behind those sales into loyal customers that want to return again and again.
It’s not always about saving money that makes customers loyal. Sometimes it’s what they feel when they go to a store, how they are treated and rewarded for their custom. If you can make them feel valued, as well as offering them fair and honest prices, then you may just have found the solution to keeping them loyal.
Monetizing Innovation by Madhavan Ramanujam and Georg Tacke 2016
Pricing for Profit by Peter Hill, 2013
No B.S. Price Strategy by Dan S. Kennedy and Jason Marrs 2011