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Why Every Online Business Should Take Customer Loyalty Seriously

September 08, 2016 by Hinda Incentives in loyalty programs

According to research by Harvard Business School and Bain & Co., increasing customer retention by just 5 percent can boost profits anywhere from 25 to 95 percent. Even small increases in customer loyalty can provide big benefits in the bottom line for a business, and as Frederick F. Reichheld and Phil Schefter explain in an article for Harvard Business School, the benefits stretch even farther for online businesses.

The cost

Be prepared: It’s more expensive for online retailers to acquire new customers, Reichheld and Schefter note. Online-based apparel companies, for example, can spend up to 40 percent more to obtain new customers. It’s a higher cost up front, which means there is more to lose right off the bat.

The benefits

But for companies that succeed in winning over their online customers, the benefits are far and wide. As Reichheld and Schefter explain, profits grow faster for online-based businesses than for traditional retailers.  

Why is this? First off, loyal online customers tend to become repeat shoppers. Over time they consolidate their purchases with fewer outlets and spend more money at fewer businesses. This can result in an increase in both the frequency and amount of spending from loyal customers.

(Based on a separate Bain & Co. report, an online apparel shopper spends 40 percent more on their fifth purchase than they did on their first, and 80 percent more on their tenth purchase.)

Business-to-business companies benefit from this trend as well, Reichheld and Schefter point out. With the internet, they have a unique opportunity to simplify an otherwise overwhelming or complex array of products for their clients and create a seamless one-stop business experience on a single website.

In addition to spending, referrals also tend to be greater with online customers. A good word spreads much quicker via internet communication than person-to-person dialogue. While shopping online, users can instantly email a link to share a company’s website. And with social media sharing on popular outlets like Facebook or Twitter, a link sent out that promotes a business or product can reach potentially thousands of online users within minutes.

Launching a program

For small businesses in particular looking to launch a customer loyalty program, a joint report by Manta and BIA/Kelsey offers 10 excellent pointers for getting started, such as defining the end goal, going mobile and offering rewards. This piece isn't geared toward strictly online businesses; but the tips are useful nonetheless.

And if you’re interested in learning more about loyalty programs and customer retention, reach out to our experts here at Hinda. We can consult with your organization to develop a strategy, create the campaign engine and fulfillment platform that powers your program, and enable the analytics and reporting infrastructure to assess the results and make adjustments. From financial institutions to airlines and hotels to dining and more, we’ve got the expertise and experience to create a loyalty program as special and unique as your customers.

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September 08, 2016 /Hinda Incentives
Customer Loyalty, Customer Retention, Profits, Loyalty, Online, Retail, Small Businesses, Research, Harvard Business School, Bain & Company, Loyalty Programs
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