Customer loyalty programs – types of customer loyalty and loyalty programs solution providers for small and medium businesses.
This article is a practical guide to customer loyalty and customer loyalty programs. It is useful for entrepreneurs and small and medium business owners looking to build customer loyalty.
It consists of three parts that look at:
Firstly, what is customer loyalty and the different kinds of loyalty.
Secondly, we’ll look at different loyalty programs entrepreneurs can adopt for their businesses.
Thirdly, we present a list of customer loyalty platforms in Nigeria and what they offer small businesses.
What is customer loyalty?
Loyalty involves being committed to something.
Customer loyalty involves the attraction and the commitment of a customer to your business.
Building customer loyalty involves initiating a specific activity that attracts a customer to your business.
In addition, it involves providing enriching experience that delights the customer above and beyond the basic image and reputation of your business.
Every business action taken by an entrepreneur is driven by the customers. Whether it’s the innovation you bring to the market or your business decisions.
Customers become committed to your business when you continually demonstrate behaviour that sets your business apart from your competitors.
Kinds of customer loyalty programs
In this section, we look at the different kinds of customer loyalty and how they work.
There are a number of different kinds of loyalty:
Customer loyalty programs – Monopoly loyalty
This is customer loyalty due to there being no other choice available.
A business enjoys monopoly loyalty when customers have no other choice but to buy their products or services.
A business enjoys monopoly in the market in circumstances where it is able to regulate price of price of products or services.
Consequently, such a business cuts of competitors because of entry barriers.
There are different ways an entrepreneur can build monopoly in the market and enjoy monopoly loyalty.
Customer loyalty programs – through intellectual property and exclusive rights
Businesses with exclusive legal rights to a new trade secret or a manufacturer with proprietary technology can enjoy monopoly in the market.
Such businesses can be protected by exclusive legal rights from government, patent marks and licensing strategies.
For example, MultiChoice enjoys exclusive rights to the sporting events and enjoys monopoly customer loyalty in Nigeria.
Customer loyalty programs – economies of scale and scope
A business enjoys economies of scale when it is able to produce large volume at a lower margin due to a reduction in the average cost per unit.
In addition, a strong distribution channel also give an economies of scope advantage.
These advantages lead to monopoly loyalty.
For example, electricity distribution companies or water corporations.
Customer loyalty programs – brand equity
A business that continually demonstrates that it is good at what it does and lives by its values creates a good brand name.
By creating value for customers, the business earns the loyalty of the customers.
Customer loyalty programs -new invention or research
Companies with new invention or research with high capital investments can create monopoly in the market. Thereby enjoying monopoly loyalty.
Customer loyalty programs – Inertia loyalty
Inertia loyalty is formed when customers have a habit of buying from a business.
Typically customers are loyal to such a business because it is convenient and not because of strong opinions about the products or services.
For example, if a business is in close proximity to customers.
Loyal customers are laid-back and stick around because looking for an alternative is inconvenient.
However, this type loyalty is not enduring. Customers would switch as soon as there is another business that offers a more convenient option.
Inertia loyalty is common among bank and airline customers.
customer loyalty programs – price loyalty
Here customer loyalty is on the basis of price only. Keeping and maintaining customer loyalty depends on consistent and transparent pricing.
A business that makes use of a pricing management system tend to integrate price loyalty schemes to increase customer loyalty.
The extent of customer loyalty is influenced by the perceived value they are getting.
For example, price loyalty through special deals and discount programs.However, higher prices compared to competitors could easily sway customer loyalty.
Customer loyalty programs – incentivized loyalty
Customer loyalty is based on rewards. That is, influenced by customers ability to convert patronage into points.
In incentivized loyalty, customer patronage can be redeemed against gifts and other perks.
Customer loyalty programs – emotional loyalty
Customer loyalty based on emotional attachment to a business.
It is based on a deep connection to a business.Also, emotional loyalty can lead to lifetime loyalty.
This is because customers trust a brand and feel a level of intimacy with the brand.
Therefore, a customers with emotional loyalty develops an affinity and an attachment to a brand because they like it and can connect to it personally.
How SMEs can build customer loyalty
Customer loyalty is not a fixed quality in terms of degree but a continuum.
This means that, customers have different kinds of loyalties.
Therefore, it may be difficult to develop loyalty programs that would lead to a complete switch to your business.
An entrepreneur or a business owner would desire the commitment of a customer to their brand for as long as the customer needs the products or services; or for as long as the business exist.
The loyalty strategy of a business can be either offensive or defensive.
Offensive strategy i.e. to gain new customers (increase market or gain market share).
Defensive strategy i.e. to retain existing customers (building switching barrier or increasing customer satisfaction).
Typically businesses try to gain a larger market share of customers compared to their competitors and to keep them by:
- Providing excellent customer service.
- Advertising to remind customers of their product or services.
- Providing broad distribution channels.
- Building networks for word-of-mouth referrals to help establish the brand reputation.
- Making swift reparation. Correcting errors and mistakes as soon as possible.
- Keeping in touch with customers.
- Providing loyalty rewards.
Kinds of loyalty reward programs for SMEs
In this section, we’ll look at different kinds of loyalty programs that entrepreneurs and small and medium business owners can adopt for their businesses.
- Point system where customers are rewarded with points for every purchase made. Customers can unlock different tiers of rewards as they spend more.
- Flexible point-based program where members can choose their reward points. For example, customers can choose to use the reward to offset purchase prices of premium products.
- Running loyalty programs through apps. This is an easy option that eliminates the need for loyalty cards or sign-in.
- Partnered program through incentivized user-generated content. Customers can earn rewards for posting online reviews, video tutorials or their selfie with products.
- Membership loyalty program. For an annual flat fee, members get access to free shipping on some items and other perks.
- Value-based loyalty program. Customers do not earn monetary incentive. Rather, through every purchase, they get the opportunity to support different initiatives.
List of customer loyalty providers in Nigeria and what they offer SMEs.
Customer loyalty and rewards companies provide loyalty program services to small and medium businesses.
Here is a list of companies that offer customer loyalty and rewards solutions for small and medium businesses in Nigeria:
- Rewardsbox assists in the administration of rewards, incentives and loyalty programs.
- CityCard offers point-based and stamp-based – dual rewards styles. It also offers a 7-day trial.
- Dashket offers multiple advantages to customers through it’s point based loyalty program.
- Loyalty Solutions Limited specializes in integrated loyalty solutions. It supports businesses in the design, development and management of customer loyalty and reward programs.
- Skoybus is a FinTech that offers prepaid cards and loyalty rewards program in Nigeria.
- Loystar primarily targets small and medium businesses. The company’s goal is to help SMEs become more profitable by helping them build customer loyalty and repeated sales.