Just a few short months ago most economists didn’t think an economic downturn in 2020 was very likely. In Bankrate’s fourth-quarter survey of top U.S. economists last December, respondents put the likelihood of a recession at 35 percent—a decrease of six percent from the survey released in September 2019.
The whole world has obviously changed since then due to the spread of the novel coronavirus and the efforts initiated to reduce infection rates and deaths. With global commerce and travel at a near standstill in late March—and with no definitive end in sight—the vast majority of economists predict a global recession of uncertain duration.
Regardless of the length and depth of the downturn, companies of all sizes need to adjust their strategies and budgets in order to successfully navigate through a challenging and uncertain time.
One unavoidable challenge facing decision-makers is the reality of constrained budgets and the absolute necessity of getting the maximum value and revenue out of every dollar spent. Marketers would be wise to devote their attention and resources towards ensuring their loyalty programs are as effective as they can be.
Retaining Customers Is Key in a Challenging Economy
Here’s why devoting precious resources and time to running an effective loyalty program is so important when the economy is sputtering. Even in good times, investing money to attract prospective customers is expensive and difficult. When the pool of potential new clients shrinks in a downturn, the already daunting and pricey task of landing new customers becomes even more challenging.
Focusing on retention through an effective loyalty program is a better strategy. In fact, a study by Bain & Company that was published in the Harvard Business Review found that a 5 percent increase in customer retention rates increases profits by between 25 and 95 percent.
A well-designed and valuable loyalty program is a powerful tool for customer retention. Think about it: when someone signs up to participate in a loyalty program, they are self-selecting and demonstrating their willingness to be one of your best customers. The task for companies running a loyalty program is to create such a compelling value proposition that existing customers will see that shopping with a competitor has opportunity costs that are far too high to seriously consider.
It’s easy enough to see how that works. Members of airline loyalty programs receive attractive benefits, like upgrades to first-class and access to premium lounges that serve free food and drinks. Because airline passengers value those rewards, they are hesitant to give them up by booking flights with a different carrier.
How Loyalty Programs Help Companies Understand Their Customers
Making the commitment to devote precious resources to a loyalty program is a good start. But in an economic downturn, it’s more important than ever that the program delivers the sort of value that will ensure customers remain loyal. Put another way, it’s just not enough to guess about the rewards and benefits your existing customers will value; you have to be certain that what you offer will resonate with them.
It’s a job that requires research and data and sophisticated analytics to do properly. The good news is that loyalty programs by their very nature generate the kind of customer data that, if used properly, can help companies continuously optimize and enhance their offers in a way that cements their loyalty.
Indeed, loyalty programs deliver a treasure trove of data about how and when customers shop, what they buy, and what they consider purchasing but ultimately decide not to buy. With the right tools and technologies, this information can be used to craft personalized offers and rewards that will be especially appealing to individual customers. Loyalty programs also provide valuable data about which customers spend the most with you, which helps companies prioritize marketing and outreach where it’s likely to yield the most revenue.
Another important benefit of a sophisticated loyalty program is that it helps marketers be nimble and flexible. This is important all the time, of course, but it’s particularly critical during an economic downturn because nobody can afford to spend money on an initiative that isn’t yielding results.
By contrast, when companies have access to real-time information about the purchases and behavior of their best customers, they can see how they do or don’t respond to changes in rewards and benefits but also discounts and in-store or online promotions. With the information generated by a loyalty program, companies can run small, relatively risk-free initiatives to see what resonates most with existing customers.
Strengthening the loyalty of existing customers is always a smart business strategy. During an economic downturn, it’s more important than ever.