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What Is Customer Loyalty Software, and What Can It Do for You?

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Investing resources to encourage your customers to refer others to your business will pay off significantly.

This isn’t mere speculation. In Gartner’s report, “CMO Insight: Build a Powerful B2B Customer Reference Program for Loyalty and Profits,” (full content available to Gartner clients) Analyst Adam Sarner empirically demonstrates that increasing customer references:

  1. Increases profits
  2. Decreases sales costs
  3. Lends your brand credibility

In a big-box world, competing with Amazon.com is like entering a boxing ring with Muhammad Ali—with one hand tied behind your back.

No offense…but I wouldn’t bet on you.

Large companies usually dominate when it comes to price, quality, and convenience in today’s marketplace. But, smaller, more flexible businesses actually still have an advantage over larger incumbents in one important way.

Many customers choose who they do business with based on customer experience (CX) over price, quality, and convenience. And when it comes to creating the kinds of customer experiences that get the purchase, the return purchase, and the recommendation, the lighter you are, the better able you are to float like a butterfly, and sting like a bee.

Great customer experiences, along with a well-executed customer loyalty program, will give your small business the upper hand. Earning customer loyalty pays dividends. Ideally, your customer loyalty efforts will do more than keep customers coming back; you want to get your customers to recommend you to their friends, families, and followers.

It should be a high-priority, then to turn loyal customers into brand advocates.

That’s why you need a customer loyalty program. A good customer loyalty program is made up of three parts:

1. Choosing targets and setting baselines

2. Incentivizing loyalty

3. Measuring results

I’ll go into all three parts in more detail below.

But first, we’ll take a look at customer loyalty software (CLS).

What is customer loyalty software

Like most business software, the purpose of CLS is to make your customer loyalty program as automated and data-driven as practical. Note that I didn’t say “as possible.”

There’s a wide range of functionality in terms of automation, data collection, and analysis. A CLS platform could be software that simply takes those loyalty cards that customers used to keep in their wallets and puts them online. Or it could be a custom loyalty automation platform that includes features such as SMS, email, and mobile app marketing tools along with detailed reporting on your customers’ visit and spend behaviors.

While the second option might sound better, it won’t always yield a positive ROI. Robust software with lots of features is often harder to set up, costs more, and is generally more difficult to learn how to use.

Before investing in CLS, ask yourself:

  • What questions do I need answered before I set up my customer loyalty program?
  • What type of loyalty program would work best for my customers?
  • What do I need to measure to determine whether my program is working?

Answering those questions tells you what processes you need your software to automate and what data you need your software to collect. That way you’re not paying for, setting up, and learning how to use features and functions that aren’t valuable to you.

Okay, so let’s talk about how CLS can help you through the three main steps of setting up a customer loyalty program.

1. Choosing targets and setting baselines

Customer loyalty software should help you answer the question: Who should I target first?

Begin with the customers who will bring the highest ROI the most quickly. Gartner’s report offers the following rubric for classifying your customers based on their loyalty and profitability. But any data-driven rubric will do to get started.

Image from “CMO Insight: Build a Powerful B2B Customer Reference Program for Loyalty and Profits” (content available to Gartner clients)

You want to identify:

  • Customers most likely to become loyal
  • Customers most likely to churn
  • Customers whose loyalty is likely to be most profitable
  • The difference in customer lifetime value between more and less loyal customers

Some CLS, especially platforms with CRM functionality, will help you gather and analyze the data to find out which of your customers is in which category, so you can target segments of your customer base separately.

When you know what questions you need answered to choose who your customer loyalty program should be targeted toward first, then you can look for software that makes finding the answers to those questions easy.

For example, if you run a restaurant, you might want to know who tends to spend the most per visit. Or, if you’re a retail store, who buys the most while taking up the least of your salespeoples’ time. If you tend to spend a lot on customer service, figuring out which customers require the least help can be valuable.

You also need to measure baseline levels of loyalty for all your customers. Some CLS is better at automating that process than others. I’ll get more into that below.

2. Incentivizing loyalty

Once you know who to target, the question becomes: How do I go about targeting them? Every good customer loyalty program involves incentives.

There are lots of potential ways to reward loyalty. These include:

  • Free or discounted products and services
  • First access to new products and services
  • Preferential treatment by customer support
  • Free tickets to events
  • Opportunities to speak at events

Having an idea of which incentives you think would be most enticing and inspiring to your customers will help you choose the CLS best for automating that reward system.

For example, a CLS that integrates with your e-commerce platform and CRM would work best if you think your customers would be most incentivized by discounts. If you think free tickets to events is the way to go, maybe you want a CLS that integrates with your event planning software.

3. Measuring results

All right. You know who you’re targeting first. You know what you’re going to offer them to reward their loyalty. Now, you need to know what you need to know to know whether it worked. Whew!

A well-functioning, robust customer loyalty program will yield measurable results. They could include any of the following and plenty more:

  • Case studies
  • Customer testimonials
  • Brand advocates
  • Sales referrals

Most loyalty programs track results. Make sure the software you buy tracks the results you’re looking to see.

In February 2017, Gartner asked 165 customer experience pros what technology investments they made in 2015 that turned out to have the biggest impact on their success in 2016. Customer analytics was the most popular answer, with voice of the customer coming in second.

Not only was customer analytics most impactful, it was also by far the most popular choice for CX technology investments, with 41% of respondents saying they plan to spend money on customer analytics technology in 2017. This was the most popular choice for the second year in a row. (Link not available. They have not made the results public.)

Customer analytics is so important because without it, calculating your loyalty program’s ROI with any accuracy or specificity is extremely difficult. And without baselines and the ability to measure them against loyalty levels after programs have been running for some time, you can’t really know with any certainty when or whether you should make changes to your customer loyalty program.

Tips for buying a CLS

When shopping for a CLS, consider these important points:

Keep customer preferences at top of mind

Fighting consumer preferences is a losing battle, and more and more consumers are choosing not to download new apps. Be sure to choose a CLS that doesn’t require customers to download an app. Based on Conversational AI Platforms Will Be the New Strategic Gateway for Retail Customer Loyalty in Digital Business” (content available to Gartner clients)

Invest in AI

In “Conversational AI Platforms Will Be the New Strategic Gateway for Retail Customer Loyalty in Digital Business” (full content available to Gartner clients), Gartner analysts conclude that “conversational AI platforms that anticipate the needs of users will become the new and powerful way to grow customer loyalty.”

Two macro trends are converging, and this is rapidly changing the way commerce happens online:

  1. First, one-to-one messaging platforms are growing faster than traditional one-to-many social networks, and people are downloading new apps at a much slower pace than in years past.
  2. Second, more and more people are using messaging apps to buy things, book things, ask questions about products and services, and otherwise conduct commerce. And most of these interactions are with artificial intelligence, not humans.

Advances in natural language processing have given birth to natural language generation (NLG). Think of NLP as “understanding what a human is saying” and NLG as “predicting what a human wants to hear and getting better at it over time.”

Gartner sees messenger apps as “a prime vehicle in the retailer’s strategy for driving customer loyalty and retention through personalization.” Gartner calls this trend “conversational commerce.”

Messaging apps have eclipsed social networks and are engaging consumers to conduct in-app commerce activities. Bots and virtual assistants are emerging as “conversational commerce” technologies to potentially transform both customer and enterprise workflows. Conversational artificial intelligence (AI) platforms will be the new gateway for impacting customer loyalty.

When purchasing CLS, favor options with built-in AI functionality.

Consider affiliate and reseller programs

Starting an affiliate program and/or a reseller program are a couple good ways to incentivize people to advocate for your brand. Adobe Digital Index shows affiliates generated 15.8% of online sales during the 2016 holiday season, more than email marketing, at 15.4%. So, choosing a CLS that supports programs such as these could be a good idea, if you want to have this option.

Going forward

Make sure, before you set up a loyalty program or start looking for software that you know:

  • What questions you need answered before you set up a customer loyalty program
  • What kind of loyalty program would work best for your customers
  • What you need to know to determine whether your program is working

Once you know that, check out our customer loyalty software directory to compare your options. And if your budget is limited, check out Best Free and Open Source Customer Loyalty Software.

Looking for Customer Loyalty software? Check out Capterra's list of the best Customer Loyalty software solutions.

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About the Author

Cathy Reisenwitz

Cathy Reisenwitz helps B2B software companies with their sales and marketing at Capterra. Her writing has appeared in The Week, Forbes, the Chicago Tribune, The Daily Beast, VICE Motherboard, Reason magazine, Talking Points Memo and other publications. She has been quoted by the New York Times Magazine and has been a columnist at Bitcoin Magazine. Her media appearances include Fox News and Al Jazeera America. If you're a B2B software company looking for more exposure, email Cathy at cathy@capterra.com . To read more of her thoughts, follow her on Twitter.

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