The retail industry is all about creating lasting relationships with customers. In this fiercely competitive space, businesses need to invest in strategies that not only attract customers but also retain them. Two concepts that play a significant role in this industry and are often seen used back and forth are CRM and Customer Loyalty.
A lot of marketers get confused between the two terms so this blog will help you break the tension and bring some clarity. We'll explore the differences between CRM and customer loyalty, how they complement each other, and why businesses need to understand and leverage both.
What is a CRM?
A CRM or Customer Relationship Management software is a tool that helps you in organizing managing and analyze customer information and data to improve customer retention, loyalty, and overall satisfaction. A business can use a CRM in many ways, such as:
1. Breaking data into valuable insights
Analyse customer data, such as customer profiles, purchase history, feedback, and social media interactions to develop a deeper customer understanding
2. Running Multi-Channel Digital Campaigns using customer understanding
Retailers can create highly targeted and personalized campaigns across multiple digital channels such as email, social media, and mobile apps
3. Track & optimize all your campaigns in one place:
A CRM system provides a centralized platform for managing and monitoring all marketing campaigns.
The primary goal of CRM is to build long-term relationships with customers by enhancing their experience, engagement, and satisfaction. By doing so, businesses can improve customer lifetime value (CLV) and maximize revenue potential. In essence, CRM is a powerful tool that allows businesses to understand their customers better and provide them with the best possible experience.
Learn more about the use cases of a next-gen CRM here
What is a Loyalty Program?
Loyalty programs are a clever way for businesses to say, "We love you, and we want you to keep coming back!" Simply put, loyalty programs are marketing initiatives designed to reward customers for their repeat business by offering incentives such as discounts, special offers, or exclusive access to products or services.
A loyalty program can help a business in many ways, such as:
1. Creating Stickiness to Drive Retention
Loyalty programs aim to encourage repeat business by offering rewards or discounts, reducing churn, and increasing the Average Ticket Value.
2. Reward Loyal Customers & Build Brand Advocacy
Loyalty programs enable brands to demonstrate their gratitude to loyal customers and incentivize them. This helps to strengthen customer relationships and develop a favorable brand reputation that stands out in a highly competitive marketplace
By incentivizing repeat business, these programs aim to increase customer retention and encourage higher spending. Moreover, they are also a great way to reward your loyal customers making them feel appreciated and valued, creating stronger relationships, and building a positive brand image.
Learn more about the use cases of a loyalty program here
The difference between CRM & Loyalty:
For any brand looking to improve its customer relationships, starting with a CRM program is typically the way to go. A strong CRM ecosystem allows brands to collect and analyze customer data, which can provide insights into customer behavior, preferences, and needs. By understanding this data, brands can improve the overall customer experience and develop targeted marketing campaigns that resonate with their audience.
In essence, CRM is a tool that works for a larger customer base. It includes the database of all existing customers from all the sources; offline & online.
Once a brand has a solid CRM program in place and a better understanding of its customers, it can then move on to implementing a loyalty program. Unlike CRM, loyalty programs are designed to reward the top 20-30% of a brand's most loyal customers. These customers are typically the ones who are willing to engage with the brand on a regular basis and provide repeat business.
The aim of a loyalty program is to make these customers feel valued and provide them with incentives to keep engaging with the brand. By doing so, brands can increase customer retention, encourage repeat purchases, and build long-term relationships with their most valuable customers.
A quick example to explain how loyalty programs and CRMs work.
How does CRM work:
- Let’s say you visit a clothing store & make a purchase. The store's sales associate asks for your contact information while you shop & you happily provide the same.
- You immediately receive a Whatsapp message from the store thanking you for the purchase.
- Later that week, You start receiving Instagram ads offering you discounts on your favorite products from the store.
- You got impressed with the personalized communication and take advantage of the discount by making another purchase.
This is a CRM working in the background, keeping a track of your interactions & analyzing that information to send you personalized communications.
Now, let us see how a loyalty program works.
1. Let's say a clothing store launches a loyalty program that rewards customers with points for every purchase they make.
2. Sarah, signs up for the loyalty program and makes her first purchase, earning 100 points. On her second purchase, she uses 50 of her earned points to receive a discount on her order.
3. She also receives an exclusive discount code and early access to a sale because of her loyalty program membership.
4. As Sarah continues to shop with the online store, she earns more points and receives more exclusive benefits, which makes her feel appreciated and valued as a customer.
That’s the loyalty program enticing Sarah to stick with the brand & buy again & again from the brand!
I hope now it is pretty clear how a CRM works and how a loyalty program comes into action. Now, the question is, what does your brand need?
Do you need a CRM or a Loyalty Program?
In my opinion, a brand needs both. The question of whether you need a CRM or a loyalty program is not an either-or scenario. Both tools serve different purposes and are important tools for building strong relationships with your customers and enhancing their shopping experience.
“However, brands must remember that having a robust CRM Program is a building block towards having a successful loyalty program. “
A strong CRM system can provide you with valuable insights into your customers' behaviors and preferences, allowing you to tailor your loyalty program to their needs and interests. By tracking customer data such as purchase history, browsing behavior, and demographic information, you can identify patterns and trends that can inform your loyalty program strategy.
Finally, by combining both tools, you can achieve the best of both worlds and deliver personalized experiences to your customers, ultimately leading to increased customer retention and higher sales.