Taking the Path of Greater Returns

Is it more cost-effective to keep steadfast clients or to secure new ones?

Loyalty programs are a common business practice in different industries, including in the spa, beauty, and wellness space.

The two basic intentions are to use the program as an attraction to become a customer or as a reward for being a customer, and thus remain loyal to the business. Typically, rewards grow over time and are based on a certain set of criteria, usually purchase volume, to keep the guest purchasing from the business.

Loyalty programs can be an invaluable asset to your spa business. Whether offering membership perks, points, or products, these programs can contribute significantly to your spa’s annual sales.

Grow Your Business
There are only three fundamental ways to grow any spa business. Get new guests, get them to spend more when they come, and get them to come more often. A healthy spa business generally has 80% repeat and 20% new guests.

The truth is, many spa owners lean toward investing most of their marketing dollars and efforts on reaching new clients. Yes, new business is relevant; however, more than 80% to 85% of the revenue a typical spa business generates comes from existing guests, with only 15% to 20% coming from new guests. Most often, the investment in loyalty programs represents only 5% or less of a spa’s marketing budget.

Why, then, aren’t we focusing more on the clients who are already in front of us? We have the unique opportunity to enhance emotional engagement with each client throughout several personalized touchpoints during their spa visits. Did you know that 70% of emotionally engaged customers spend two times more on the brand they’re loyal to?

Your business stands to collect a healthy ROI on this minimal investment. A loyal client’s average spend is 67% higher than that of a new client.

In addition, the cost to retain a guest versus attracting a new one is three to 10 times less expensive.
Why do good loyalty programs work? They’re so commonplace in all types of businesses: coffee shops to credit cards, to office supplies. Consumers are looking for “value” in their ongoing relationships with the businesses where they spend money.

There’s also the basic law of social psychology referred to as reciprocity. It means, in social situations, we tend to pay back what we receive from others. So, when you provide discounts, value-adds, free items, or opportunities, your guests will be inclined to “pay you back” (i.e., return the favour).

Every single credit card company offers something and, in fact, is a major contributor to the customer’s decision-making process. You’ve likely seen that in your own life. What kind of points can you earn, and what can you get for them?

If the public is spending money at a spa, any spa, why wouldn’t they look for one that has an established program in place that rewards them for spending more, coming more often, or even providing referrals?

KEYS FOR A SUCCESSFUL LOYALTY PROGRAM
When we evaluated successful spa loyalty programs, we found five common elements throughout.

Be Guest First-focused
Programs with long-term success have the guest in mind. What kind of options and benefits will they enjoy? Will it matter to them that they’re accumulating benefits? Free services, upgrades, or products, or discounts on services and products?

And keep it interesting. Keep introducing new and different ways guests can be rewarded. It may be early access to new services or products. It may be special offers for limited times that are exclusive to loyalty members, or an elite level of members based on their spending habits.

This may also include level-based rewards, where guests achieve elevated levels within the program based on how much they spend. The more they spend, the more they get.

Be Financially Responsible
We see many programs abandoned or changed, with some negative impact, because the owner didn’t project what the program might cost and if it’s sustainable. Investing back into your loyal guests has a simple financial element. What can you afford to spend if they all use the program? And assume most will.

Most times, the program will invest 1% to 2% back to the customer, based upon a typical 10% to 15% profit margin for the business. Remember, that 1% to 2% is not on every dollar spent in the business.

Be Easy to Understand
Do your guests understand “what’s in it for them”? Can they simply refer to a document or a website where they can see what they need to do to earn the reward, what they’ll get, and how they’ll get it?

This also goes for your team. Can they—in simple, plain, and efficient language—explain to any guest why they would want to be part of the program and how they can participate?

One example of an easy-to-understand program is earning a point per dollar spent. The guest can then redeem their points for a selection of items where you’ve applied a value of points to each. This can be for services or retail. Retail is often overlooked in spa loyalty programs but is often considered valuable by guests. They can use the product or give it away as a gift. They consider receiving a “free” item, that they’d usually spend money on, a true reward.

Be Easy to Redeem
Can guests redeem their rewards easily and without fuss? We’ve all been part of a loyalty program where it seems great until we want to redeem our rewards. Then there are all kinds of rules or restrictions that make it much less appealing. Airlines used to be notorious for this: limited seats, flying only certain days and times, having extra costs built in. It caused airplane travellers to simply think more about the price of the flight rather than the airline or the benefits they received. Thankfully, many airlines have seen the error in this and have adopted a much more flexible program where travellers can redeem for any open seat.

This has also resulted in airline loyalty programs allowing travellers more price flexibility. In fact, many airlines now give options whereby you earn more “points” when you pay a higher price for the flight. If those doing the math for the airlines are smart—and we trust they are—they’ll earn far more for the increased price of the ticket than the cost of the loyalty reward. This emphasizes how powerful loyalty programs can be in influencing buyer decisions.

Be Measurable
Is the program measurable for you and your guests? No spa owner or operator wants more administration. Make no mistake, there is work here, but the best programs are ones you can track without human intervention. Many software programs now feature loyalty programs that are measured, tracked, and redeemed within the system.

Next-level tech is where guests can check on their loyalty status with the use of an app or website. This is most common for franchises or multi-unit operators, but it’s being adopted by more software programs as time goes by. Check out if yours already does.

In the end, the greatest strategy your spa business can employ to retain your guests, and build loyalty, is to consistently provide great service. If you can provide better service than all your competitors, you’ll always win. However, employing a loyalty program that shows you appreciate your guests and are grateful for their business helps them make the decision to stay with you and not even try a competitor.

Over time, this critical strategy will help to maintain, and grow, a committed group of loyal followers.

By Robert Cass and Antonella Calandra