For Business Owners

Who should businesses reward? New shoppers or loyal customers?

Heather Young
Customer Loyalty

Despite different moves by the government to improve the situation for consumers, people are increasingly experiencing unfair costs from certain companies or providers. Why? As a ‘reward’ for customer loyalty. In many cases, it has been found that new customers can get a better deal on services than a lifelong customer would. This poses a difficulty for some members of society who would be unwilling or unlikely to switch. Especially for those who are more likely to remain loyal despite the unfair treatment. What can local businesses do better? How do we reward customer loyalty as well as incentivise new customers to visit? Here are our thoughts.

Which markets are most affected?

You hear about new customers getting better deals than loyal customers quite a lot actually. Although, mainly in a certain few industries. This includes financial services (e.g. mortgage lenders or banks), energy companies, broadband providers, and others like TV providers too. That said, many high street cafes and restaurants also offer great deals to new customers, for example, a free hot drink or lunch when you download their app for the first time! Often, deals like this just aren’t available to those customers who have been loyal to a brand for a long time- which is not a great state of affairs, especially when it can cost 5x times as much to acquire a new user, than to keep a loyal one.

Are new customers getting better deals than loyal customers?

By the looks of articles on the topic, it appears they are! Here are some examples:

  • When it comes to insurance policies, “In Britain, regulators have calculated that customers are, by their fifth renewal, paying about 70% more than a new customer.” (The Conversation, 2019).
  • Many banking providers are offering new customers “free money” just for switching accounts, up to £175 according to one article (This Is Money, 2019).
  • The Post Office provides one savings account which for new customers has an interest rate of 1.45%, however, for anyone who has had an account open for 12+ months, this decreases dramatically to 0.25% (Money Observer, 2019).
  • A study by Which? showed that people who had stayed with their insurer for 15 to 20 years were paying 75% more than new customers (Which?, 2019).

There are more examples than just these few, but you can see where we’re going with this. Time after time, loyal customers have to deal with expensive renewals and costly charges. Often it seems they are paying for the discounts that are being given to brand new customers. As the This Is Money article mentioned above put it, customers are now being rewarded for their dis-loyalty.

English bank notes represent discounts given to dis loyal customers

What’s wrong with using a promotion like this?

Well, without stating the obvious, promotions like this are seemingly unfair on the customers who have been paying for a service for years. These customers may have been accepting any price increases without question. The lack of transparency around deals available is also an issue. Loyal customers may not be given the opportunity to take advantage of the same deals being offered to new customers. It’s obvious that the general consensus on this topic is that providers need to step up to the plate and start dishing out fairer deals, with the government chipping in, giving a competition watchdog “the power to issue fines to firms which overcharge or mislead their customers” or in any way impose a loyalty penalty upon their repeat or long-time customer base (The Telegraph).

Sometimes, it’s not even the actual price of the product or service that is to blame.

Some companies add on a small price increase with each renewal a loyal customer goes through. Often, this price increase just isn’t communicated very well. Martin Lewis, of the Money Saving Expert, stated that “lack of communication about auto-renewal” is one of his “specific instances of unacceptable barriers to switching”, referring to switching your product or service provider in order to take advantage of new customer deals.

Girl with megaphone to represent communicating with your customers

Why bother with customer loyalty?

As we mentioned earlier, it can cost much more to acquire a new user than to hold onto an existing one. Loyal customers are more likely to spend more, and visit your business again and again. What's more, they're more likely to tell their friends and family about you with word of mouth now a key factor in purchase decisions. It's a no brainer when over 70% of consumers say they prefer brands who demonstrate their appreciation.

What can you do to help provide a fair service for your loyal customers?

So, if you want to make sure you’re providing a fair and equal service for all of your customers, what can you do?

  • Openly communicate with all of your customers

First of all, it’s important that you keep channels of communication open with all of your loyal customers. When it’s time to renew, let them know! If there are any price increases or opportunities to move to a better plan, make sure they know about it. Give them the chance to opt-in or out as applicable.

  • Offer incentives to stay with you

It’s all well and good having great deals and discounts for new customers, but make sure you give your regulars an incentive to stick around. Whether it’s perks like O2 Priority, or a discount when you renew a subscription.

  • Reward loyalty- do you have a customer loyalty program?

You should also consider implementing a customer loyalty program! In particular, if your product or service is more of an impulse buy than an essential like insurance or energy. Loyalty programs are proven to increase customer retention. They can help your customers to feel valued- whether they’ve been around for 5 days or 5 years!

Are you a local business looking for a loyalty program to help you reward your frequent customers and attract new folks through your door? Swipii can help you boost sales and retention through cashback incentives. Visit Swipii for Business to find out more or book a 30 minute demo with our team!