Customer retention is a huge challenge for retailers.

The cost of acquiring new customers is far greater —some studies suggest as much as seven times more — than keeping existing ones.

Creating a customer experience that is satisfying is a much more cost-effective strategy than constant prospecting.

Many find stopping customer churn to be a serious challenge but recognize the advantages of cultivating a base of customers: a 5% increase in customer loyalty can increase the average profit per customer, according to experts.

Retention can boost the average profit per customer by 25% to 100%, according to fitsmallbusiness.com.

Nurturing the emotional connection to your brand

Existing customers feel valued when they can participate in loyalty programs.

The programs foster a sense that they are getting a deal in appreciation for their repeat business.

Some businesses assume that by simply rewarding customers with discounts, shoppers will become more loyal.

However, cultivating a strong emotional bond between a brand and its customers is what makes it more likely that a customer will visit the store in the future.

For example, offering a sales discount as part of a birthday recognition personalizes the rewards experience to every member, making each feel special and recognized for being a loyalty club member.

Winning loyalty with new customers & millennials

While well-run loyalty programs that deliver customer satisfaction clearly improve retention rates, they can also be a means to attract new customers.

First-time shoppers can easily recognize a program that makes customers a priority and that anticipates and exceeds their needs as soon as they join.

Having a well-designed loyalty program not only keeps returning customers happy, but it also grows the retailer's customer base.

Millennials are the largest group of shoppers in the current market, and as a demographic, they are very brand loyal.

However, they are particular about what they are looking for in a loyalty program.

No punch cards for this generation — or trading stamps.

The key to success with millennials is building a relationship, and that's done through offering special experiences rather than coupons.

For example, a credit card that offers advance ticket purchasing for popular events; a coffee shop that gives members a heads up to seasonal drinks or a makeup line that provides VIP access to a celebrity Q&A on a social network are ways to make a customer feel special and want to be part of a loyalty program.

Loyalty programs are important to retain customers and attract new shoppers, as well as to help retailers forge deeper, richer, customer connections.

Happy customers spread the word, and prospective customers generally trust friends’ feedback more than advertisements or other types of marketing.

Loyalty programs help polish a retailer's image.

Humans want to feel known, and loyalty programs help retailers provide that experience.

By doing so, retailers reap the benefits of repeat customers while attracting new ones — and enhancing their brand's reputation.