Whether it’s the fan favorite coffee stamp card or a ten-tier portal, loyalty programs offer a valuable way to reward your existing customer base. In fact, 70% of consumers agree that the loyalty program of their favorite brand is a factor in their lasting loyalty.*
The depth of your loyalty program varies with your unique business model and customer retention strategy. We created this straightforward guide to help you identify what you want to achieve with your loyalty program methods for creating it.
1. Define Key Outcomes
Sometimes the best thing you can do is start with the end in mind. What is the primary motivator for building a loyalty program and what do you hope to achieve?
The responses will vary but consider the following outcomes:
- More revenue per client
- Customer retention
- Customer satisfaction
- Positive customer ratings
- More referrals
Your preferred outcomes will dictate the structure of your loyalty program. Depending on how simple or complex you choose to make it, you can choose a few or all of the outcomes!
2. Know Your Business Model, Know Your Customer
Your program must align with what processes make sense for you. Is your business model dependent on referrals? Do you need more revenue during the fourth quarter? The way your business model functions determines what rewards you should offer—and when.
Integral to this is the understanding of your customer base.
A loyalty program, by definition, shouldn’t just work for you—it should work for them. If your customer derives no value from your program, it can negatively affect your relationship and your business.
Prior to implementing your program, ask your customers what rewards they’d like to see. By knowing what they value the most, you can position your program to achieve participation and customer satisfaction.
3. Determine Your Loyalty Program Structure
There’s no one size fits all approach to the structure of your program. Explore the following structures to identify what provides the best value for you and your organization.
Point-based programs:
A point-based structure is the most straightforward approach. Purchases result in points. The more purchases, the greater points. The greater points, the more opportunities for rewards. Once a certain number of points are accumulated, the customer can “cash in” for discounts—or unlock other valuable or exclusive offerings.
Examples: Barnes & Noble, Chipotle
Tier-based programs:
This approach segments your customers into different tiers based, most often, on their spending level. It can be as direct as a Tier 1-5 or as bougie as silver through platinum. Each tier provides the customer with greater rewards, or more frequent rewards to encourage continued patronage or engagement.
Examples: Hilton, American Airlines, Thai Chili to Go
Value-based programs:
This structure takes a more altruistic approach to customer satisfaction. Instead of offering incentives that benefit the customer, like discounts, the organization donates to a charity.
Sometimes, the customer may choose their preferred charity. Other times, the organization picks the charity after considering their own values and the values of their customers.
It’s not uncommon for companies who use the value-based approach to also use a tier or points-based system. For example, Sephora allows their loyal customers to level up to new tiers and earn freebies. They also, however, allow customers to donate their points to specified charities.
Examples: Sephora, Marriott, Chase
Subscription-based programs:
With a subscription-based loyalty program, customers can enjoy rewards for a monthly or yearly fee. This is a “pay to play” model that allows customers immediate access to benefits instead of accruing them purchase by purchase.
These programs may feature free shipping, exclusive discounts, offers, and more. If you provide significant value through your loyalty program, your customers will pay to participate.
Example: Amazon Prime, Dollar Shave Club
4. Develop Your Experience
Now that you know what structure aligns with your company, it’s time to develop the experience itself.
- Identify the Rewards:
What will you offer for each point, tier, or subscription? Will the points accrue automatically (i.e. with each purchase) or require participation (i.e., post a review, follow you on social)
- Determine the UX:
How will your customers enroll? Do you need a landing page for subscription submissions or does an online portal or app make more sense? Whatever you decide, make it easy for your customers to track their progress.
- Beta Test Your Program:
Instead of launching with your entire customer base, consider conducting a beta test first. By rolling your program out slowly, you can identify any potential problems and ensure your program is up to snuff.
5. Share the Word
Create a roll-out protocol with your staff to ensure your customers are aware of the new program. Prior to launch, ensure you’ve communicated your program with all stakeholders.
Work with your marketing team to promote it via:
- Email
- Social media
- Website
- Signage, if applicable
To increase your rate of initial adoption, consider offering a bonus for those who refer their friends to the program.
6. Track and Optimize
It’s important to track the results of your loyalty program so you can see what’s working. Measure activity levels, and length from enrollment to redemption. If it takes too long to taste the first reward, your customers may opt out.
To help expedite the optimization process, push an anonymous survey to those enrolled. This will enable you to identify holes and provide a more valuable experience to your customers.
A Note on Best Practices
Keep it simple. There’s a temptation to create too many procedures for your program. Your customers want a straightforward system that requires minimal thought. If they have to ask how they can level up or redeem their rewards, you’ve made it too complicated.
Offer exclusive benefits. Give your loyalty program members access to exclusive benefits to keep them excited. This could include early access to new products, special discounts, and members-only events.
Beware over-optimization. Optimization is helpful, but constantly changing terms of use, redemption methods, or point accumulation won’t help you. Tailor as needed, but too much change will cause less engagement.
By following these tips, you can create a customer loyalty program that will help you attract and retain customers, drive sales, and grow your business. Cheers!
*Cheetah Digital, 2023 report