From a business perspective, it makes sense to focus your resources on retaining and growing customer relationships as it usually costs more to acquire customers than to keep them. With consumers having more information, more and more control over the buying process, brands must dedicate more resources to engage, keep and grow their customer relationships. Many brands are accomplishing this through the use of loyalty programs. And if you look at the statistics, it makes perfect sense.
Importance of Customer Loyalty Programs
- 73% of loyalty programs members are more likely to recommend brands with good loyalty programs, which equates to a boost in member acquisition and reduced marketing spend. 
- 70% of consumers are more likely to recommend a brand with a good loyalty program. 
- The return on loyalty program investment is higher than ever. Engaged consumers buy 90% more frequently, spend 60% more per transaction and are five times more likely to indicate it is the only brand they would purchase in the future. All of these factors lead to engaged customers delivering three times the value to the brand over the course of a year. 
- 75% of consumers say loyalty programs are part of their relationship with brands. 
- 63% of consumers say they modify their spending habits to maximize loyalty benefits. 
- 41% of U.S. consumers are loyal to brands that offer them the opportunity to personalize products to create something that is bespoke to them. Fifty-one percent are loyal to brands that interact with them through their preferred channels of communication.
- 77% of consumers say loyalty programs make them more likely to stay with brands. 
The benefits of loyalty programs are clear, but it needs to be said that consumers that take part in loyalty programs are only active in around half of the ones they’ve joined. The question is: how can you create a loyalty program that engages your customers and keeps them coming back?
Here are five steps to get you started designing your loyalty program strategy:
Step 1: Be Crystal Clear about Your Goals
In general, loyalty programs are often developed with good intentions, but unclear objectives. This can sabotage your loyalty program from the start. A loyalty program cannot be mass and exclusive, loaded with benefits and cheap. Take a critical look at your primary business objectives. Do you want to retain existing customers? Acquire new customers? Improve the customer experience? Successful program execution is based on developing and implementing a program that supports your primary business objective.
Goals of Loyalty Programs
- Keep customers from defecting
- Increase revenue
- Gain customer insight about purchase behaviors and preferences
- Target marketing
- Win greater share of wallet (Think increased spend and frequency of purchase)
- Build brand loyalty
- Build customer relationship
- Differentiate from competition
- Acquire new customers
Step 2: Build a Program Around the Customers that Create Value
One of the things you have to realize is that some customers are more valuable than others.
When customers enroll in a loyalty program, they allow companies to collect valuable profile, preference, and behavioral data that companies should use to uniquely recognize, reward, and communicate with them. Segment your customers and prioritize them to focus on their potential economic impact. Avoid rewarding “free riders” — loyalty members that join your program, but give you nothing in return, and instead focus your efforts on profitable, loyal customers.
Step 3: Determine the Best Value Proposition and Program Structure
If you’ve identified your best and potential long-term customers, it’s easier to figure out a value proposition that makes sense. Keep in mind that consumers crave flexible loyalty programs. 80% of consumers want to earn rewards regardless of whether a purchase was made in store, on a website or on a mobile device (81%) and to choose among several types of rewards.  You want to offer rewards and benefits that are attractive to them and have a high perceived value. While discounts are important to some customers, for others advance notice of sales, personal attention and convenience are the factors that create loyalty. Your customers are diverse, consequently, your program needs to acknowledge these unique customers attitudes, behavioral drivers, and needs by speaking differently to each of them.
Types of Loyalty Programs
The loyalty schemes listed below are six of the most popular types of loyalty programs. The article, What are the Different Types of Loyalty Programs, provides a brief over of each type of loyalty program, the pros, and cons of each and examples of how the loyalty schemes have been successfully applied.
Discount Loyalty Program
Fee Based Loyalty Program
Tiered Loyalty Program
Coalition Loyalty Program
Loyalty Program Design Fundamentals
In designing a loyalty program, there are five key elements of successful loyalty programs and some tradeoffs that need to be considered. You want to ensure that you engage the right customers, make it easy for them to enroll in your program, make it easy to use your program, and clearly communicate how the program works.
Step 4: Create Compelling and Meaningful Communications
To engage your customers, effective communication is a must. You need to study customer behavior (CRM analytics and data will help immensely) as well as look into the demographics. Create offers that add value, reach out when it makes sense, and showcase the right products. It also helps to personalize your communication if possible. For example, Sephora creates personalized product recommendations for its Beauty Insider members.
Customized Marketing Strategy Example
Step 5: Identify Metrics to Evaluate and Measure Loyalty Programs
Like all your other channels and marketing strategies, it’s important to pay attention to the metrics to understand what’s going on and get an idea of what to do differently to make improvements. It’s especially important to see if your program is meeting your goals. Here are ten loyalty program metrics marketers need to monitor.
10 Metrics to Measure Loyalty Program Success
- Total Membership
- Customer Lifetime Value
- Net Promoter Score
- Redemption Rate
- Active Engagement Ratio
- Breakage Rate
- Participation Rate
- Retention Rate
- Repeat purchase Rate
Do’s and Don’ts for Creating a Best-in-Class Loyalty Program
– DO differentiate members by value. Focus your resources on your best customers and make sure you clearly communicate they’re getting exclusive rewards/benefits for their customer loyalty.
– DO mobilize. Having a mobile-friendly site, implementing mobile marketing, and using mobile apps will be a big part of engaging with and marketing to your customers. Forrester Research found that 84% of consumers access the Internet from their smartphones while in a store, and 65% use their mobile device to find coupons online. Delivering relevant real-time messages is a powerful tool for engaging customers and fostering customer loyalty.
– DO embrace an omnichannel customer experience. Customers that shop in multiple channels are 5 to 8 times more valuable than single-channel shoppers. A loyalty program provides brands with the perfect venue for creating a seamless customer experience and effectively manage the customer experience.
– DON’T make things complex. Simplicity is what gets people to take action and take part in what you have to offer.
– DON’T focus solely on sales and revenue numbers. Customer loyalty can lead to the growth of your brand, give you a better understanding of your audience, and help differentiate your brand in a competitive marketplace.
To sum up, nurturing customer loyalty is one of the best ways to maintain and grow your business. To create a truly effective loyalty program marketers need to authentically fulfill the customer’s needs, recognize and reward both customer loyalty and engagement.
SOURCES: 1. Bond 2018, 2. Rosetta, 3. Accenture 2017, 4. Nielson 2016 Global Loyalty Report,
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Filed under: Brand Loyalty