If your business is considering creating and implementing a customer loyalty program, you probably have a wide range of questions on the topic...
‘What makes a successful loyalty program?’ is probably one of them.
As I’m sure you are aware, the ultimate goal of a customer loyalty program is customer retention. Why is this important? Because customer retention = profits!?
However, simply having a loyalty program is not enough to guarantee long-term value. There are thousands and thousands of loyalty programs in the market today, so it’s imperative to ensure your loyalty program stands out against the others in order for it to be successful.
So, what makes a successful loyalty program?
In a nutshell, an effective loyalty program is one that is well-designed, implemented, promoted and maintained.
The below tips will help you build a loyalty program that will increase customer retention, strengthen customer relationships and build brand loyalty.
These 7 tips will help you create a successful loyalty program:
1. Keep it simple
In our experience, we’ve found that the best rewards programs are simple and transparent for the customer to understand: “Do X, Get Y”. A good program clearly states what behaviour X is and what the reward is in return.
Stamps and punch cards are very effective at doing this because the action and goals are very clear to the user. Physical card programs attached to point of sale systems are not so good at achieving this and are usually not transparent to the customer.
Hotels.com, owned by travel booking titan Expedia, have stated that the phenomenal success of its travel loyalty rewards program of “Get 1 nights’ free accommodation after 10 nights” has been due to the simplicity and transparently of the program. This program now has over 29 million members.
For travel and loyalty, the simplicity of this program stands in stark contrast to points-based programs offered by banks, credit cards and airlines where the connection between the action and the reward are generally not well understood, which can disengage the average user.
So remember, simplicity is the key!
2. Make the loyalty rewards attractive
I'll repeat this once more: Make the rewards attractive to your customers.
This might seem obvious, however, you’d be surprised at how many businesses offer rewards that have hardly any value to their customers, then wonder why their loyalty programs aren't successful.
Here are some recent examples of unattractive loyalty rewards offers we have seen:
- A professional cycling shop where a customer needs to spend £500 to receive £5 off merchandise – seriously, a 1% discount for their loyalty?!
- A corner convenience store, where the customer needs to spend $200 to receive a free bag of potatoes. First of all, this is an extremely specific and random reward which isn’t likely to ‘a-peel’ to all customers (ha ha), and it also requires the customer to spend quite a lot for a free sack of potatoes.
Clearly, in these instances, the merchants are looking at the program incorrectly. They have focused on the potential cost to them rather than the potential long-term customer value.
We say potential, because the reward is only a cost once the customer meets the requirements of the program. In these instances, the rewards are so unattractive that they’ll never cost the business any money because no one is going to join the program in the first place!
Furthermore, their businesses come across as being stingy, and almost insulting to their customers for promoting the programs in the first place.
What would have been a much better reward for the convenience store is a $20 voucher/credit for the customer spend on their next purchase. Why? Because the reward is relevant to all customers, provides good value and also encourages the customer to come back to purchase from the store (they get nothing from the customer sitting at home eating mashed potatoes).
So, if the customer is going to enroll in your loyalty program and provide permission for you to communicate with them, it is only fair that your business provides a reward of value in return. It is an unwritten agreement!
Chances are that if it does not sound like a good deal to you, it is not going to be a good deal for the customer either.
If the reward is attractive, your staff will also be more likely to want to promote your program to the customers.
3. Ensure the rewards are obtainable
Assuming normal buying frequency, the duration to receive a reward also needs to be considered.
My hairdresser offers a free haircut after 7 stamps on the shop’s stamp/punch card. I get my haircut every 6 to 8 weeks, which means I enjoy a free cut once a year. To me, that is obtainable. However, I would not have bothered joining if I needed 12 stamps before being rewarded a free cut. Why? Because it would take too long to achieve and I would need to spend a lot of money.
This may seem like an obvious pitfall to avoid, but there is no shortage of customer loyalty programs which failed as a result of a poorly designed rewards system.
4. Make sure the rewards are relevant
The best rewards are aligned with your product or service you offer. The customer has joined your loyalty rewards program because they like your core product or service, so it makes sense that your reward is reinforcing that behaviour.
If you are an Italian restaurant, the reward for your loyalty program should ideally be based around a food and wine theme – for example a free pizza or pasta, or perhaps a complimentary bottle of wine. It doesn’t need to be a physical product; it could also be an experience like a cooking class or a chance to win a trip to Italy. Something that your customers would value!
If you’re a fashion boutique, the reward should ideally be apparel-related. It could be a voucher to spend in-store, an invitation to a fashion show, a complementary fashion appraisal or some other experience that makes the customer feel valued and special.
5. Give customers an incentive to join!
We live in an age of instant gratification. Programs that offer an immediate incentive to join will be much more successful in gaining enrollment than those that don’t.
Stamp Me has found that businesses which offer a reward upon sign-up have 3 times more enrollments than programs which didn’t.
The sign-up reward doesn’t need to be big; a small token of goodwill at the start goes a long way to building trust and loyalty with your program.
6. Surprise and delight customers along the way
Initially, customers will want to join your loyalty program to receive the special discount or reward. As discussed in the previous point, this great way to get them to join the loyalty program, however, keeping them engaged with the program is equally as important. Many businesses forget this and wonder why their customers aren’t using the program.
The 2017 Loyalty Report study found that American consumers belong to an average of 14 rewards programs, however, they actually only actively engage with half of them.
This suggests that consumers are likely to forget about using a loyalty program if there is no incentive to continue. There are thousands of loyalty programs available today, so it’s important to make sure yours stands out.
How do you do that? Surprise & delight your customers along the way!
Here are a few ideas to for how to engage with your loyal customers:
- Offering ‘exclusive’ deals & complimentary benefits to loyalty members
- Give status and make them feel special by referring to loyalty program participants as 'VIP members'
- Offer random interim rewards along the way. Interim rewards a great way to ensure your customers maintain interest in your loyalty program.
We live in a digital world and customers now expect convenient and personalized experiences.
The Loyalty Report 2018 revealed that 95% of consumers want to engage with loyalty programs through a mix of emerging and growing technology.
Instead of carrying around another paper or plastic card, customers now store their loyalty cards on their phone with a loyalty card app. If you don’t go digital, chances are you’ll find it very hard to compete above your competitors who have.
A digital loyalty program will also help you gain valuable insight into your customers. You can collect information on demographics, spending behaviour, preferences, frequency of visits, and so on. This helps you understand your customers and market effectively to them.
Knowing “who, what, when, where and why” will allow you to develop smart and personalised offers for each customer, which in turn enhances their experience with your brand and shows that you truly value them.
I know what you’re thinking… “But isn’t it expensive to implement a digital rewards program?” Well the answer is no. Actually, it’s very affordable, especially if you use a loyalty card app to implement and manage your loyalty program. Find out how much our loyalty app costs here.