Creating a Customer Loyalty Program That Works

Creating a Customer Loyalty Program That WorksCreating a customer loyalty program that works is the holy grail of marketing. Why? Because numerous studies show it’s significantly more expensive to acquire a new customer than it is to upsell an existing one. And loyalty programs are the easiest tool to prompt your customers to increase both the number and dollar amount of their transactions.

Even better? Your most loyal consumers appreciate rewards that are meaningful to them. The best loyalty programs understand this and deliver personalized, relevant, scalable offers and incentives.

Sound good to you? Keep reading to find out how you can build (or improve) your loyalty program and make it work for you.

Step 1: Understand Your Objective

You need to set a clear and achievable goal (or goals) for your loyalty program. Think of this as the foundation on which you’d build a house: the design and shape of the base set the boundaries. Here are some typical examples:

  • Increase per customer purchase revenues
  • Identify potentially profitable customers amongst your existing customer base
  • Increase customer tenure and decrease churn

These are all ways you can increase revenue, but each one is a unique and specific objective. Because they are all different, the tactics and tools used to achieve one may not apply to another.

Now can you see why we call this the foundation? Focusing on each one allows you to take a targeted and surgical approach to the individual goal. But you need to understand what all your goals are to ensure your program has both the capability and flexibility required to accomplish all of them.

Step 2: Define Your Customer Incentives

Remember when we said your shoppers appreciate rewards that are meaningful to them? This means they may not all find motivation by the same reward. And if they aren’t all universally motivated, then you’ve got more than one customer segment (HINT: almost every business on the planet serves more than one customer segment).

Once you understand what those segments are, you can determine:

  1. Which ones you want to target, and
  2. What offers and incentives will motivate them.

Regardless of the segment, the incentives must have a perceived value high enough to drive customers to both join and use your program. You should also tier the incentives; your highest spending (aka-best) shoppers receive the largest rewards, and others find the motivation to become top-tier customers based on those better perks.

But what kind of options and perks should you offer? The possibilities are endless, but here are a few examples:

  • Early access to deals and sales – Early access to the Nordstrom Anniversary Sale
  • Customer recognition – Skimmbasadors of the Daily Skimm
  • Discounts – Grocery chains discounting gas prices based on total store purchase points and dollars spent
  • Rebates – Receiving money back on a card after paying full price for things like appliances and cell phones
  • Private events – Sephora VIB Rouge parties

Perks are usually preferable to discounts and cash incentives. It may seem counterintuitive, but the perceived value of a perk always has the potential to exceed the cost. However, the discount or cash incentive is a one to one ratio at best. In other words, a $20 discount will always be worth $20…or less, depending on the redemption restrictions.

Step 3: Make Sure You Measure!

This one is short and to the point, but critical to success: you must be able to measure your program’s effectiveness directly. That means having the ability to track which segments are performing the best, which incentives customers are gravitating towards, and whether you’re moving the needle on each of your program’s objectives.
Guess what else it means? You need to understand the key performance indicators laddering up to each objective. Is it purchase volume? Tenure? Churn? Customer experience and feedback scores? Reward redemption rates? Offer take rates? Program breakage? Identify your metrics in advance, and make sure whatever system you implement allows you to track what’s most important to the business.

Need a Helping Hand?

These are the three most basic things to consider when crafting a rewards program. However, there’s so much more you should take into account. Nothing is more important to your bottom line than building a strong relationship with your customers, and it’s critical that you do it right. Anything less alienates your base and is a waste of your hard-earned money.

Luckily, we’re here to help. We’ve got decades of experience strengthening customer relationships and driving business value. So, if you’re interested in creating a customer loyalty program that works, get started today by giving the Loyaltyworks team a call: 1-800-844-5000.