What Makes Customer Loyalty Programs Work?

The basic concept of customer loyalty programs isn’t very different from marketing itself. The goal is to change customers’ behaviors. In marketing, you do this through educating, entertaining, or appealing to thriftiness or logic. But a marketing message can only take you so far. To go beyond their standard or basic purchases, customers need incentives to do so. That’s where loyalty programs come in. You give customers rewards (or incentives) for certain behaviors. But what makes customers desire one reward, but ignore another? How can you make sure the process is effective? What makes customer loyalty programs work?

See the infographic below for a visual journey through a successful customer loyalty program!

Source: Aberdeen Group study, “Compensation and Incentives: The Evolving Role of Financial Rewards”

  1. First, program participants need see an opportunity to earn something.

    • But wait…will they see it as an opportunity? How do you make sure the loyalty reward appeals to them? Research their personal values, preferences and lifestyles. You may not know as much as you think you do.
    • 3 generations currently make up the majority of the workforce—Baby Boomers, Generation X, and millennials. Then you have people of different family situations, cultural backgrounds, races, genders. Everyone has different wants and needs based on factors like these. That means they will be motivated by different rewards.
    • Customer loyalty programs work when the rewards match the effort customers put forth. A small reward for a big effort is worse than no reward at all! And a big reward for a small effort is a waste of money and leads to low expectations. Stay proportionate!
    • Look at the competition. What kind of loyalty program or loyalty reward do they offer? They may not offer an advanced program with diverse rewards. This is where you can stand out. Offer diverse rewards with a fair payout system to appeal to your audience.
  2. Now that your participants see value in your customer loyalty rewards, they alter their behavior to earn it.

    • When giving rewards, only give when they are doing something outside their normal behavior. A reward for a task they always do is a wasted investment.
    • When it comes to types of rewards, you have a lot to choose from.
      • Digital reward points redeemable for merchandise in an online rewards catalog
      • Recognition/praise
      • Cash (Caution! See below)
      • Gift or debit card rewards
      • An exclusive event or incentive trip
  3. Customer loyalty programs work not only when customers see value in the rewards, but when they see enough continuing value to keep earning rewards.

    • Offer non-cash rewards. Why? Cash is boring and tangible rewards are memorable and exciting. Plus, you’ll continue to spend more to keep them interested.
    • Mix up the types of rewards. You can’t please everyone with just one reward type, and people are more motivated to work harder when there’s a variety of rewards to earn.
    • Deliver the reward the right way.