Best Practices for Building a Customer Loyalty Program
Loyalty programs today have advanced beyond Starbucks stars and frequent flyer miles. Many brands have added exclusive content, tiers, or VIP status to their offerings to attract and retain their most loyal customers. Consumers have responded, with 79% enjoying either a membership, retail subscription, or loyalty program with the brands they shop at, according to a 2022 PYMNTS report.
The enthusiasm around customer loyalty programs is met by similar interest from brands, says Philip Shelper, CEO of Loyalty & Reward Co.: “When we talk with clients about the fact that there is so much opportunity for them to do different types of approaches to stimulate those desirable customer behaviors, it really opens their mind to what’s possible.”
But does it make sense for your business to establish a customer loyalty program? What does it take to build a solid one, or how do you improve the one you’ve got? We take a look below at considerations, best practices, and technologies for designing a customer loyalty program that’s right for your organization.
Why you should have a customer loyalty program
Customer loyalty programs are a no-brainer because of their contributions to the bottom line. According to the 2023 Antavo Global Customer Loyalty report, participants of customer loyalty programs spend more. The average lifetime spend of those who redeem their points at least once is 6.3x higher than the lifetime spend of non-members.
And repeat buyers spend up to 67% more per purchase than new customers and account for 50% or higher of total sales. It can also be five to six times more expensive to acquire new customers than it is to engage an existing one — and acquisition costs are only rising. Set your business up for success by focusing on retention and increasing customer lifetime value (CLTV) with a loyalty program that incentivizes just that.
How to build a customer loyalty program
Once you’ve decided to pursue a customer loyalty program, here are five steps to follow for establishing it:
1. Know your audience
A deep understanding of your audience can help you identify what motivates them to engage and purchase with your brand. Common data points to collect include:
- What types of goods or services do they purchase?
- How frequently do they shop with your brand versus competitors?
- How long have they been buying from you?
- What is their average order value?
- How successful have your upsell efforts been in the past?
- In which channels are they most responsive?
Once you’ve gathered these insights, decide which groups are most valuable to you. Is it high net worth individuals who can afford to spend more, frequent shoppers, or a different group that meets another criterion? They will be your target audience.
2. Define your goals
Next, set goals for your program, like raising revenue, engagement, or brand awareness. A nonprofit, for instance, may create a member loyalty program to drive awareness of its mission and, subsequently, donations. A for-profit retailer, on the other hand, may have excess inventory so will offer subscribers special discounts.
3. Decide which metrics matter
After choosing your target market and your program’s goals, decide which metrics will tell you whether you’re meeting objectives. If your goal is awareness, for example, then tracking how often program members forward your email promotions or mention them on social media would be useful. Or, if your goal is increased revenue, monitor whether program members spend more and which channels are most effective in driving this spend. Figure out which metrics map to your goals and be sure you’ve got a platform or system for gathering that information.
4. Launch your customer loyalty program
When you’ve determined your audience, goals, and metrics, it’s time to design your customer loyalty program and then launch it.
There are a number of customer reward models to choose from, and you can choose one or blend aspects from other models. Pick what best aligns with your brand and its audience and, if appropriate, name it so members enjoy a branded experience. Models include:
- A points system. These reward participants based on actions like purchase frequency or referrals. For example, if a member refers five friends to the program, then the member receives 500 points.
- Tiers. These offer benefits dependent on spending level. Members of Madewell’s Insider program, for instance, enjoy different benefits based on how much they spend.
- Paid. Members buy into these programs to access certain rewards; think Amazon Prime and the free shipping and other advantages it offers.
- Values-based. These work best for brands that want to promote their values, so membership may mean a portion of a customer’s purchase costs are donated to a specific cause or charity. The Love Your Body Club at The Body Shop, for example, allows members to redeem rewards for themselves or donate their reward vouchers to select charities.
- Gamified. These use games to incentivize customers and keep them engaged. The Victoria’s Secret and PINK loyalty app, for instance, has built-in games that members can play to win points.
- Coalition. These involve two or more organizations that combine their resources to offer a single loyalty program. Dairy Farm Group, which we discuss in detail below, developed a coalition loyalty program, for example.
While you weigh which model best suits your brand and audience, consider your staffing. Does your current team have the expertise to manage such a program? Will you need to hire new staff, or is the program a cross-team initiative? These are variables that will factor into the program’s costs.
Once you’ve assembled a team, promote your customer loyalty program. Begin with your target market of existing customers before marketing it to a wider group. Personalize your outreach based on what you’ve learned about your target audience and make sure you announce it across channels — in a newsletter, on social media, your website’s homepage, in an onboarding video, and so on. Then, ensure members enjoy consistent quality experiences and confirm this through regular outreach — surveys, for example — that solicits feedback.
5. Measure and audit your customer loyalty program
Give your program time to seed and grow; how much time will depend on the average buying cycle for your field. If your business is B2C or D2C, for example, the buying cycle may be much shorter than for a B2B organization, which typically has longer buying cycles.
Be sure to regularly audit your program too. Poorly designed programs, such as those offering rewards that don’t resonate with customers or are overly complex, can run on a deficit, as well as harm brand reputation and customer relationships.
Signs your program needs auditing include:
- Enrollment has slowed dramatically.
- Decrease in campaign engagement.
- Members churn or don’t redeem rewards, suggesting that they’re not relevant.
- Program spend regularly exceeds its ROI.
- Poor understanding of what triggers redemption or engagement.
To conduct an audit, think of your customer journey map. Assess your strategy for managing the customer lifecycle. Where can you insert your loyalty program to incentivize and reinforce customers’ desired behaviors?
You should also examine your data collection strategy. How do data and insights you’ve collected personalize the customer experience? Have you built a program that allows customers to collect rewards via multiple channels? Customer experiences are multifaceted and always evolving; watch for trends and shifts in behavior.
Basic principles of a loyalty program
To build a strong customer loyalty program that reaps rewards for your brand, several different elements should synchronize. Considerations to keep in mind include:
- The program should be simple to join, understand, and engage in. It should be woven into your company’s existing processes to align with the customer’s everyday spending habits.
- It delivers more value to members without impacting your profit margin.
- The program considers other ways to deliver value beyond your product or service. For example, gamification and digital games work well where you get customers to play a simple game to unlock a prize or discount code.
- It creates emotional connections to your business and converts customers into brand ambassadors.
- The program offers participants a sense of belonging and exclusivity through VIP events and special gifts.
- It differentiates your offerings from the competition.
- The program is cost-effective. Continuously monitor the ongoing cost versus reward balance of the program.
- It evolves. Iterate the program based on a customer feedback loop, analytics, etc., to optimize it over time and promote deeper member engagement.
Boost your customer loyalty program with zero-party data
Once those qualities are accounted for, turn your attention to zero-party data. Not only does it automatically comply with data privacy regulations because customers willingly proffer it, zero-party data also gives you accurate information about your customers’ tendencies and preferences. That’s valuable data that competitors can’t access, and it enriches your personalization efforts.
Loyalty programs are a particularly amazing opportunity for companies to collect zero-party data and feedback from their best customers. Create surveys, conversational apps, and other opportunities for customers to tell you what they want, so your brand can use that data to better personalize customer experiences. Many innovative brands have used quizzes to gather information about the exact product preferences of their audience to match them with exclusive offers. Other examples include digital stylists inviting customers to add their favorite colors and fabrics or online alcohol delivery services that ask customers if they prefer fruity or spicy flavors. Customers are more willing to go into detail when they know their answers will have an impact on their end experience.
Technologies that support customer loyalty programs
Besides the obvious — loyalty management software like Yotpo or Relate — customer data platforms (CDPs) supercharge customer loyalty programs (not to mention a host of other marketing initiatives). A central repository for customer data, CDPs consolidate and organize messy data through methods like identity resolution to produce a single customer view that teams throughout an organization can access. These 360° profiles help organizations better identify, engage, and motivate high-value customer segments.
Leading headware retailer Lids offers a great example of how CDPs can reinvigorate a customer loyalty program. As successful as the company’s “Access Pass” loyalty program was, Lids actually knew very little about its members, and duplicate memberships proliferated. Once the retailer added Acquia CDP to its marketing technology (martech) stack, Lids easily deduped and standardized its customer records, going from 53 million raw records to 25 million marketable master records. Cleansed data and powerful analytics capabilities allowed the company to better understand its customers, leading to increased revenue. After identifying its top 1 million customers, for instance, Lids then offered a time-sensitive, in-story loyalty reward that drove $250,000 in revenue.
But a CDP isn’t the only technology that can improve customer loyalty programs. Sometimes the issue is multiple technologies that make it difficult to coordinate sub-brands across a portfolio.
Take the example of Dairy Farm Group, a pan-Asian retailer. The company owns numerous brands across Hong Kong and wanted to bring them together in a coalition loyalty program but had no unifying technology for its digital engagement efforts. It was able to bring them together via the flexible, scalable architecture of open source platform Drupal and Acquia Cloud Platform. The technology helped Dairy Farm enroll 2 million members within a month of launching the program, which has seen an average loyalty penetration of 50% across its brands.
Find out how your organization can benefit from outcomes enjoyed by brands like Lids and Dairy Farm and download the free e-book Who Are Your Best Customers? Rethinking Customer Loyalty in a Digital-First World!