The comprehensive guide to building a loyalty program from scratch

In this article, we’ll walk you through the process of starting and implementing a loyalty program tailored to your business needs, including:

• How loyalty helps retail organizations
• How loyalty programs are funded
• How to measure the success of a loyalty program
• How to align the executive team with your vision for brand loyalty and retention
• How to start a winning loyalty program from scratch

Why do retailers need a loyalty program?

Before diving into the intricacies of building a loyalty program, it’s essential to understand its significance.

A loyalty program serves as a powerful tool to incentivize repeat purchases, reward customer engagement, and foster long-term relationships with your audience. By offering enticing rewards and exclusive benefits, retailers can enhance customer satisfaction and differentiate themselves from competitors. Moreover, a loyal customer base often translates into higher profitability and reduced customer acquisition costs, making it a strategic investment for any business.

In essence, here are the 3 main benefits of modern loyalty programs:

1. Valuable customer insights

Modern loyalty programs serve as invaluable sources of customer data and insights. By tracking customer behavior, preferences, and purchasing patterns, businesses can gain deep insights into their target audience.

This data can be leveraged to tailor marketing strategies, personalize offers, and improve overall customer experience. Understanding customer preferences and behavior allows businesses to make data-driven decisions, enhancing their competitiveness in the market. Additionally, loyalty programs provide access to insights that help businesses make informed decisions beyond the realm of loyalty/CRM. For example, they can inform decisions on how to improve assortments based on customer needs or adjust promotions and prices effectively.

2. Incremental sales and engagement driver

Loyalty programs act as powerful sales engines by incentivizing repeat purchases and driving customer engagement.

Through rewards, discounts, and exclusive offers, businesses encourage customers to return and make additional purchases, thereby increasing sales and revenue. Moreover, loyalty programs often employ gamification elements, such as points, levels, and challenges, which add excitement and motivation for customers to participate actively.

This increased customer engagement not only boosts sales in the short term but also fosters long-term customer loyalty and retention. Additionally, personalized offers are more effective and efficient than mass promotions. They allow for investment control while providing greater value to the customer since they are based on their preferences.

3. A lasting emotional connection

Modern loyalty programs go beyond transactional relationships by fostering emotional connections between businesses and customers. By offering personalized rewards, surprise gifts, and special experiences, businesses create memorable moments that evoke positive emotions in customers.

These emotional connections strengthen customer loyalty, as customers feel valued, appreciated, and understood by the brand. As a result, customers are more likely to advocate for the brand, recommend it to others, and remain loyal over time, even in the face of competition.

How are loyalty programs funded?

Financing a loyalty program requires careful consideration of various factors, including budget allocation, revenue projections, and cost-benefit analysis. Depending on your business model and objectives, there are several financing options to explore:

Initial budget allocation:

Dedicate a portion of your marketing budget specifically for the loyalty program, and this is the benchmark for different types of investments:

%  Investment over total sales	Financed by CPG brands
0,2% -0,5%	No
0,5-1%	0,5%
1%-2%	1%

Loyal Guru has experience in launching more than 30 enterprise retail loyalty programs from scratch.

Through the expected additional sales:

Use the program to promote additional products or services, thereby increasing overall revenue.

CPG collaboration:

Partner with brands that contribute to fund specific loyalty and CRM personalized campaigns.

Build reward partnerships:

Collaborate with other businesses to co-brand loyalty rewards and share costs.

Membership fees:

Some retailers consider charging a nominal fee for premium membership tiers with enhanced benefits.

By aligning the financing strategy with your business objectives and revenue streams, retailers can ensure the sustainability and effectiveness of your loyalty program.

How to measure the success of a loyalty program?

Measuring the success of your loyalty program is essential to evaluate its effectiveness and make informed decisions for optimization. Key performance indicators (KPIs) to consider include:

KPI	How	Long term goal
% Identified Sales	Club Sales / Total Sales	80%
% Contact Info.	Contact Info / Total Customers	70%
% Massification	Customers have redeemed at least 1 coupon or point / Active customers	25%
% Redemption	Coupon redeemed / Total coupons issued or Points redeemed / Total points issued	Coupons: 10-20% Points: 60%-80%
Active customers	Customers have bought during a month over total database	50%
% Total investment	€ Investment / Total Sales	0,2%-1%
% Suppliers’ Investment	€ Investment suppliers / Total Sales	1%-2%
% APP	App / Active Customers	50%
Loyal Customer development	% Sales increase on customers have bought same period different year	3%
% Retention rate	Customers keep buying	70-80%

Other important loyalty program KPIs often include engagement rate, member revenue and CLV, purchase frequency, reviews, increased revenue, brand equity, etc.

By leveraging data analytics and customer insights, you can gain valuable feedback and continuously refine your loyalty program to better meet the needs of your audience.

What does a retailer need in order to start a loyalty program from scratch?

Launching a successful loyalty program requires careful planning, strategic execution, and attention to detail. Here’s a step-by-step guide to get started:

1. Get board members’s sponsorship:

At the executive level, there are several key stakeholders that participate in the launch of an enterprise retail loyalty program:

1. Chief Executive Officer (CEO): The CEO provides overarching leadership and strategic direction for the organization, including the decision to invest in and launch a loyalty program. They set the vision and goals for the program, ensuring alignment with the company’s overall mission and objectives.
2. Chief Marketing Officer (CMO): The CMO oversees all marketing activities within the organization, including the development and execution of the loyalty program. They are responsible for defining the program’s value proposition, identifying target audiences, and ensuring that the program aligns with the company’s branding and marketing strategies.
3. Head of Client or Chief Experience Officer (CXO): They are responsible for the overall customer experience and satisfaction. They play a key role in designing the loyalty program to meet the needs and expectations of customers.
4. Chief Technology Officer (CTO): The CIO is responsible for the organization’s technology infrastructure and systems. In the context of a loyalty program launch, the CIO plays a critical role in selecting and implementing the necessary technology platforms and ensuring that they integrate seamlessly with existing systems.
5. Chief Financial Officer (CFO): The CFO provides financial leadership and oversight for the organization, including the budgeting and funding of the loyalty program. They assess the financial viability of the program, allocate resources accordingly, and track the program’s financial performance and return on investment.

Additionally, it is crucial to address how to transfer the new loyalty program to other departments within the company, particularly to the stores and employees. They are the ones who are in direct contact with customers and should become the best ambassadors of the loyalty program.

2. Define program goals:

Determine the specific objectives and outcomes you aim to achieve with the loyalty program, whether it’s increasing sales, improving customer retention, or enhancing brand loyalty.

3. Select and equip the smart tech enablers to understand customer behavior and activate shoppers:

Choose a loyalty program platform or software solution that aligns with your business requirements and provides robust features for managing member accounts, rewards, and analytics.

4. Know your audience:

Understand your target audience’s preferences, behaviors, and pain points to tailor the program to their needs effectively.

5. Design rewards structure:

Create a compelling rewards structure that offers meaningful incentives and encourages desired actions from members. Consider options such as points-based systems, tiered rewards, or experiential benefits.

6. Promote and launch:

Develop a comprehensive marketing strategy to promote the launch of your loyalty program across various channels, including email marketing, social media, in-store signage, as well as through your mobile app and push notifications.

7. Monitor, adjust and optimize:

Continuously monitor the performance of your loyalty program, gather feedback from members, and iterate based on insights and data analysis to optimize results over time.

Setting up a new loyalty program – best practices

Nowadays, best-in-class loyalty programs have evolved beyond pure transactional mechanics to incorporate a combination of transactional and emotional elements. Strategies such as surprise and delight initiatives, fostering communities, and more, not only deepen customer engagement but also provide retailers with greater control over their budgets. Unlike traditional loyalty programs where all benefits are upfront and fixed, these modern approaches allow businesses to push and pull benefits dynamically, aligning them with business objectives and managing costs more effectively while still engaging customers effectively.

To ensure the success and longevity of your loyalty program, consider incorporating the following best practices:

Personalization:

Personalization lies at the core of modern loyalty programs, allowing businesses to deepen their connection with customers by offering tailored experiences and rewards. Here’s how personalization can be effectively implemented:

• Data utilization: Leverage customer data, including purchase history, browsing behavior, demographics, and preferences, to customize rewards and communications. Analyze this data to identify patterns and insights that inform personalized offers.
• Segmentation: Divide customers into segments based on their behavior, preferences, or demographics. Tailor rewards and promotions to each segment’s unique characteristics and interests, ensuring relevance and resonance.
• Dynamic messaging: Use dynamic content and targeted messaging to deliver personalized communications to members. Address customers by name, recommend products based on past purchases, and highlight exclusive offers tailored to their interests.
• Predictive Analytics: Anticipate customer needs and desires through predictive analytics. Use machine learning algorithms to forecast future behavior and proactively offer relevant rewards or recommendations.

Transparency:

Transparency is essential for building trust and credibility with loyalty program members. By clearly communicating program terms, conditions, and reward redemption processes, businesses can foster a positive and transparent relationship with their customers. Here’s how transparency can be upheld:

• Clear Terms and Conditions: Provide straightforward and easily accessible information about program rules, eligibility criteria, earning and redemption mechanisms, and expiration policies. Ensure that members understand how the program works and what benefits they can expect.
• Honest communication: Be upfront and honest with members about any changes or updates to the program. Communicate these changes clearly and in a timely manner, demonstrating respect for members’ time and investment in the program.
• Accessible support: Offer dedicated customer support channels for loyalty program inquiries and assistance. Provide prompt and helpful responses to member queries, resolving any issues or concerns with transparency and professionalism.
• Regular updates: Keep members informed about their points balance, reward status, and upcoming promotions through regular updates via email, SMS, or mobile app notifications. Ensure that members have access to their account information and can track their progress easily.
• Ease of understanding: Ensure that the mechanics, rules, and benefits of the loyalty program are easy to comprehend. Simplify complex processes and make information readily accessible to members, as overly complicated structures may deter participation and engagement.

Omnichannel experience:

In today’s interconnected world, providing a seamless experience across online and offline channels is crucial for engaging and retaining loyalty program members. Here’s how businesses can create an omnichannel experience:

• Integrated systems: Integrate loyalty program data and functionality across all customer touchpoints, including websites, mobile apps, brick-and-mortar stores, and social media platforms. Ensure that members can access and interact with the program seamlessly regardless of the channel they choose.
• Cross-channel consistency: Maintain consistency in branding, messaging, and rewards across all channels to reinforce the program’s identity and value proposition. Ensure that members receive a cohesive experience regardless of where they engage with the brand.
• Channel-specific benefits: Tailor rewards and promotions to each channel’s unique capabilities and audience preferences. Offer exclusive benefits or incentives for online purchases, in-store visits, social media engagement, and mobile app usage to encourage cross-channel participation.
• Data Synchronization: Ensure that customer data is synchronized across all channels in real-time to provide a unified view of each member’s interactions and preferences. Use this data to deliver personalized experiences and targeted offers that resonate with members’ channel preferences.

Surprise and Delight:

Surprising and delighting members with unexpected rewards or exclusive perks is a powerful way to foster loyalty and strengthen emotional connections with your brand. Here’s how businesses can incorporate surprise and delight into their loyalty programs:

• Random rewards: Offer spontaneous rewards or bonuses to members as a pleasant surprise. Randomly select members to receive special gifts, extra points, or exclusive discounts, creating a sense of excitement and gratitude.
• Tier-based benefits: Provide escalating rewards or privileges as members progress through different loyalty tiers. Surprise members with new benefits or perks when they reach a higher tier, motivating them to continue engaging with the program and striving for advancement.
• Birthday and anniversary gifts: Celebrate special occasions such as birthdays, anniversaries, or program milestones by offering personalized gifts or bonuses to members. Show appreciation for their loyalty and make them feel valued and special.
• Exclusive events: Invite members to exclusive events or experiences reserved for loyalty program members. Host VIP shopping events, product launches, or behind-the-scenes tours that offer unique opportunities for interaction and engagement.

Continuous innovation:

To remain relevant and competitive in a constantly evolving market, businesses must continuously innovate and evolve their loyalty program offerings. Here’s how businesses can embrace continuous innovation:

• Market research: Stay informed about emerging consumer trends, preferences, and competitors’ strategies through ongoing market research and analysis. Identify opportunities for innovation and differentiation within the loyalty landscape.
• Feedback loops: Encourage feedback from program members through surveys, focus groups, or social media listening. Use this feedback to identify areas for improvement and innovation, incorporating member suggestions and preferences into future program updates.
• Pilot programs: Experiment with new features, rewards, or engagement tactics through pilot programs or A/B testing. Gather data and insights from these tests to evaluate effectiveness and inform broader program enhancements.
• Partnerships and collaborations: Forge strategic partnerships with complementary brands or service providers to enhance the value proposition of the loyalty program. Offer members access to exclusive partnerships, co-branded products, or joint promotions that differentiate the program and attract new audiences.

How Loyalty Managers achieve executive buy-in for their loyalty program initiatives

1. Become a customer retention champion:

Understand the value: Develop a comprehensive understanding of the importance of customer retention and loyalty to the business. Gather data and case studies demonstrating the impact of loyal customers on revenue, profitability, and long-term growth.

Quantify the opportunity: Quantify the potential benefits of implementing a loyalty program, including increased customer lifetime value, reduced churn, and improved profitability. Present these findings in a compelling business case to demonstrate the ROI of loyalty initiatives.

Align with business objectives: Position customer retention and loyalty as strategic priorities aligned with the organization’s broader goals and objectives. Emphasize the role of loyalty programs in driving sustainable growth, competitive advantage, and market differentiation.

Present financial projections and forecasts demonstrating the potential revenue and profitability gains achievable through improved customer retention and loyalty. Use data-driven analysis to quantify the expected ROI of loyalty program initiatives.

2. Get top-down support:

Engage senior leadership: Present the business case for loyalty program initiatives to senior leadership, including the CEO, CFO, and other key decision-makers. Clearly articulate the strategic rationale, benefits, and expected outcomes of the program to gain their support and endorsement.

Secure budget allocation: Work with finance and budgeting teams to secure the necessary funding and resources for loyalty program initiatives. Demonstrate the expected ROI and financial impact of the program to justify investment and overcome budgetary constraints.

3. Get the skeptics on board:

Address their concerns proactively: Anticipate and address potential objections or skepticism from stakeholders regarding the feasibility or effectiveness of loyalty program initiatives. Provide evidence-based responses and counterarguments to alleviate doubts and build confidence in the proposed strategies.

Benchmark loyalty program initiatives against industry best practices and competitor strategies to showcase the potential benefits and competitive advantages. Highlight success stories and case studies from similar businesses or markets to illustrate the feasibility and effectiveness of loyalty programs.

4. Communicate and educate cross-company:

Provide training and resources to frontline staff and customer-facing teams to ensure they understand the value proposition and benefits of the loyalty program. Empower employees to effectively communicate program details and incentives to customers and address inquiries or concerns.

Host company-wide meetings or town halls to share updates and insights about loyalty program initiatives. Invite guest speakers, experts, or external partners to provide additional perspective and expertise on customer retention and loyalty best practices.

5. Get the right tech to perform:

Evaluate and invest in the necessary technology platforms and tools to support the implementation and management of loyalty program initiatives. Choose robust loyalty management software, CRM systems, and analytics platforms that provide the functionality and scalability needed to drive results.

Build or enhance data analytics capabilities to effectively track, measure, and analyze key performance metrics and customer insights related to loyalty program engagement and effectiveness. Leverage advanced analytics techniques, such as predictive modeling and segmentation, to optimize program strategies and tactics.

Implement a next-gen loyalty management platform that enables end-to-end program management, including member enrollment, rewards tracking, campaign management, and reporting. Choose Loyal Guru for its flexibility, customization, and integration capabilities to meet the unique needs of your business.

Launch your loyalty program with Loyal Guru

Step 1: Loyal Guru collects and manages your customer data

Our platform creates a single view of the customer accessible to the entire organization

Step 2: Loyal Guru analyzes your data

With advanced reporting, you’ll get to understand the parts of your business that have the biggest opportunities for growth and impact.

Step 3: Loyal Guru engages your customers

Our loyalty and personalization campaigns will increase engagement from loyal customers and enrich your database.

Step 4: Loyal Guru supports closed loop activation

Ealivy act on pressing business issues. Recover lapsed customers, increase performance and product adoption with omnichannel campaign creation, delivery and measurement.

Step 5: Loyal Guru helps you monetize your data with CPG suppliers and brands

Through our platform, retailers can securely and compliantly share data insights, and collaborate on campaign creation to boost sales, category and product penetration.

By carefully defining your program concept, selecting the right type of program, offering enticing rewards, and responsibly managing customer data, you can create a loyalty program that not only meets your business goals but also delights your customers.

Contact our team to discuss how Loyal Guru can power your loyalty campaigns.