Loyalty Program Best Practices: Beyond discounts, innovative approaches to modern loyalty programs

There’s a notable trend in terms of loyalty program best practices. It relates to customers forming emotional bonds with brands, and truly going beyond mere points, cashback, or rewards. This emotional connection can revolve around convenience, service quality, product excellence, sustainability, and more. This implies that customer loyalty should be at the core of retail, not merely an extension of marketing efforts.

While rational benefits like cashback and points continue to play a significant role in rewarding loyal customers, they must align with the overall customer experience and what customers love about your brand.

Thinking beyond the purchase

A loyalty program is about so much more than a means to another purchase.

As any business owner knows, satisfied customers are essential for success. They not only provide valuable feedback, but they also help to drive new business through word-of-mouth advertising.

Take into account how you can reward customers for other actions outside your brand – such as referring to friends, rating your products or services, or posting about your company on social media.

Best practices mean loyalty programs offer customers the chance to earn points, status or recognition by participating in these interactive promotions. This allows your loyalty program to cross multiple channels, and attract new customers.

Why do brands create loyalty programs?

Brands have clear and well-established reasons for creating loyalty programs, related to its customers, market, revenue and business intelligence goals:

Benefit #1: Customer satisfaction

• Elevate customer satisfaction and retention rates
• Reactivate lapsing or lapsed customers
• Decrease costs associated with constantly acquiring new customers
• Improve personalization
• Convey appreciation to customers

Benefit #2: Competitive edge

• Establish a competitive edge in the market
• Stay up-to-date with competitors and industry trends

Benefit #3: Revenue

• Boost sales by increasing both the frequency and AOV of customer purchases
• Increase customer lifetime value
• Generate new opportunities for monetization

Benefit #4: Business intelligence

• Gather valuable customer data and gain a comprehensive understanding of customer preferences, trends, and behaviors
• Develop customer insights to guide business strategies, product development, and store location decisions

Loyalty Programs are one of the most effective business drivers

• Loyal customers make up to 70-90% of total sales
• Loyalty programs with high engagement see 5% sales uplift
• Up to 3x basket size from loyal customers
• +75% coupon redemption from program members
• Loyalty leaders grow revenue 2.5 faster than their competitors

Why do customers participate in loyalty programs?

For customers, the reasons to participate in loyalty programs are diverse and subject to change. These motivations vary not only from brand to brand and customer to customer but also evolve over time.

Benefit #1: Rewards

• Save money with the brand
• Receive rewards for spending
• Feel recognized for their loyalty

Benefit #2: Exclusivity

• Enjoy exclusive access and VIP treatment
• Cultivate an affinity with the brand

Benefit #3: Customer experience

• Receive personalized messages that improve customer experience
• Get fitting product or service suggestions

Benefit #4: Convenience

• Benefit from a convenient and easy experience.

Loyalty program best practices

Define the Loyalty Program concept:

• Goals: Clearly define the objectives of your loyalty program. Common goals include increasing customer retention, boosting average transaction value, and enhancing customer satisfaction.
• KPIs: Establish the metrics you’ll use to measure the success of your loyalty program. These may include customer churn rate, customer lifetime value (CLV), redemption rate, and Net Promoter Score (NPS).
• Target Audience: Identify the specific customer segments you want to target. Consider demographics, shopping habits, and customer preferences.
• Channels: Determine where and how you’ll promote your loyalty program. This may include in-store promotions, online marketing, email campaigns, or even mobile apps.
• Geographical Scope: Decide whether your loyalty program will be local, regional, national, or international. Consider the languages spoken in your target markets.

Rewards & benefits are coherent between regions, so a member understands what is available, how to earn & how to redeem points and rewards. Global partnerships make the program more attractive.

Get the Loyalty Program type right:

There are different types of loyalty programs, which are right (and profitable) according to individual circumstances. Whether you’re thinking of cashback, tiers, points or gamification – consider these loyalty program best practices:

• Point Value: Determine the standard value of loyalty points. For example, you could assign one point per dollar spent, or 10 or 100 points! Just stay consistent, and of course consider exceptional situations where you offer bonus points – such as a birthday or during promotional periods.
• Tier Structure: Decide how many tiers your loyalty program will have. Typically, programs have 3 to 5 tiers. Specify the requirements for each tier, such as spending thresholds, or points earned during a specific period of time.

In combination with points, brands use membership tiers to encourage engagement, frequency, and increases in spend. Use gamification to unlock additional benefits, with clear differentiation between tiers.

• Rewarded behaviors: Define which customer behaviors will be rewarded with points. Common actions include purchases, referrals, social media engagement, and product reviews.

• Branding: Choose appealing names for your loyalty program, branded currency and tiers. Ensure they align with your brand’s image and messaging, and think beyond.
• Gamification: Add gamification into your program, such as badges, challenges, and leaderboards. Gamification can enhance engagement and create a sense of competition among customers.

Select the right rewards:

• Reward Selection: Determine what rewards you will offer. Options may include discounts, free products, exclusive access to events, or personalized recommendations.
  • Coupon codes/gift cards: Offer immediate value with coupon codes or gift cards. Customers can enjoy discounts on their next purchase, enhancing their shopping experience and building loyalty.
  • Birthday & anniversary rewards: Show customers you value them as individuals. Birthday and anniversary rewards create personal connections and strengthen loyalty.
  • Free shipping: Remove purchase barriers with free shipping, a practical reward that customers greatly appreciate, encouraging more frequent purchases.
  • Exclusive access: Reward loyalty with early access to new products and promotions. Make customers feel valued and excited about your brand.

Brands offer exclusive member discounts –permanently or single use, category or time specific. Can also be used as a sign up benefit.

• Conditions: Set clear conditions for earning and redeeming rewards. Define expiry dates, minimum spending thresholds, and any restrictions on reward usage.

Prepare a good activation strategy

Launching a loyalty program is just the beginning; the real challenge lies in getting customers to actively participate.

In summary, loyalty program activation is all about making it easy and enticing for customers to join and actively participate.

By offering enticing value, clear communication, tailored personalization, and ongoing engagement, retailers can turn casual shoppers into enthusiastic, loyal brand advocates.

Here’s how to effectively activate your loyalty program:

• Clear communication: Start by clearly communicating the program’s benefits and how it works. Use various channels, including email, social media, and in-store signage, to reach your customers.
• Seamless enrollment: Make the enrollment process as easy as possible. Avoid lengthy forms and opt for quick sign-up methods, like phone numbers or email addresses. Offer incentives, such as an initial point bonus, to encourage immediate sign-ups.
• Personalized onboarding: Tailor the onboarding experience based on customer preferences and behaviors. Provide a personalized welcome message and guide them through the program’s features.
• Multi-channel accessibility: Ensure that customers can access and engage with the loyalty program through various channels, including your website, mobile app, and physical stores. Consistency is key.
• Regular communication: Keep customers engaged with regular updates, new rewards, and personalized recommendations. Send reminders about point balances and upcoming promotions.
• Collecting feedback: Establish a feedback mechanism to gather customer input on the program’s performance. Use this data to refine and improve the program over time.
• Social proof: Share success stories and testimonials from loyal customers to inspire others to engage actively.

Want to promote your program at your physical Point of Sale?

• Provide additional loyalty points for shopping in-store
• Provide physical inserts or leaflets that give off program details or that point back to your explainer page online
• Provide some sort of tangible item that represents loyalty (loyalty card)

Using data insights to better understand your best customers

Never waste an opportunity to gain insights about a customer, as it can drastically improve customer experience and customer satisfaction.

Best-practice loyalty programs do this by offering a choice of services or treatments, and this choice itself will reveal something about a customer.

The point of gaining insight, of course, is to use it. So the best loyalty programs are connected seamlessly to the retailer’s CDP, and are managed in such a way as to ensure that useful customer information is not only collected, but utilized to increase sales and improve the customer journey.

• Data Collection: Identify the data points and level of data granularity you want to collect and track. This may include customer contact information, purchase history, preferences, demographic data, etc
• Privacy and Compliance: Ensure that your data collection practices comply with relevant data protection regulations, such as GDPR or CCPA. Communicate your data usage policies transparently to customers

LEVERAGING CUSTOMER DATA

A huge benefit of customer loyalty programs is your access to valuable customer data. This data can help you understand your customers and your brand in more detail, which in turn can help you build a better business.

With customer data, you can gain insights into who represents your most profitable customers, what aspects of your customer loyalty programs are most effective, and how individual customers make spending choices.

For example, if you know that a particular group of customers is always looking for discounts, you can create a loyalty program that offers them exclusive deals. Or, if you notice that a certain product is always being sold out, you can create a loyalty program that offers bonus points for purchasing that product.

It’s a fantastic tool for improvement – your customer loyalty program helps you gain more information, which helps you improve your customer experience and retention ratio.

Conclusion:

A well-executed retail loyalty program can be a powerful tool for building customer loyalty, increasing sales, and gaining valuable insights into consumer behavior.

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.

Keep in mind that regular analysis and adjustments based on KPIs are crucial to the ongoing success of your program.

If you’re a retailer and you’d like to talk about any of the gift card strategies outlined in this article in more detail, please get in touch with our team – we’ll be happy to show you examples or talk through your brand’s unique challenges.