Today’s consumer belongs to an average of 13.4 loyalty programs, but are only active in 6.7. More than half of brands (57%) say they’ll increase loyalty program budgets in 2017. Why? The simple fact is it costs more to sell to a brand new customer than it does to sell to an existing one. It makes good business sense to reward the people who are loyal to your company, to keep them coming back for more, and convert them to brand ambassadors who are out there championing for you.
But, unfortunately for marketers, it’s not just slapping together any old program and seeing results. To see a return on investment (ROI) on your program, it’s critical to lay the necessary groundwork to foster success once it launches to your customer base. Want to make sure you build a program that fits into that active 6.7?
Overview
Developing the Right Loyalty Program for Your Business
Mine Your Data
A 2014 poll revealed 67% of customers would be willing to give information to businesses in exchange for better products and services. Though it is limited to rather basic information like name and demographics, 34% are willing to provide contact information to get more personalized offerings.
Take a look at the customer data you have on hand and see if you can identify any patterns. What products are most popular? Least popular? What’s the average order value? What percentage of your customer base is new vs. returning? How many times have your most loyal customers shopped with you? How many people are using promotional codes to save money?
This information can help you decide what kind of structure you need to develop your program with, as well as provide insights into what rewards would likely perform the best with your audience.
Choose Your Goals
What do you want to accomplish with the program? Of course you want to increase your customer base and profits, but what else is there? Do you want to drive engagement? Whatever your goals may be, make sure you program aligns with it.
Also make sure you have a clear goal for your customers to shoot for – a free product or discount is usually the right answer.
Keep the Structure Simple
The more complex a loyalty program structure becomes, the harder it is for your employees to keep up with, and the less likely customers are to participate. Your program should be simple, like a punch card – buy X products, get 1 free. Or, if you want to go a bit more sophisticated, earn X points per $1 spent. Get rewards at X points. Create tiered rewards to encourage people to spend more and save their reward points.
Dell, for instance, has an incredibly simple program. Their Advantage Rewards program gives 10% of your purchase price back to you in the form of an electronic gift card, if you pay for your purchase with a Dell Preferred Financing account. You have 90 days to use the card after issuance. Plus, you’ll automatically get free two-shipping on your order just for being a member. Members get monthly discount offers, and access to partner offers from FedEx, Sprint, SocialShield, and Iolo Technologies. It doesn’t matter how you pay to get those benefits.
Kohl’s Yes to You Rewards offers a reward program to all shoppers, regardless of payment method used. Earn a point for every dollar spent over the course of a month. Every 100 points translates to $5 in Kohl’s cash. Plus, you’ll get eight offers a year, and $10 Kohl’s Cash for your birthday.
Ford’s Owner Advantage Rewards program allows customers to earn 5% back in credit on parts and service purchases, regardless of a vehicle’s make or model. When you’re ready to redeem, you can apply all, or a portion of your rewards balance to your purchase.
Each program is unique in the benefits it offers to customers, but they all keep it easy to earn and redeem rewards. And, because sign up is simple, participation is likely higher than if it required a complex process. The majority of customers (70%) will not sign up for a program if they think the registration process is inconvenient and time-consuming.
Choose Awesome Rewards (You Can Afford)
Of course the rewards should serve as an incentive for your customers to want to redeem them, but they also need to be something you can afford to give without cutting too deeply into your profit margin. This is why free product credit is usually the default reward.
The Starbucks Rewards program used to be based on the number of times you visited over the span of a year. Now, to increase participation, they’ve switched the program to earning two stars for every dollar spend. In the past, customers had to visit 12 times (transactions) to earn “Gold” status, which earned them a free food or drink item. The company said customers were asking baristas to ring up items separately to get more stars, making everything take longer. Now, customers have to earn 125 stars to hit that reward. At $5 visit, that’s still about 12 visits.
About one in six customers is a member of the program, and those members spend an average of three times more than a non-member customer.
Will There Be a Membership Fee?
This really depends on your industry, current customer base, and what the competition is doing. A lot of the time, charging a fee is not the answer. While it does do a bit to guarantee people will actually use the program, it may turn some customers off.
Amazon Prime is the perfect example of a loyalty program with a membership fee. You don’t earn rewards like you do with programs I’ve already mentioned, but the membership comes with a number of perks. For $99/year, subscribers get:
- Free two-day shipping on eligible products
- Free same day delivery in eligible zip codes
- Free two-hour delivery or scheduled delivery on eligible items in eligible zip codes
- Restaurant delivery in eligible zip codes.
- Free release-date delivery on eligible pre-ordered items
- Unlimited streaming in Prime Video
- Unlimited ad-free streaming in Prime Music
- Unlimited photo storage in Prime Photos
- Access to Prime Pantry where members can get low-priced grocery and household items for a flat rate of $5.99 shipped.
- Access to Amazon Elements, a line of every day products
- Access to Amazon Dash buttons
- Prime Early Access: 30-minute early access to lightening deals
- Kindle Owners’ Lending Library
- Prime Reading
- Membership sharing
- And more
It offers value to people who place a lot of online orders because of the free shipping, but if that’s the only benefit you’re able to use, or you don’t order much, it doesn’t make much sense to join.
2014 data suggests about 45% of Amazon’s customers are Prime members, and those members spend an average of $1,500 a year, compared to non-Prime members spending an average of $625 a year.
Barnes & Noble also charges a fee to participate in their loyalty program. For $25/year, members get more than $50 in bonus coupons when they join. Over the course of the year, members get special savings throughout the year, and free one to three-day shipping on all online orders.
Use the Program to Stay in Touch with Your Customers
Your customers are likely already signed up to receive emails from you, but there should be a segment of your list specifically for the people who are members of your program. This way you can send them exclusive offers and give extra thanks for their participation in the program. Plus, if you’re ever looking for feedback on the program, you can reach out to them direction.
Market, Market, and Market Some More
The program isn’t going to do a bit of good unless people know about it. You need to make sure your existing customers know about the program, and can sign up easily the next time the shop with you, either online or in-store.
Run ad campaigns on social media to notify your current and prospective fans about the program. Write and distribute a press release to spread the word. Include information about the program and how to join in your email newsletter sent to current subscribers.
Go With the Flow
You must be able to analyze the results of the program after launch, and see how well it’s working. If people aren’t responding the way you anticipated, conduct a survey to get feedback about it. Watch how patterns in shopping are changing. Try adjusting the program to make it more enticing based on available data insights.
Depending on what feedback indicates you could:
- Simplify the signup process
- Remove the need for a physical card
- Lower the reward thresholds
- Increase the value of the rewards
- Add bonuses for referring new members to the program
- Decrease membership fee
The Benefits of a Customer Loyalty Program
Increased Customer Retention
Keep your existing customer base making purchases from you longer and more often. And, a loyalty program can help you find the customers you lost, and find ways to try to win them back. You’ll over time learn who your best customers are, so you can make sure they are treated well. You’ll start to notice patterns in their buying behavior, which you can use to create better products and services and tailor your marketing campaigns accordingly.
Gather More Data
Not only do you get to see what’s selling, you can see who’s buying it. This allows you to send more personalized offers, which customers appreciate. The more data you have on your customers and how they’re interacting with your business, the better your marketing efforts can be.
Increased Sales – and Profit
When customers have incentive to shop with you more often, they usually will. As such, you should see an increase in overall sales – either in the form of additional transactions, higher AOV, or a combination of the two. And with more sales, comes more profit. Plus, your loyalty program may entice new customers to shop with you, adding to the benefit.
Why Customer Loyalty Programs Work
Rewards programs work mainly based on the psychological principles of ego, and the fact that humans are competitive by nature. One study showed people love collecting points, even when the points have no monetary value. Even though you can’t exchange points for tangible benefits, people will still spend a lot of time accumulating the points just to beat others, or to compete with themselves. If you really want to cash in on this phenomenon, add tiers to your program like Starbucks, to encourage people to keep going to get the higher level rewards.
Do you have a customer loyalty program? Why, or why not? If you do, what have you found to be the most effective? Has the ROI been worth it? Tell me all about it in the comments.
Photo credit: iStock
