Customer loyalty programs are more crucial than ever in today’s overcrowded and highly competitive marketplace. Providing a quality product or service at a reasonable price alone is just not enough. Businesses need to push the envelope to build a long-standing relationship with their customers and innovative loyalty programs can help them to do so.
What is a Loyalty Program?
A loyalty program is a business technique whereby a company offers discounts and prizes to its customers in exchange for their loyalty. It aids companies in boosting product sales and retaining current clients. A brand extends an invitation to join a rewards program to customers who make recurring purchases from them.
Due to intense competition and a broad range of services available to consumers, the market strategy has changed from being product-centric to being customer-centric. As a result, marketing strategies should place a high priority on building a sustainable business and raising customer satisfaction.
As per a survey by TechJury, 75% of consumers said they would pick a business that offers a loyalty reward program. Customers are happier and more likely to stick with a business that shows them gratitude. They are more likely to spend more money on each transaction and make repeat purchases. They also share their experience among friends and family which could bring in new clients and aid in its expansion. This explains why loyalty programs are an indispensable tool to retain customers.
When you use the proper strategy, you will observe observable improvements in product sales and customer lifetime value. Optimizing client interactions through an appropriately implemented reward program and its associated incentives enables entrepreneurs. An organization gains credibility and transparency as it gains trust.
But how do you design a loyalty program that benefits both you and your customers? Grab a cup of coffee and read through this detailed step-by-step guide on how to build a loyalty program that works.
The Loyalty Payoff: Numbers Unveiling the Hidden Upside
A whopping 61% of businesses claim that repeat business accounts for more than half of their revenue, reinstating the importance of customer retention. Great customer loyalty solutions enable a business to improve customer retention rates, acquire new customers by word of mouth, and increase customer lifetime value (CLV) which collectively help a business grow better and become profitable. According to a brand loyalty survey, a corporation can raise each customer’s CLV by 85% when it achieves a 7% increase in brand loyalty program.
Case study: American Express successfully maximized its customer loyalty through its “Membership Rewards” program for corporates. With personalized offers, bonuses, and recommendations based on data analytics, this all-inclusive program rewards companies for using corporate cards, and promoting card usage and loyalty.
Types of Loyalty Programs
Every business has its own unique goals with regard to customer loyalty programs. A service company or a publication house is looking for more subscriptions, a retailer is looking for repeat sales, and so on. However, every business benefits if they choose the right loyalty program. But how do you choose the best fit? Let’s help you understand the types of loyalty programs you can implement.
| Type of Loyalty programs |
Definition |
Example |
| Tiered Loyalty program |
A tiered loyalty program is an organized approach to customer loyalty in which members of the program earn incentives and perks at different levels according to how much they spend or how engaged they are with the business. |
A producer of equipment pays its distributors with points that are accrued by their sales performance. Buyers can move up from one tier to the next by accruing more points. Gaining access to the next tier may entail additional incentives, better deals, or both. |
| Subscription-based loyalty program |
Loyalty programs centered around subscription models are referred to as subscription-based loyalty. Customers subscribe to a service or product repeatedly through this kind of loyalty program, and as part of their membership, they receive advantages, rewards, or exclusive deals. |
For instance, the massive IT company, HP, launched a special initiative whereby clients who return their ink and toners receive gift cards or discounts. Reusing the toners was a smart move by HP which helped them cut costs and create a more enduring business while also drawing in more business. |
| Value-based loyalty program |
Value-based loyalty programs provide clients with non-cash incentives, such as charitable donations, allowing you to establish a stronger, more moral bond with them. |
By collaborating with service providers, a company that supplies raw materials can optimize production. For instance, a tire supplier and a windshield reseller may collaborate to provide car manufacturers with packaged deals. Similarly, a petroleum firm might encourage mechanics to choose its brand when choosing engine oil and other goods for auto repairs by offering bonuses to customers. |
| Point-based loyalty program |
The most popular kind of reward program is the point-based loyalty program. In this kind of program, customers can earn points for carrying out particular tasks. These points can then be redeemed for a range of benefits. |
In the beauty sector, DefenAge is a well-known example of a point-based loyalty program. DefenAge, which is supported by top dermatologists worldwide and is guided by scientifically validated methods, has garnered over nineteen distinguished honors in the cosmetics sector. |
Step-by-Step Guide to Implementing a Loyalty Program
Loyalty program implementation requires creating a strategic structure that recognizes and rewards customers for their continued participation and purchases. Customer retention, brand advocacy, and long-term profitability are all enhanced by effective implementation. Let’s walk through the implementation process step by step:
1. Identify a distinct value proposition.
The idea behind the customer loyalty program should complement your business’s value proposition by providing the same distinctive features. Here are some mechanics and logic behind loyalty programs that you need to consider:
- “Follower Approach”: For speedy adoption and tested outcomes, mirror a competitor’s successful loyalty program.
- “Something Old, Something New Approach”: Increase the efficacy of your program by combining a competitor’s approach with unique inventions.
- “Prime Mover Approach”: Create an innovative loyalty program from the ground up, establishing new benchmarks and yourself as a leader in the field.
2. Establish SMART (clear and sensible) goals.
Your loyalty program needs to align with the objectives of your company. They also need to be realistic. These goals can be classified into three categories: core, primary, and secondary. Note that this is merely one instance of goal distinction. The way you label and deconstruct them is actually up to you.
3. Make a budget for your income and expenses.
List out all costs and revenues related to the rollout of the loyalty program. You must first take into account the program’s financial sources. You need to have control over the system and make a big financial commitment, thus this budget needs to be new and independent. Think about whether your marketing budget will support the loyalty program or whether you want to set aside a separate budget that will come from additional revenue sources.
4. Identify the team
Joining the efforts of various team members is another crucial component of program implementation, as it helps the system function smoothly from the start. To guarantee a seamless implementation and development of your loyalty program, assemble a project team of members from several departments and management tiers.
5. Examine your loyalty program’s target audience.
A customer loyalty program is only successful when it resonates with the customer. Identify your ICP (ideal customer persona), segment them, and build a program accordingly. Personalize your loyalty rewards program for different customer segments. Use the right tools and technology to identify and collect data about your customers. Simply put, do your homework well.
6. Monitor Your Loyalty Program
Once you have implemented the program, track KPIs (key performance indicators) such as participation rates, engagement levels, and redemption rates to determine if the program is achieving the desired results. Try out various incentives, prizes, and program elements to see what appeals to your audience the most and encourages the desired behaviors. Gather customer feedback to identify areas for improvement, and listen to your customers.
Common Pitfalls to Avoid
Steer clear from the below most common mistakes to ensure the success of your customer loyalty program:
- Setting unrealistic goals
- Ineffective program communication
- Lack of personalization
- Unrealistic deadlines for reward points redemption
- Selecting the wrong technology partner
The Future of Customer Loyalty Programs
Personalizing customer experience at every stage of the customer journey has been the success mantra for businesses for over a decade now. However, now the shift is towards hyper-personalization by leveraging AI and machine learning. By utilizing cutting-edge technology brands can now predict customer preferences and make real-time adjustments to loyalty programs. To stay in the game businesses now need to deliver highly-targeted personalized solutions that truly resonate with their audience.
Establishing a customer loyalty program is a tried-and-tested strategy for customer retention and growth. In a B2B setting, a loyalty program entails acknowledging its critical role in fostering enduring relationships with company clients, to create a lasting impression. Companies can solidify their position as reliable partners by customizing rewards to fit B2B partners’ unique requirements and preferences while streamlining program structures for accessibility and usability across various channels.
Go above and beyond with LoyaltyXpert to maximize the potential of your sales channels rather than settling for conventional incentives. Avail a free trial or a demo now to see the difference for yourself!
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