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How to create a customer loyalty program

In fact, the Yotpo survey on American shoppers’ attitudes towards customer loyalty in 2018 found that over 52% of loyal customers are ready to join a loyalty program if one is offered to them.

The Loyalty Report 2018 by Bond Brand Loyalty also revealed that consumers spend 37% more with brands when they are a loyalty program member, while 37% are even willing to pay a fee for access to enhanced loyalty program benefits.

What is a customer loyalty program?

A customer loyalty program is a marketing tactic. It is used by companies to encourage repeat customers to purchase more by offering them certain benefits and rewards. Those benefits may vary from discounts or free products to any other perks that are valuable to customers. An effective loyalty program for rewarding customers basically fulfills three basic marketing goals and objectives:

  • Improves customer loyalty and customer lifetime value;
  • Increases profits by selling, up-selling, and cross-selling more products or services to current customers;
  • Defines an ideal customer profile by capturing customer data and purchasing behaviors.

Great customer loyalty programs (examples):

  • Amazon Prime
  • Sephora Beauty Insider
  • Starbucks Rewards
  • American Express Plenti
  • Virgin Atlantic Flying Club

Benefits of customer loyalty programs

Apart from increased customer retention and boosted profits; offering reward programs for customers results in a number of other benefits for businesses. With the right strategy, these benefits enable businesses; build a deeper emotional connection with existing customers, drive more meaningful customer engagement, and even create brand advocates.

Moreover, they also allow gathering valuable customer data that can be further used for personalizing customer experiences. Thus, creating targeted marketing campaigns. Implementing a loyalty program is an investment. It helps businesses to actually save money since retention strategies are usually less expensive than attracting new customers. You can find different types of loyalty programs down below.

Basic types of loyalty programs

  • Point program offers customers the ability to earn points that can be redeemed for discounts or other rewards.
  • Tiered program is based on the levels of loyalty: the more points are earned – the higher rewards will be received.
  • Paid program (VIP member club) provides access to exclusive benefits for the members who pay a monthly or annual fee.
  • Value-based program includes brand donations to a charity that allows connecting with customers on a deeper level.
  • Coalition program implies partnering with other businesses to offer customers discounts with the associated brands.
  • Game program is powered by gamification and focuses on engaging customers instead of just getting transactions from them. 
  • Cashback program encourages repeat customer spending by offering cashback.
  • Hybrid program combines several types of loyalty programs, usually point-based and tier-based systems.

7 steps to create an efficient customer loyalty program

The right customer loyalty program design is mission critical. Below are 6 important aspects to consider when creating a loyalty program to ensure its success and profitability.

1. Study your current customer base

The first step in rolling out an effective customer loyalty program is researching your existing customers. This gives you a clear understanding of which customers to target and determine their motivations to join a loyalty program.

2. Decide on the right types of rewards

According to the 2019 Loyalty Barometer Report by HelloWorld, from a rewards perspective;

  • 77% of consumers enjoy free products
  • 75% prefer discounts and offers
  • 66% would like to get free samples
  • 57% favor free services
  • 41% like chances to win prizes
  • 32% love receiving surprises from the brand

Moreover, choose the right types of incentives that are most relevant to your customers.

3. Make it simple and easy to use

The more complex the loyalty program is – the harder it is to encourage customers to enroll. The 2017 COLLOQUY Loyalty Census research revealed; ease of use is the main reason for participating in a loyalty program for 53% of U.S. consumers. Among other reasons, “easy to understand” was cited by 37% of respondents.

4. Ensure engagement through various channels

The 2018 Loyalty Program Consumer Survey by CodeBroker reported; nearly 75% of consumers would actively engage with loyalty programs if they could access their rewards information from their smartphones. It also found that;

  • 37% of loyalty program members prefer accessing loyalty program information via a periodic text message
  • 28% prefer a mobile app
  • 19% prefer desktop/laptop via a website

5. Avoid the most common pitfalls

As stated in the Loyalty Report 2018 by Bond Brand Loyalty; to ensure customer loyalty program success, the following TOP four pitfalls and sources of member frustration should be avoided:

  • Having expired points
  • Desired rewards being unavailable (either through blackouts or catalog changes)
  • Dealing with representatives who aren’t knowledgeable about the program
  • Being overwhelmed by emails

6. Make rewards valuable and easily attainable

Make sure the loyalty program offers rewards that are not only valuable for customers but are also easily attainable over a reasonable period of time. According to 2017 COLLOQUY Loyalty Census research and 2019 Loyalty Barometer Report by HelloWorld cited;

  • 57% – “it took too long to earn points of rewards”
  • 53% – “it did not provide rewards I was interested in”
  • 54% – “it takes too long to earn a reward”

These were the most common reasons for abandoning a customer loyalty program.

7. Measure the effectiveness and adjust if needed

When rolling out a loyalty program, there are a few important metrics to consider to measure its overall effectiveness. Such as customer retention rate, customer churn rate, Net Promoter Score, and Customer Effort Score. For example, if a loyalty program is successful; the customer retention rate should increase over time as more members join the program. If the numbers are not satisfactory, be ready to make the necessary changes. The changes are based on how the program is performing and how the customers are responding to it.

Customer loyalty programs for small business

We have already mentioned the great benefits of having a customer loyalty program. Every company can leverage these programs, even a small business. The ROI is customer retention, customer awareness, referrals, and more. Don’t sleep on this opportunity and pick a budget-friendly loyalty program for your business.

Examples of customer loyalty programs for small business:

  • Customer loyalty cards (punch cards or membership cards)
  • Online registration
  • Email marketing
  • Mobile apps

Customer loyalty programs for small businesses might differ from industry to industry. However, it does not always mean that one is better than the other.

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