Monthly Archives: March 2018

How to Create an Effective Loyalty Program

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What is a loyalty program?

 

Recently, I was at a shopping mall at Winston Salem, North Carolina and to my delight, I found that with every purchase of a Bath and Body Works product, I was able to get another product absolutely free!  I came away feeling delighted that I had got a good bargain and the broad smile that I gave to the saleswoman was matched with one of her own, having made a good sale.  This was a clever way of getting me, a new customer, back to the store, retaining old ones and an extremely attractive form of a robust loyalty program.  Customers are always pleased with toys in Happy Meals, buy- one-get-one-free offers and coupons with a purchase or credit card points.

 

Keeping the customer happy and making them advocate for your brand involves more than great service.  How will you ensure that this customer keeps coming back to buy your brand in the future?  One great way to ensure returning customers is to have a powerful customer loyalty program.  Customers like them and 76% of those interviewed think that this is a great way to form a relationship with brands.  A customer loyalty program is a marketing technique to retain loyal customers and to attract new ones.  It is a reward program that rewards customers who frequently conduct business with a company.

 

Here are some interesting stats about customer loyalty programs:

 

  • There are over 3.3 billion programs in the US currently
  • The cost of acquiring a new customer is 6 to 7 times more expensive than retaining an existing one
  • 75% of US companies with a loyalty program generate a Return On Investment (ROI)
  • Increased profits show an upward trend of up to 95%
  • 83% of customers agree on the fact that loyalty programs are likely to make them continue to do business with certain brands
  • Existing customers spend 67% more than new ones

Types of customer loyalty programs

 

77% of customer loyalty programs fail in the first two years.  The primary reason is the lack of sync between customer perception and the company objective.  73% of customers feel that the company should be loyal to them and 66% of marketing executives from the company feel that customers should be loyal to them.  Only 25% of loyalty programs reward customers for some form of engagement with them.  85% of companies are always in search of ways to reward customers beyond promotions and discounts.  Take the case of Amazon Prime.  For a yearly subscription, customers can get access to free shipping, exclusive content and more.

 

Let us look at loyalty programs that are successful in bringing back customers time after time.  Looking beyond complex and bland reward systems, it is time to look at ideas that will build a loyalty program which would actually work for you.  Some examples of loyalty programs that have been very successful are :

 

  • Swarm Perks
  • American Express Plenti
  • REI Co-op
  • TOMS One for One
  • Amazon Prime
  • Virgin Atlantic Flying Club and
  • Sephora Beauty Insider and VIB

 

What makes these brand loyalty programs so successful? Let’s dive in and find out!

 

  • Use of a simple points system

 

Though this is a simple and commonly used loyalty program, it seems to be very successful.  There is no rocket science attached to this system.  Customers are rewarded with points for every purchase that they make.  It could be in the form of a discount, a free product or a special customer treatment.  Companies that build on this model make their processes confusing and complex and this is where they falter and fail.  The connection between points and tangible rewards is not easy for the customer to understand.  For example, when a company sets out to say “15 points is equal to 1 Dollar and 30 Dollars offers you a 50% discount on your next purchase”, they are setting themselves up for disaster.  This is not a reward but a headache for customers.

 

Make the loyalty program easy to understand, so that customers can make understand the terms of redemption on their own, without any help from the sales and in-house teams.  There is a note of caution though.  This type of reward does not apply to every form of business.  It works best for a business that encourages frequent and short-term purchases like Sephora.

 

The cosmetics giant is known for a great customer loyalty program.  They have a simple point-based system that rewards their customers for every dollar that they spend.  Customers swipe their Beauty Insider Card at every purchase and the card keeps a track of every purchase made.  Every dollar spent earns customers a point.  Shoppers can then redeem their points for products at the store’s check-out counters.  The company speaks in the language of its customers with points, dollars and cosmetic items.

 

A great incentive to continue shopping at Sephora is the scaling up of the rewards, according to how much the customer spends.  This helps customers to reach a certain threshold on their spending ways.  For example, they offer a free birthday gift through their online shopping or stores and free beauty classes.

 

  • Tier system

 

There is a thin line between attainable and desirable rewards and this is one of the biggest challenges for businesses, while they design their customer reward programs.  Using a tier system that rewards initial loyalty and encourages more purchases is the best way to implement this system.

 

Offering small rewards is a part of a hook to be a part of the program and then scaling up the rewards or by increasing the value of the rewards, in order to become involved in the loyalty ladder is a good way to implement a tiered system.  This helps customers in not forgetting about their points and not redeeming them at all because there is a huge gap between gaining points and finding gratification from them.

 

A big difference between the points system and the tiered system is that the former is a short-term value and the latter offers long-term value.  Tiered programs work well with higher commitment from customers like the airline industry, the hospitality business or insurance companies.

 

The Virgin Atlantic Flying Club not only offers frequent flying points to its customers, but it also inducts them into the Club Red, the Club Silver and the Club Gold, in order to enable them to earn tier points.  Club Red not only helps its members to earn points on miles, but it also offers discounts on airport parking, rental cars, hotels and holiday flights.

 

Club Silver members earn 50% more points on flights and also enjoy the benefits of expedited check-ins and stand-by seating on priority.  Club Gold members get double mile points, access to areas where they can grab a drink or get a free massage before their flight and priority boarding.  As the journey of a customer moves from Red to Silver to Gold, they are helped in this process by a benefits table, so that they can understand this journey easily.  In the early stages of a customer engagement program, they are offered benefits that are very cool and help them to keep coming back over and over again.  They are also made to realize that a gold status is not unattainable and there are some awesome benefits that can be taken advantage of.

 

  • Charging a fee for VIP benefits from the start

 

Charging customers a one-time fee or an annual fee could work out very beneficial for both the business and its customers.  Customers can bypass common purchase barriers and a loyalty program can address specific obstacles.

 

This kind of a loyalty program is applicable to businesses that are frequent and involve repeat purchases.  It was found that a huge number of customers abandon their cart purchases after they find out the cost of their purchases, after taxes and shipping costs have been applied.  Amazon found a way to tackle this issue by charging an upfront fee that would be applicable to all future purchases.  Prime customers get a two-day free shipping on millions of products, without a minimum purchase, along with other benefits.  The company also offered a 2-hour free delivery of grocery to its members in certain areas, along with other discounts.

 

  • Creating a value program around beliefs

 

Customers are loyal to beliefs and values, rather than to a company.  A connection with customers can be created around non-monetary or discounted rewards, much more than dollars and cents.  Any business can offer promotional coupons and codes.  But the value that they can offer to their customers, other than these can increase loyalty to their brands.

 

Toms Shoes is dedicated to improving the lives of their customers by promising that for every purchase made; they would help a person in need.  This initiative has grown huge and is now helping with clean water access, improving maternal health care and supporting many other organizations.

 

  • Fruitful partnerships

 

Coalition programs or partnering with other companies for customer loyalty is extremely effective in retaining customers and growing your business.  Understanding customers’ daily needs, lives and their purchase processes would help you to decide which companies to partner with best.  For example, if you are a food company for dogs, it might be a good idea to partner with a veterinary clinic or a pet grooming facility to offer co-branded deals that would be beneficial to your customers and create a win-win situation for all.

 

American Express, in its Plenti program has partnered with companies like Macy’s, AT&T, Rite Aid, Hulu and more and offer their customers points for shopping at any of these stores and linking their existing loyalty card to their Plenti accounts.

 

  • Gamification

 

Everybody loves playing a good game.  Your loyalty program can be converted into a game to help encourage repeat customers and prepare a robust brand image for your business.  It is important to make your customers feel valued and that you are not duping them of their rewards.  Ensure that the purchase requirements to play this game is attainable and that your legal department is on the same page as you regarding these gaming programs, before it is announced and launched.

 

Swarm Perks is an incentive that is offered by Swarm, which is a check-in app.  It encourages its users to check-in from different locations and share what they are up to with their friends.  Discounts are offered at various locations, like a 20% discount at Best Buy.  Dream vacations, spa days and shopping trips are also won through draws.

 

Benefits of a customer loyalty program

  • The perks that are offered to customers could be the best way to acquire new customers
  • It is a great way to initiate a lifelong brand-consumer relationship
  • If customers are given opportunities to maximize their loyalty rewards and receive communication, based on their milestones, needs and preferences, they are likely to support the company not only with their money, but also with referrals, repeat purchases and exposure on the social media, thus bringing in new customers

Latest trends in loyalty programs

 

Some of the biggest and latest trends in customer loyalty programs are :

 

  • Customers look forward to personalized rewards
  • Omnichannel and multichannel programs are replacing traditional ones
  • There is an increase in brand partnerships
  • A sense of social responsibility is expected from brands
  • Premium loyalty programs are an attractive option
  • Customers look forward to a sense of emotional loyalty
  • AI and chatbots are being used for customer engagement

How to start a customer loyalty program?

 

Here are some tips to get started on a loyalty program.

 

  • One of the simplest and easiest ways is to have a loyalty punch card
  • Begin with an opt-in program
  • Put some thought behind a Premium Loyalty Program
  • Give your customers a branded loyalty membership card
  • Use a digital component in your program
  • Invest in incentives that work for you
  • Have a regular communication with your members

How to Ace Your Loyalty Program Management

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What is loyalty program management?

 

What does a business need to do to manage its loyalty program effectively?  It does not matter if you are a small company or a large conglomerate, having a strong loyalty program management system in place will help you to leverage your program to maximize customer retention and lifetime value.

 

So, without further ado, here are the top things you need to take into consideration to effectively manage your loyalty program :

 

  • Lead your loyalty program with data

A good loyalty program is measured and driven by numbers. This approach gives you an indication of the direction that you need to go towards.  From data modelling before program launch, to extensive LTV or CLV analysis during the program, you should make data a priority as you manage the program. Data should drive your decisions in any marketing conversation, especially around retention or loyalty. A good loyalty program manager can help you track these important metrics.

 

  • Focus on Relevance

During the management of the program, make sure you are always “relevant and real” to the customer.  By asking questions like “Why is this relevant?” or “Are you pushing or asking?” you will ensure that you are aligned with the needs and expectations of the customer and not taking them for granted. Each message needs to be relatable and customer-centric, and not just as a piece of random communication or a statistic. Human experiences are made up of emotions, feelings and desires. Your loyalty program management should align with these nuances and go beyond being just a discount disbursal system. If you lead your loyalty management from this angle, then your brand can work towards unlimited possibilities.

 

It does not matter if your loyalty program is digital or an old-school punch card, it should be a go-to strategy or the foundation that your business is based on.  Implementing a loyalty program needn’t be a cumbersome task. In fact, even if you are a small business owner with limited resources, we would still recommend that you take the time out to conceptualize a brand loyalty program. It only takes a few extra minutes to implement one and the benefits are many: retain and reward existing customers, increase sales and gain new followers.

 

Here is a handy list to get you started with designing your own customer loyalty program.

 

  • Start with the end in mind

From the onset, you need to be very clear about the goals of your customer loyalty program; in short, what do you want to achieve with it?  Improve customer acquisition?  Decrease customer churn? Increase order size? Make these goals very specific and as measurable as possible.  Attach a timeframe to each goal. For example, “I want to decrease customer churn by 25 percent in the next two years.” Working with a timeline for each goal will help you stay focused and on track.

 

  • Invest in an automated loyalty program

There are many ways by which you can automate customer loyalty programs. The more automated your program is, the easier it is to manage and maintain it. This does not mean that you will be doing away with personalization.  These days, you can choose from several personalized loyalty program software to help you automate campaigns while still maintaining a personal touch.

 

  • Leverage the power of email

One of the easiest and most effective ways of staying in touch with your customers is to send them an email.  This is a great way to kick off your digital loyalty campaign. You could start by sending a steady stream of communication around your loyalty program. There are several free or low-cost email-marketing solutions that are all easy to use and can be tweaked or tailored to suit your business needs.

 

  • Go social

Social media is a powerful and effective way to engage with your existing customers on a regular basis. Take the time to understand and find out which social media channels — Facebook, Pinterest, Foursquare and Instagram to name a few — your customers are seen on the most. Once you have decided on the right network(s), build your social community around them, following through varied and engaging content and posts – giving many options to your followers for sharing and referring.

 

What is the bottom line?  What can be inferred from the above? For most businesses, it can cost up to five times more to acquire a new customer than to retain an existing one – all the more reason for customer loyalty.

 

How to measure the success of loyalty programs?

 

Loyalty programs are nothing new, but this does not mean that they are going out of fashion anytime soon.  Based on the research conducted by the group Colloquy, there are 2.65 billion loyalty program memberships in the U.S. alone. On an average, US households are involved in 21.9 loyalty programs, yet only actively participate in 9.5 of them. There are about $48 billion allocated towards loyalty programs each year, in the form of discounts, free rewards or special promotions.  Out of these, only two-thirds of the amount is ever redeemed by customers. That might sound great from a company perspective, but it is indicative of poor loyalty program management and worse, bad customer engagement.

 

A loyalty program that is well designed can boost customer satisfaction and repeat business. Given below are different loyalty programs.  Find out what works best for you and how to assess their effectiveness.

 

  • Points System

One of the easiest and simple loyalty programs is the points system. Frequent customers earn points with every purchase they make, usually with a loyalty card. These points accumulate into some sort of discount or other customer experiences.

 

A points system is a great loyalty program for businesses where customers make   frequent purchases that are small in value. For example, Starbucks’ “My Starbucks Rewards” is a point-based program.  It has over 10 million active users and it seems to be quite popular. However, at its core, it’s a simple points system. However, Starbucks cleverly throws in limited-period discounts and special birthday rewards to keep their customers from becoming used to this system.

 

If your business chooses to implement a point-based rewards program, remember to keep it easy for customers to sign-up and vary your reward offerings to keep customers interested.

 

  • Tier System

The difference between a tiered program and a points program is that a tiered program is in for the long-haul.  It can offer greater rewards in the long term. The tiered system is like a step-ladder.  Firstly, it offers small rewards for joining the program and getting the interest of the customer.  Then the value of the rewards increases as customers become more loyal on the program.

 

Southwest Airlines’ successful Rapid Rewards program is a points system that has three different tiers of rewards: A-list, A-list preferred, and Companion Pass. Moving up the points ladder unlocks privileges such as priority boarding, free in-flight Wi-Fi, a 100% points earning bonus and eventually a companion pass that allows one friend to ride one free round-trip flight.

 

Tiered loyalty programs work best for businesses that require a higher commitment such as insurance, hospitality or travel. If your customer-base primarily purchases small items, then a tiered system might not work for them, as the effort required to move up the next level usually doesn’t justify the end reward.

 

  • VIP Status

Although getting customers to pay upfront for privileges in the future can be a difficult sell, e-commerce giant Amazon.com has shown that it can certainly be done. For seventy-nine dollars per year, Amazon Prime members receive free two-day shipping on all items sold by Amazon or select partners. Members also have access to Amazon’s streaming video service and the privilege to borrow one free Kindle book per month.

 

While a VIP rewards program is tempting from a business perspective, you will definitely want to make sure that the perk you are offering to customers is worth the money that they will be paying.  If you’re not offering a substantial service, you’ll risk being seen as trying to fool your customers or being out-of-touch.

 

Assessing the Effectiveness of your Rewards Program

 

A vital aspect of loyalty program management is measuring its effectiveness – in terms of increased customer retention or satisfaction. There are many different ways to analyze this, thanks to the availability of user-friendly loyalty program software. Here are a few metrics you should be measuring to understand the success of a reward program.

 

Customer Retention Rate

 

The customer retention rate is a measurement of how long customers stay with your brand. The bottom line of a loyalty program is to increase the number of customers who stay with your business for a long period of time. Finding out the difference in customer retention between program members and non-program members is one of the best ways to find out if your loyalty program is effective.

 

Customer Effort Score

 

The Customer Effort Score (CES) measures your business’ customer service based on actual experiences of customers; especially after-sales customer service that they have had with your company. CES asks customers how much effort they had to put forth to pursue the executives of your company to solve a problem. Loyalty programs that address expedited requests, such as Amazon Prime’s free shipping, will likely improve your business’ CES and general perception.

 

Negative Churn

 

Churn is the measure of how many customers leave your business overnight. The measurement of customers who instead of leaving, upgrade their membership and purchase added services is called negative churn. In order to properly measure this, you’ll need to be able to attribute purchases to individual users or customers and track the purchases of customers over a period of time. Most loyalty program management software will help you calculate Negative Churn with ease.

 

Net Promoter Score

 

Net Promoter Score (NPS) is a metric that is received from customer feedback. NPS measures the recommendation of your business by customers to friends, relatives etc., based on a scale from one to ten. Subtracting the percentage of detractors from the percentage of promoters is how the NPS score is arrived at. Scores can range from -100 to +100 and any positive score is considered good. While investing in a loyalty program software, make sure that it has the provision to calculate the NPS Score.

 

Digital technologies has led to an increase in customer expectations, especially around faster service and support. Companies need to invest in digital solutions to stay consumer ready. Loyalty programs are a great step in this direction, especially when implemented with a long-term strategy and using tools for analyzing customer data.

 

How to restructure an existing loyalty program, to improve its effectiveness?

 

The primary focus should be the alignment between your customer and the loyalty program. For example, the program should support customer experiences and not vice-versa.

 

Keep your customers engaged

 

Target communication in such a way that it piques your customers’ interests and preferences. For example, if you have 15 customers who want to buy yellow rain boots, you can engage with these customers by sending each an email with information about a complementary yellow umbrella. Invest in a  great customer relationship management software and email automation solution to create personalized customer communication.

 

Given below is a comprehensive loyalty checklist developed by a top Ogilvy & Mather strategist, Michael Szego. Do note that there is nothing called a perfect loyalty program, even if you follow the below list, to the T.  You need to keep evolving and changing with the market and your customer.  In fact, you need to be a few steps ahead of them, in order to make your loyalty program management a success.

 

Simplicity = Make my life simple, don’t confuse me with too much information

Benevolence = Understand my issue and take my side in finding a resolution

Trust = Doing what’s right, honouring promises and protecting customer’s privacy

Transparency = Rates and fees are crystal clear and comparisons are available

 

So there you go, these are some of the elements that you should keep track of, to ensure that your loyalty program is effective and engaging for your customers.