A recent survey by Yotpo found that nearly 68% of respondents would join a loyalty program of a brand that has impressed them with its customer experience. Moreover, 56% of respondents are willing to spend more on a brand they're loyal to, even if there are less expensive options available elsewhere. If you think your existing customers won't like your loyalty program or find it pointless, well, you may be wrong because they'll go the extra mile for appealing prizes and savings.
Each generation buys things online or offline and uses customer loyalty programs when available. Data shows that 71% of Gen X, 70% of Millennials, 63% of Baby Boomers, and 62% of Gen Z responded that they could choose a brand with a loyalty system over one without it.
We bet that some of your customers are from one of the aforementioned generations and expect the best shopping experience — you can make that happen with a personalized loyalty scheme.
A customer loyalty program will be able to push your business to another level if you're confident that your product is competitive and wildly popular with customers, and you have no significant quality, design, distribution, or price issues. After all, the purpose of a loyalty scheme is to support a product line worth investing in, or even an entire company, to gain a competitive edge.
Read this guide to discover that implementing a customer loyalty program can be a breeze when it's a well-thought-out process. We'll show you how to create a scheme with attractive offers, easy-to-earn rewards, and simple-to-understand loyalty rules. Stick to the 10 steps outlined in this loyalty program guide, and you'll end up with a high-performing and successful loyalty program.
Key takeaways
- Make sure your loyalty program stands out and brings real value to your customers to encourage them to join in.
- Set clear, achievable goals for your program to steer it towards success.
- Plan your expenses and revenue carefully to keep your program going strong and making profits.
- Get input from experts in different fields to make your program the best it can be.
- Study your audience and current loyal customers closely to tailor your program to fit their needs perfectly.
- Design your program with rewards and perks that match what your audience loves.
- Create a step-by-step plan with a timeline to roll out your loyalty program smoothly.
- Keep an eye on key metrics to see how well your program is doing and how engaged your customers are.
- Launch your program with a bang to get everyone excited and involved right from the start.
- Keep tweaking and improving your loyalty program as you go along to make sure it's always working its best for you and your customers.
1. Identify a unique value propositionÂ
Since you're reading this guide, you probably know the benefits of a loyalty program in the B2B or/and B2C sector, and you're set on creating one. Good for you! First, lay down the loyalty program foundations and its overall concept. This step is strongly connected to setting a loyalty program business definition and value proposition.Â
The customer loyalty program concept must be consistent with your company's value proposition — it should offer the same unique qualities as your business. But what about the mechanics and logic of a loyalty program? Can it also remain unique when there are many imitators around? Not really. That's why you need to consider which way you want to go:
"Follower" way
Since it is relatively easy to research a competitor's offerings and test their program, this approach is to create an identical loyalty scheme that another player in the market has. If you present the program as a copy of something already existing in the industry, chances are it'll be equally successful.
"Something old, something new" way
This approach combines a proven solution (a copy of a competitor's program) with unique elements created just for your business — it's mainly about upgrading an existing and working system. Very often, a whiff of innovation in an industry is beneficial!
"Prime mover" way
This approach involves creating a fully personalized loyalty program from scratch. This can be a breakthrough in your industry, and you can become a trendsetter with your shiny new scheme.
Mirroring existing programs is straightforward if you have access to specialists who will efficiently analyze and inspect the inner workings of the designated loyalty scheme. In the following guide, you'll learn more about the options for creating a program according to your vision.
The loyalty program location
Next, focus on the geographic areas for your customer loyalty program and define a list of countries where it'll be launched first. You can always add more regions once your loyalty program grows in popularity. Also, consider languages, as one country may have multiple official languages. Lastly, decide what currencies your program will support because this will affect things like point value, multi-currencies, and currency conversion.
The loyalty program basic structure
Work with your team to develop an overview of the main theme of the program and its look and feel. Find an eye-catching and marketable name and logo for the system and all its elements, such as levels/tiers, loyalty points, member naming, and currency.
As you build the basic structure, think about two fundamental user journeys: The enrollment and opt-out processes. The enrollment process is related to encouraging customers to join the program and ensuring that the sign-up experience is smooth and risk-free.
On the other hand, the opt-out process involves describing the necessary steps a loyalty program member must take to leave the system. Letting customers go is the last thing you want, but you still need to treat the opt-out process equally. Also, you can use the opt-out inquiry to gather feedback on why the member wants to leave you and draw conclusions.Â
Obviously, you'll have to craft many more user journeys, such as gamified profiling, friend invitations, in-store user identification, or combining showrooming with a mobile loyalty app. But you'll get there when your loyalty program is well-rounded.Â
The loyalty program type
Deciding on the nature of a customer loyalty program will affect its logic and features. See a brief breakdown of the most common types of customer loyalty programs and determine which one suits your needs. Remember that each type brings different benefits but also technical limitations.
1. Point loyalty programsÂ
This program offers members points based on how much money they spend or what actions they take, such as leaving a review, rating a product, or signing up for an update newsletter. Loyal customers can then redeem their points for rewards from the rewards catalog or on other simple rules.
2. Spend-based loyalty programs
The program rewards customers who spend more money with targeted incentives designed to encourage repeat visits and even more spending. So, loyal customers feel that their behavior is reasonable, as they gain new exclusive benefits with repeat purchases.
3. Tiered loyalty programs
Tiered loyalty programs provide a structured pathway for customers to unlock enhanced benefits and rewards as they progress through various membership levels. This progression-based system encourages deeper engagement and loyalty by offering exclusive perks and privileges at each tier. By adapting to different levels of commitment, these tiered loyalty programs foster a sense of achievement and recognition among members, ultimately strengthening brand loyalty.
4. Paid/VIP loyalty programs
In the paid loyalty program, members pay a recurring and upfront fee to stay in the system and receive generous benefits or offers they can enjoy immediately. This loyalty program is chosen to establish an even stronger relationship with existing customers and recognize them apart from others.
5. Value-based loyalty programs
This program grants benefits and rewards to all members of the system unconditionally — it doesn't matter how much money they spend whatsoever. Such a program is designed to create an emotional bond with the brand so that customers spend more money and visit more often.Â
6. Referral loyalty programsÂ
In this program, existing members invite their like-minded friends to join the scheme and are rewarded for doing so. New members become familiar with your offerings, and if they like them, they can generate buzz around your company and one day become loyal customers.
7. Multipartner loyalty programs
This program brings companies together to provide end-users with a one-stop shopping experience, for example, through discounts on tiles and tile adhesives or lamps and light bulbs. Your and your partner's offerings complement each other, and your loyal customers can find everything they need on the spot.
8. Coalition loyalty programs
It's a program based on combining two or more independent and non-competitive companies into partnerships to increase their influence in the market, for example, by offering product bundles of chips and sodas or milk and cereal. Depending on the requirements, companies can share a customer base, points collected by members, or all the logistics of a loyalty program.
9. Game-based loyalty programs
This program is based on a game engine and uses challenges, mini-games, or badge collection to engage customers. Members must regularly interact with the brand's touchpoints and repeat certain activities to keep their perks.
10. Hybrid loyalty programs
The hybrid loyalty program mixes several loyalty structures, such as points and tiers. It combines two or more program types to better tailor the loyalty experience and align the program with the business.
The loyalty program rewards
You should decide on a loyalty benefit offer depending on your business's industry and the level of customer involvement in your product (high or low).Â
Ruby Camara of Sixth Continent commented to Referral Rock that if you encourage customers to earn credits, "you create a continuous buying circle" and "as a result, people keep coming back." This is because "consumers feel rewarded every time they make a new purchase, and companies grow their base of loyal, repeat customers."
Loyalty benefit offerings can be divided into two categories: Soft/hard loyalty rewards and instant/delayed rewards.
Soft and hard loyalty rewards
Soft rewards include various non-financial rewards and privileges that indicate a member's status. They refer to VIP treatment that long-term customers can enjoy, for example:
- Birthday gifts
- Instant prize drawings
- Commission-free upgrades
- Premium add-ons
- Early access to pre-salesÂ
- Personal support agent
- Exclusive access to product launches
- Meet-and-greet events
- And so on
In contrast, hard rewards refer to clear-cut incentives, including points, discounts, rebates, freebies, and other items that boost engagement and encourage customers to make repeat purchases.
Instant or delayed rewards
Instant or delayed rewards have their basis in a psychological phenomenon associated with gratification. This category of rewards is closely related to issuance and scheduling.
Instant rewards are given shortly after the main product purchase to build a sense of belonging in the customer. The instant reward can be a discount, a price reduction at checkout, or a scratch card with a mystery prize. So, for example, you can give a 50% discount on coffee when a customer buys a $5 cookie.
On the other hand, delayed rewards, or so-called accumulation rewards, refer to rewards delivered after cumulative purchasing times (not during the transaction). For example, you can offer a customer a free haircut after every 5th visit to your salon.
You can also play around with limiting rewards to create higher demand and push customers further. So, you can try:
- No limitation. There's no specific limit on rewards, which most often take the form of a coupon, discount, or voucher with a fixed value. Treating members equally is the easiest way to build customer loyalty.
- Quantity limitation. The number of rewards is limited. This increases the value of the prizes, and people start competing to get them.
- Time limitation. Buyers must redeem their reward within a certain period. Otherwise, they simply lose their chance. Time limits motivate customers to earn points quicker.
- Seasonal limitation. Shoppers gain access to special rewards during holidays such as Christmas, Valentine's Day, Independence Day, or Halloween. Tapping into the festive mood is the best way to increase customer engagement.
- Status limitation. Rewards are issued according to the program member's status created through segmentation and member activity in the program.
- Money can’t buy. These types of rewards are unique and limited. Usually for the best segments or premium customers.Â
Note that your benefits and reward offer must be of high value and meet not only pragmatic but also emotional, so-called "perceived values" to be compelling.
Verify that the benefit proposition is genuinely enticing to your membership base and that you aren't basing it solely on your beliefs. Also, read how Adam Posner, Customer loyalty and Program Specialist, commented on a compilation of six currencies loyalty program members care about. It's such an eye-opener that, ultimately, customers want more than just rewards.
Summing up, the conceptual and ideation phase is the most important. Be aware that there's always a risk of staying in your mental bubble while working on the system idea. Seek the support of an external specialist and consult on the program concept. Use casual advice to be directed to the latest industry trends.
2. Set clear and smart goals
Your program is just a tool in your hands and must have the same goals as your business. So, once you know the value proposition for your customer loyalty program and have its initial concept, it's time to define the objectives you'd like to achieve.
Define your goals very specifically — we mean it! This will incredibly increase the effectiveness of your program development. You can divide the objectives of your loyalty system into three types: Core, primary, and secondary. Be aware that this is just an example of goal differentiation. In fact, how you name and break them down is your choice.
Core loyalty program goals
Danny Meyer from Shake Shark brought up the amazing formula that successfully bringing a customer back depends on "finding the perfect mix of what you get at home" (comfort, recognition, knowledge of your preferences) and "what you can’t get at home" (excitement, an out-of-the-ordinary experience, a chance to share with new people).
So it'll come as no surprise that the main reason for implementing most customer loyalty programs is to boost customer retention, build trust, make a profit, increase revenue, expand market share, and foster brand recognition. In your case, it should be no different. After all, you're investing time, money, and effort to grow as a company, and a loyalty scheme is a means to that end.
Primary loyalty program goals
Your loyalty program's primary goals should be building customer relationships and converting them into long-term loyal members. For this reason, your primary goals (or tactical goals) could be:
- Acquiring new customers (customer acquisition as a goal often applies to multipartner and referral programs, in which the buyer base is exchanged between partners)
- Increasing customer loyalty and customer retentionÂ
- Retaining customers and preventing outflow (customer churn)
- Increasing frequency of online/offline point-of-sale visits
- Building a robust loyal customer base
- Supporting the operations of other company departments
- Creating new external partnerships
- Developing new communication opportunities and building touchpoints with the brand
Secondary loyalty program goals
The secondary goals for your scheme are a byproduct of the ongoing work on the core and primary objectives. However, they're also important because they improve your company's workflow, strengthen communication, enhance product/service quality, and so on. The secondary goals (or operational goals) could be:
- Increasing the frequency of visits to online/offline points of sale
- Increasing the number of orders placed
- Boosting the purchase value
- Driving up the share of purchases of high-margin goods
- Reducing abandoned shopping baskets, returns, and drop-offs on delivery
- Increasing mobile loyalty app usage
- Developing documentation of solutions to customer issues
- Supporting public relations actions
- Improving the company's innovation
- Expanding company product/service categories
- Adding new customer feedback channels
- Improving product or service
- Building better marketing strategies or branding campaigns
The goals will follow closely from the first point in this guide, which is the value proposition and the type of program you choose. Additionally, for some companies, secondary objectives may be primary and vice versa.
The customer loyalty program is a long-term investment. It can bring you profits by using loyalty points as a currency, changing buyers' behavior, and providing more data about your target audience. All in all, your success depends on customer habituation to the loyalty program.
Customers enrolled in the loyalty system won't always immediately start doing what you expect them to do. You have to work hard to earn the customer's trust. This means that you can only achieve your goals if you educate, adopt, and befriend customers with the program. Then, you'll quickly reach your core, primary, or secondary objectives.
3. Plan your expenses and revenue
The next step is to build your business case, a financial model of expenses and revenues for the entire loyalty program release project. First, you need to consider the program's sources of funding. This must be a new, independent budget because the system requires a significant financial contribution, and you must have control over it. Consider whether you plan to fund the customer loyalty system from the marketing budget or a stand-alone budget that incremental revenue streams will cover.
Above all, the board must align the loyalty system with the company's strategy. If this is accomplished, the next step is to prepare the appropriate budget cases, which are divided into: implementing the loyalty program and running the loyalty program.
Costs of implementing a loyalty program
Creating a customer loyalty program remains a serious investment. Most companies are unwilling to share financial information about their customer loyalty programs. Still, on average, the cost per member per year can be estimated at $20-60 for B2C loyalty programs and $100-300 for B2B loyalty programs.
Having a well-planned budget before launching the program increases the chance of a return on investment. Let's look at management, technology, and marketing/promotion costs when implementing a customer loyalty program.
Management costs
Start by hiring people with loyalty-building skills to operate the program. Then, conduct in-depth crew training to ensure they know the system inside out. Create the necessary regulations and terms of participation in the program with the legal team. Don’t forget to prepare training materials and provide proper training for your staff.Â
Take care of the information flow within the company and document the steps you take. This will be the perfect basis for analysis and corrections after the program's launch. A key part of the management costs includes selecting, ordering, and storing in the case of physical rewards, or signing appropriate agreements with digital reward providers.
Technology costs
The main technology cost is choosing the suitable implementation method and back office for the customer loyalty program. Decide whether you'll acquire bespoke technology, buy a license and pay a fixed or scalable recurring fee, or subscribe to a loyalty platform to run your system.
In addition, consider the cost of integration, consulting, front-end/back-end development, and employee training. Before launching the system, you should also figure out how users will access the program and whether you'll need a plastic card, a digital wallet, or a dedicated mobile loyalty app.
Marketing and promotion costs
The most critical aspect of marketing costs is to put together adequate advertising campaigns and online/offline promotional materials. Make an effort to let people know about your new investment. Before implementing your loyalty system, think about preparation:
- Pre-launch social media campaign
- Pre-launch teaser email
- Pre-launch SMS campaign
- Public relations and media notes
- Information to communitiesÂ
- Email announcing a brand-new loyalty scheme
- Welcome email
- Email with referral information
- Email with redemption information
- Email notifying the next level/tier
- Teaser page and on-site pop-up
- All other BTL or even ATL campaigns, depending on the scale of both the business and loyalty program.
These marketing materials must be catchy enough and engage the customer to stay in the program. Get creative and be bold!Â
Costs of running a loyalty program
When the hardest part with the implementation pricing is done, the next part is the costs over the lifetime of the loyalty program. Here again, you need to be very strategic and consider three types of budgets: Management, technology, and marketing/promotion.
Management costs
Your program is a "living" solution and needs people to maintain, run, and analyze new customer loyalty campaigns. Expenses for logistics, warehousing, partnerships, and cooperation with third-party organizations also fall into this cost category.
You can also contact members to ask them how they feel about the program, inform them of upcoming sales, offer them deals, remind them of reward opportunities, or invite them to revisit your store.
Technology costs
Ongoing technology expenses include the cost of maintaining the program if you've opted for a subscription model, as well as the cost of additional system integrations and program service centers. Nonetheless, your biggest expense is already in the past, unless you're planning further major iterations or patches.
Marketing and promotion costs
Once you've grabbed attention and the first customers start to become members of your loyalty program, you can't rest on your laurels — spare no expense to promote the system in every communication channel. Constantly work on engaging marketing and promo materials and prepare:
- Teasers and countdown on the website
- Videos and captivating infographicsÂ
- Engaging social media campaigns and contestsÂ
- On-page banners linking to a rewards page
- Seasonal campaigns related to Christmas, Valentine's Day, Halloween, etc.
- Emails, SMS/MMS, and social media campaigns with updates and discountsÂ
Less predictable reward costs
Let's zoom in for more information on the cost of rewards, which can vary and be somewhat unpredictable. Typically, rewards as expense items are set by the company's board, and it's usually a percentage of the program's revenue. The loyalty program manager then ensures that the fixed rewards cost is within the budget scope.
Suppose that one point in your customer loyalty program is worth $0.5. Loyalty members can redeem points for a reward that costs you a total of $100. Now, take the price of the reward and divide it by the fixed exchange rate of loyalty points. As you can see, in this case, the price for the reward should be about 200 points so that you don't incur a loss.
Remember to monitor the point issuance on the market and set up a financial reserve for these points. Another thing is the point-price value. This is the number of points and their equivalent in real money that are required to get a certain reward. If the price is too high, customers will move away from your program quickly. Conversely, your margins will take a hit if the price is too low.
Lastly, orchestrate your loyalty point services around management, logistics, express shipping, extended warranty, multipartner rewards agreements, events in all shapes and sizes, and promotional activities (such as members-only content, videos with tips and tricks, or giveaways). Realize that rewards in your program may be fully or partially funded at the expense of your providers or partners.
After all that information about expenses, you're probably wondering what revenue will flow from the program. Data shows that a 7% increase in loyalty can raise lifetime customer profits by up to 85%. Additionally, Rob Markey, a partner and director at Bain & Company and founder of the firm's Global Customer Strategy and Marketing practice, said that those companies that offer meaningful customer loyalty programs increased their revenues about 2.5 times faster than others in their industry.Â
It's time for a moment of truth: With a new program, proving who's a new customer and who has been using your services for a long time is quite a challenge. This is because both existing customers and newcomers can join the system. Most of those who participate at the beginning are your regular customers from the pre-program days.
Unless you have an eCommerce store (which has an extensive analytics section), you certainly don't know how customers behaved before the customer loyalty system. Now, though, the situation is about to change! After a year of owning the program, you'll be able to easily find out how your shoppers act, how often they interact with your brand, what the quality of visits is, and consequently, how much profit you make.
The build-or-buy dilemma
Many businesses have the same knotty question and wonder whether they need to build or buy a solution to implement a loyalty program. Well, there are three ways you can create your system. Cezary Olejarczyk, CEO/CTO at Open Loyalty, commented on LinkedIn that it's better to buy a good loyalty engine and focus on customer loyalty and engagement than to be stuck at the software development stage of yet another tiering or reward mechanism. Still, it's preferable to be aware of the options available, so let's move on.
In-house development
Developing a loyalty scheme using your own resources from the ground up is expensive. All the work involved in conceptualization, customer journeys, loyalty program trends, customer behavior, UX trends, wireframes, final design, development, rollout, and promotion of your solution is on your side.
That's why if you want to do it right, you need to involve a lot of experts, starting from the user experience designer, UI designer, frontend and backend developer, integration specialist, analyst, and ending with loyalty manager and marketers. Naturally, when a loyalty program is developed in-house, you have full control over the entire process. On the other hand, it takes a lot of time (it can take months or even years), resources, and personnel.
Custom development by an agency
To be honest, dealing with a third-party agency is quite similar to working with your in-house team. The difference is that you outsource the work to a company with the experts on board, ready to support you. You're in good hands if you find an agency with loyalty experience. The loyalty agency staff is eager to help you conceptualize a customer loyalty program, develop it, and manage marketing communications before and after the launch.
However, agencies are reluctant to share low-level loyalty program knowledge. This is probably due to the fact that they often have contracts with loyalty platforms and outsource off-the-shelf solutions. As a result, they're unwilling to let the program out of their hands, which means you don't have complete control over it and have to negotiate every change.
Customer loyalty software implementation
If you opt for fee-based SaaS loyalty software, very little work is needed to get your system up and running. The backend of the loyalty program is already configured and waiting, and the only thing you need to consider is the customer loyalty concepts and frontend area.
In addition, the company behind the SaaS loyalty program software has the knowledge, resources, and technology to set up and launch a loyalty scheme quicker than any previous approaches. Plus, you'll be instructed on how to use the platform to get the best results.
Your program can be ready from the get-go if the SaaS company implements a MACH loyalty program based on microservices, API-first, cloud-native, and headless approaches. You'll be able to add advanced features, such as gamification, omnichannel, IoT, VR/AR, multiple tiers, and gamified surveys along the way.