A loyalty program to reward you and your customers.
Customer loyalty will fuel growth for your business through increased purchase frequency and value. But how you encourage loyalty will determine its longevity for your brand. True loyalty is not born from short-term tactical discounts and promotions, but instead from brand likability and trust, earned over time.
Brands that succeed in driving long-term loyalty do so by not only surpassing customer expectations on price, quality and service, but also through establishing an emotional and instinctive connection with their customers.
Of course brand values and how they manifest at every customer touchpoint will influence the strength of this emotional connection. But brands will often also invest in a loyalty program for a more formal, performance-driven framework that segments their customer base and incentivises future purchases.
Loyalty programs have been around for a long time and exist in many forms...
High street fashion and lifestyle brands often leverage standardised loyalty programs that offer incentives and rewards at scale. H&M encourage repeat purchase with a points-based system that rewards customers with money-off coupons and community-driven experiences.
Many luxury retailers also offer rewards to their customers in the form of exclusive products and services. LVMH’s wines and spirits lifestyle brand, Clos19, operates a multi-tier, invitation-only program (Club19) that offers members value-added rewards such as complimentary personalisation and delivery, exclusive access to limited editions and money-can’t-buy brands experiences.
Major supermarkets generally adopt a loyalty card system which captures valuable customer data in return for repeat shopping coupons and incentives. Sainsbury’s Nectar card accrues points with each shop but, more recently, also offers card holders a faster and more convenient way to shop using a personal handset that allows them to ‘scan, bag and go’ with SmartShop.
Perhaps the worlds largest brand loyalty program, Amazon Prime, offers free shipping, exclusive online deals, and unlimited streaming of movies, tv and music. This suite of ever-growing benefits has become a valued subscription product to over 150 million members, regardless of whether or not they regularly shop with Amazon.
It’s evident from the plethora and diversity of programs in existence today, that in order to drive growth, they need to uniquely meet the needs of each individual business and their customers.
To create the most appropriate and successful loyalty program for your business, here are six key areas for consideration…
OBJECTIVES.
Be clear about what you are trying to achieve and what success looks like. Your primary objective will likely be incremental revenue through increased Customer Lifetime Value – but your brand strategy should inform how you motivate customers to make that repeat purchase. A loyalty program needs to speak directly to both your commercial and brand objectives and it must deliver sustainable value to both your business and your customers.
PROGRAMME STRUCTURE.
Loyalty programmes can offer a range of benefits to customers who have displayed a level of brand faithfulness through their shopping behaviour. The monetary value that your customers represent to your business may vary significantly. Customer value cohorts can be developed using a RFM segmentation (recency, frequency, monetary value). Understanding the amount that a customer has spent in a set period along with how frequently and recently they have shopped will help you to quantify their commitment to your brand and therefore how you reward or incentivise them.
Applying the pareto 80/20 principle, you can segment your customer base to identify a small group of your best customers that generate the largest proportion of total revenue. By splitting your loyalty program into different membership groups, you have the flexibility to define program objectives by customer cohort - offering each a set of meaningful and commercially appropriate benefits, designed to encourage and reward brand loyalty at every life stage.
You'll want to reward your most valuable customers with benefits that are more generous/exclusive than those offered to the remainder of the customer base. Additionally, you may want to withdraw benefits from customers that reach a point of lapse, thus creating a sense of urgency to repurchase.
Urban Outfitters' UO Rewards is a three-tier program with membership criteria that's re-calculated each calendar year
PROGRAM BENEFITS.
The benefits that you offer your customers must be of genuine value to them...
Transactional benefits incentivise repeat purchases and, depending on what is acceptable for your brand, can include £/% discounts, complimentary shipping and exclusive/early access to new products or sales.
Experiential benefits should encourage an emotional connection between your customer and brand and encourage long-term loyalty. These could potentially include invitations to exclusive events, closed community groups, seasonal gifts and brand partnerships.
Ideally you will offer a combination of transactional and experiential benefits, leveraging your platform technology, product portfolio and team of employees/brand advocates.
Marks & Spencer's Sparks program offers its members a combination of discounts, charity donations and surprise and delight initiatives.
PROGRAM BRANDING AND COMMUNICATION.
Loyalty programs are often recognisable in their own right… an extension of the brand behind it. A name, look and feel that is designed to add value to the core brand proposition, enhance the perception of exclusivity and differentiate customer communications. The concept, if marketed effectively, should also work hard to drive new customer acquisition.
Once the structure of your program is established and the benefits defined, you will need to plan your communication strategy. You could offer the best suite of member benefits to your valuable customer base, but it won't deliver results if they don’t know about it!
Communication at the right time and via the most appropriate channel is essential to keep members informed of benefits and any potential risk of losing them. An integrated communication plan that includes automated emails, website messaging, social ads and clienteling will give your loyalty program the best possible chance of achieving success.
Lego's VIP program is effectively branded with product imagery that reflects the exclusivity of the program.
PROGRAM MECHANISM / TECHNICAL IMPLEMENTATION.
There are many white-label technical solutions (e.g. Yotpo, Smile.io and Loyalty Lion) that take the hard work out of implementing a loyalty program. Easy to implement with pre-built, single click system integrations and a monthly subscription fee makes this an attractive option for a lot of businesses. High levels of customisation capabilities (program structure, branding, communications...) empowers you to define the parameters of your loyalty program without all the dev work.
You should also consider whether a points-based program is best for your business. Benefits include:
Widely used format that offers familiarity for members
Virtual currency removes the need to discount product prices, protecting you from potentially devaluing your brand
Flexibility to adjust earning and reward thresholds over time
Rewards can be earned for variety of actions (e.g. social sharing)
However, there are potentially several drawbacks such as
Conversion of money to points and back to money again can cause confusion. You should be trying to add value, not complexity, to the customer experience. Simplicity is key
Customer service requirements
Ongoing program management to keep the proposition fresh
If a 3rd party app solution doesn’t quite suit your business, a custom solution may be more ideal. Beware though… custom solutions can be costly, with high levels of upfront development and ongoing maintenance fees. Given the rapid pace that technology is evolving, even large global retailers, such as Ikea, are looking to external loyalty software solutions to power their programs.
Ren Skincare use Loyalty Lion to offer a points-based program for its customers.
COMMERCIALS.
The financial implications of running a loyalty program fall into two categories...
Upfront development costs vs. monthly subscription fees - depending on your approach, you will be faced with either a high upfront cost for developing a bespoke solution for your business, or regular monthly subscription fees for using a third party solution. The size and complexity of your business, as well as long-term business objectives, will play a part in deciding which is most appropriate. However the total cost of ownership (including maintenance and operational costs) and the potential technical debt of developing a bespoke solution should also be a primary consideration.
Rewards - The perceived value of your loyalty benefits must be high, but the economics need to make sense. For example, classic multi-tiered points-based programs should take into account the value of a point based on the spend threshold required to earn one, as well as the value of a point when redeeming it against a purchase. Although your profit margin will decrease as customers progress through the tier groups, your tolerance for this should increase as a result of higher customer spend.
If you would like support in developing and executing a loyalty program for your business, or just an informal chat about your business needs and potential options available to you, please get in touch.