A great customer experience strategy is supercharged by a successful loyalty program. Creating opportunities to turn a new buyer not only into a repeat customer, but also a brand advocate.
The entire customer loyalty management market worldwide is expected to surpass 24 billion US dollars by the end of 2028. In Australia, the market is expected to reach 6.5 billion US dollars by 2026. With contemporary loyalty programs being launched left and right, how can you differentiate yourself from the rest of the competition? More importantly, how do you keep your customers engaged? By engaged, we mean visiting your brand’s stores and spending their money with you, not just liking your Instagram posts.
To answer these questions, we first need to go back to how we approach a loyalty program.
In many cases, loyalty programs are treated as a separate ‘campaign’, isolated from the wider customer experience strategy. Their objectives are usually limited to more targeted promotional marketing. As a result, these loyalty programs often fail to create a sustainable and mutually beneficial relationship between the brand and its customers. They crave customer data without offering any meaningful utility in return.
This situation is typically true for what we call a brand engagement class of loyalty program or HELP US SELL.
Engagement-based loyalty programs reward customers according to their interactions with a brand, such as a follow on social media, sharing content, or email opens.
While not necessarily bad, loyalty programs focused on engagement are not exactly targeted to improve purchase frequency and a customer's average transactional value. Moreover, they don't always encourage ‘guest’ customers to become ‘known’ customers, which is important in calculating key metrics like churn rates, acquisition costs, and annual average value. They focus too much on boosting the vanity metrics of the promotional marketing team. But given that their KPIs are often based on these metrics, this isn’t surprising if the promotional marketing teams are the ones put in charge of the loyalty strategy.
On the other hand, making a loyalty program an integral part of your brand strategy and positioning focuses your efforts on your brand's customer experience. It allows you to align your programs with your company’s capabilities and competitive advantage. More importantly, it enables you to shift the purpose of loyalty programs from acquiring new customers to improving the retention rate of your high-value and frequent customers.
When you make this shift, you implement the second class of loyalty programs: the core retail experience or HELP THEM SHOP.
Core retail experience loyalty programs are directly linked to the products you’re selling and, more importantly, the way in which the customer discovers, buys and owns them - rewarding customers based on their purchases and providing them with personalised utilities that make shopping easier for known customers. Unlike brand engagement, these loyalty programs have a more direct impact on your revenue growth. Driving increase in purchase frequency, annual average value, reduction in churn, as well as organic and genuine customer advocacy.
Now that we’ve established what class of contemporary loyalty programs you need to focus on let’s break them down further based on customer motivations: the grudge and discretionary loyalty programs.
Before designing a loyalty program, it’s essential to understand the motivations behind a customer’s purchase first. Are they buying your products because they have to, or are your products more of an optional and joyful investment for the customer? Or is it somewhere in between?
Grudge programs
Grudge programs are loyalty programs that people benefit from by doing things they don’t necessarily want but need to do anyway or where they have limited options. These are mostly used by airlines, telcos, supermarkets and companies offering financial products.
Grudge programs primarily give financial benefits, which are freebies or discounts earned as a result of particular behaviours. Customers joining these programs usually think, “If I have to buy or do X, I might as well do it with this program and grind towards a benefit.”
Given that the products offered by these brands are not enjoyable in their own right, grudge programs will often partner up with discretionary brands. Offering access to their usually very large customer base in return for free or discounted products or services outside of the program brand’s usual offering. Getting free or cheap movie tickets from your mobile phone bill company is a great example. This treats your own customers like an advertising asset that can be sold. Like most attention-based advertising techniques, the customer is usually the one who benefits the least from the strategy.
Grudge programs are great in creating barriers to exit, making it hard for customers to switch to a different brand, and leveraging loss aversion biases. They also give customers who are purchasing frequently and in small amounts more reason to do all their business with one brand. Why? Because they see that the greater levels of expenditure they have with a brand can lead them towards earning proportionately greater rewards. It can also create some pretty wild ecosystems of ‘points hacking’, which encourages more and more value-seeking customers to perform unnatural purchasing behaviours.
Many companies tend to offer their grudge programs to everyone. However, we recommend making them personalised and directly based on an individual customer’s actual behaviour instead. For example, you can give specific customers a percentage-off discount or free product related to what they bought previously once they meet a criterion (e.g. $100 reward for every $500 spent). This will reduce your reliance on broad discounting strategies that could potentially devalue your products.
Discretionary programs
Discretionary programs, on the other hand, are for brands where buying is optional and more enjoyable, usually a reward unto itself. Because shopping is flexible, these programs can help prompt customers to make additional purchases that would otherwise not be made.
For example, you can use tiers to encourage your best customers to keep coming back. You can set thresholds that can be achieved by customers based on their spend or accumulated points over a set period of time, rewarding them proportionately to their patronage. Running a tiered program creates a goal for customers to shoot for and motivates them to have a longer-term view of their relationship with your brand. Maintaining a hard-earned tier can also become a strong motivator for any class of program.
It's important to remember that the mechanics and motivations are very different between the two ends of the Grudge-Discretionary continuum and need to be taken into account when designing a program. We see plenty of examples where executives - who love their frequent flyer program as they personally benefit from a business expense - try to translate the mechanics they know and love from their grudge program onto their discretionary brand, only to watch them fail or, worse, erode their brand value.
Successful contemporary loyalty programs help provide joyful utility, drive engagement, advocacy and long-term customer retention. Here are five core principles to help you design your next program or evaluate your existing ones:
1. Clear program objectives
Design your program with a specific set of business objectives in mind and ensure this is clearly communicated across your organisation. Doing so allows you to target the right customers better, offer more meaningful incentives, and better determine the rules, processes and technology you need to set in place to make your loyalty program a success.
Think about the whole business strategy and consider if you want to:
2. Omnichannel experience
A loyalty program should be a series of frictionless and valuable interactions for both your business and your customers. This means embedding your program across the end-to-end customer experience, enhancing every touch point from awareness to membership to re-engagement.
So, where do you start? You begin by collecting quality and meaningful customer data that helps the customer and their agents (i.e. your staff) pick up where they left off between shopping experiences. As a bonus, this will then give you deeper insights into how your customers navigate the sales process across your digital and physical channels. This will allow you to offer relevant and personalised loyalty programs at the moments that matter most in your customer’s buying journey.
3. Ease of access and redemption
To create a more positive experience with your program, you have to make sure that your incentives are easy to access and redeem. In fact, a 2020 Statista survey found that 45% of US consumers often dislike a loyalty program because of the time it takes for them to redeem a reward.
Keep the program simple and clear, and remove any unnecessary complexities hindering its uptake. When designing the mechanics, ask yourself:
If the answer is no, you must go back to the drawing board and identify the gaps. You can, however, layer incentives and mechanics on top of each other so that highly engaged or fanatical customers can really go to town without alienating casual yet regular customers.
4. Active and informed customer participation
Active and informed customer participation should always be at the forefront of any loyalty program. This means creating experiences that respect customer privacy and are opt-in by design. It also means ensuring that terms and conditions, expiries and program changes are properly communicated to customers so they can make informed decisions.
Doing this will allow you to bring utility to your customers while building trust and stronger relationships with them.
5. Aligned to the SAPS Benefit Model
Successful loyalty programs tap into the motivation theory of Status, Access, Power and Stuff (SAPS). SAPS help define what motivates your customers to complete the action you want them to take. It also highlights a hierarchy of rewards based on how they can drive engagement and influence loyalty. The order of priority is as follows:
When designing a loyalty program, think about how the behaviours you are targeting and the benefits being offered proportionally align to the benefit model.
Contemporary loyalty programs remove the need for an endless cycle of marketing campaigns and blanket discounts. When designed properly with your business goals and customer's needs in mind, they can ultimately help increase the Annual Average Value of your customers and motivate existing customers to become your brand advocates.
