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The art of creating successful customer loyalty programs

The art of creating successful customer loyalty programs

by Epsilon India August 8, 2019

Importance of a customer loyalty program

There is nothing like the rush of winning new business or getting a new client on board. That’s the reason why marketing departments across industries are pouring energy and resources in developing communication and product positioning that can lure new people to their brands.

For long, it has been the underlying basis of their growth strategy. However, studies have shown that the cost of acquiring a new customer can be 5-25X more than retaining an existing one? That’s why investing in customer loyalty programs — and digital technology and platforms to support them — is a growing priority.

But before beginning a discussion about customer loyalty programs, and how to create an effective one, it is important to understand what exactly is customer loyalty.

What is Customer Loyalty?

In layman’s terms, customer loyalty is the feeling of faithfulness a customer feels towards a brand or business which motivates him to return again and again to the same brand or business.

For some perspective on this, 80% of adults in the USA say they are loyal to specific brands.

A customer loyalty program is important because loyal customers spend more on brands to whom they are loyal, and they act as evangelists by telling their friends and colleagues about these brands, which helps drive free referrals.

Good customer loyalty program ideas can contribute a lot towards business growth; according to Hubspot, 40% of online shopping revenue comes from repeat customers in the U.S, though they make up only 8% of site visitors.

Let us go over some salient features which have been indicated by loyalty program research to greatly improve the effectiveness of such a program:

Ease is attractive

A core objective of any customer loyalty program is to attract the customer towards taking note of it and continue using it.

A program which is difficult to understand works directly against this by bombing the customer with an exhausting procedure of calculating rewards, and other details.

This is why point-based loyalty programs with simple and intuitive conversions are most attractive to customers - nobody wants to spend more time redeeming their rewards than they spent shopping for those rewards!

Also, it should be noted that though a point-based system is perhaps the most common loyalty program, it is not a one-glove-fits-all solution.

The businesses best suited to it are businesses that encourage frequent, short-term purchases.

Satisfaction is good, delight is better

In a market where almost everyone already has a customer loyalty of one kind or another, if you want yours to stand out, you must aim beyond just satisfying your customers and move towards delighting them.

One way to achieve this is to give your customers a personal experience which makes them feel that the business knows them and cares about them.

According to Forbes, a customer is eight times more likely to be satisfied with a customer loyalty program if they’re very satisfied with how personalized it is to them.

An easy example of this is brands like Dunkin’ Donuts and Sephora, offering special rewards to customers during their birthday month. Sephora goes an extra step and uses the data it has about its customers’ physical appearance, like eye color and skin tone, to offer personalized product recommendations.

DD perksCourtesy: Dunkin' Donuts

Another way to achieve customer delight is by offering them extra convenience. For example, Marriott offers its reward program members the ability to use their phone as the room key and to check-in through an app.

It sounds like a little thing, but it can go a long way towards making the customer comfortable. In a similar vein, Starbucks offers its customer loyalty program members the option to place an order through their apps in advance, and thus avoid the infamously long queues at their stores.

People like to play

It is a part and parcel of the human psyche as well as an underlying principle of our society that people care more for tier-based systems which regularly offer coveted things at each progression.

Also, most people are subscribed to several loyalty programs under different brands, and they are likely to forget yours if there is a huge time gap between their purchases and gratification.

A game-like, tier-based customer loyalty program finds a way around this by keeping the customers constantly engaged as they climb up the loyalty ladder to reach out for increasingly better rewards.

Again, no solution is applicable or advisable for all brands and businesses, a tier-based customer loyalty program would work better for high commitment, higher price-point businesses like airlines, hospitality businesses, or insurance companies.

Values may work where money does not

Though the customer-seller relationship revolves around monetary transactions, it would do you a world of good to remember that there are things other than money your customers may care about.

A warmth-filled customer loyalty program that offers to do something nice may be more attractive to people than a run-of-the-mill option with points-for-purchase. This also makes a lot of sense when we are dealing with a non-monetary objective like customer loyalty.

In fact, according to Hubspot, CeB surveyed consumers on customer loyalty and found that customers were loyal ‘not to companies, but beliefs.’

One successful example of executing such a program is from TOMS Shoes. TOMS’ motto is to improve lives around the globe and promises to help a person for every item purchased. Not only does it build a great brand image and may achieve great customer loyalty, but it also makes a difference to the world we live in.

elephant tomsCourtesy: TOMS

Special benefits for a special fee

An alternative to traditional customer loyalty programs is the approach adopted most famously by Amazon in their Amazon Prime initiative.

With this, Amazon offers its customers a chance to get free and faster delivery, early access, special deals, and more, for a monthly or yearly subscription.

amazon primeCourtesy: Amazon Prime

It is a win-win situation for all because by paying an up-front fee the customers are saved from a possibly hectic process and gain an edge over other customers. The business, in turn, is benefited by a loyal customer base with a better in-cart to check-out ratio.

Keep track of your program

As uncanny as it sounds, it is not uncommon for businesses to start a loyalty program and then promptly proceed to forget all about it. In some cases, it might be because of apathy built up over a history of marginal returns from a program, in others, it might simply be because of ignorance about any parameters to measure the effectiveness of such a program.

A few such parameters are:

Customer Retention Rate: A measure of how long customers stay with you. For a successful program, this number should increase over time.

Negative Churn: A negation of customer churn, the rate at which customers leave your business. Negative churn, therefore, is the rate at which customers upgrade or buy additional services. Needless to say, a successful loyalty program should increase your business’s negative churn.

Net Promoter Score: The number of customers who would recommend your product minus the number of customers who would not. In general, this metric is calculated by getting your customers to fill surveys and is one of the most effective for judging a loyalty program.

Be proactive

The right customer loyalty program can do wonders for your brand and business, especially because the cost of retaining an existing customer is much, much less than the cost of acquiring a new one.

Considering that, you need to take the strategy and execution of a plan which is best suited for you and your customers seriously. Agility Brand Loyalty, by Epsilon, can help you achieve this, by creating meaningful loyalty experiences that power lifetime connections with your customers.


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