The 6 elements of an effective customer loyalty program
In this post:
- Why customer loyalty matters to small, local businesses
- Do loyalty programs increase sales?
- The characteristics of an effective loyalty program
- Actionable tips for executing all 6 elements we’ve identified as critical for loyalty program effectiveness
Did you know the average household belongs to 29 different loyalty rewards programs? It makes sense. These programs benefit consumers and businesses alike. In this post, we’ll show you how to start a loyalty program.
Business owners know the key to a stable and thriving business requires a loyal customer base. Repeat customers alone can increase sales by 47%, and customers who belong to loyalty programs typically spend 12-18% more than non-members. Having a loyal customer base who purchases from you on a regular basis increases sales, stabilizes your business during lean times, and helps you get the word out.
Want to improve customer loyalty? The first step is to have a customer relationship management (CRM) system. Get a free demo of Womply CRM, the only CRM that comes pre-populated with your customer data.
That said, of the 29 loyalty programs to which customers belong, they only participate in about 12 of them. So just having a loyalty program in place isn’t enough. It needs to be engaging, compelling, and mutually beneficial for the business and the customer. So, if a loyalty program is a part of your customer retention strategy (which we would recommend), you’ll want to put one together that keeps customers coming back. After all, that is the reason to have one in the first place, right?
But where do you start, and how do you make your program stronger? We’ve put together the six key elements of a successful rewards program.
A successful loyalty program looks like this:
1. Make it frictionless
Joining and using a loyalty program should be easy. People don’t want to divulge all their personal information at sign up, especially if they are signing up at check out. Nor do most people have room for another card in their wallets. If your current idea or existing plan requires a card, consider ways to make holding that card optional.
A note on enrolling members: While people may not love being asked to join at check out, it still is one of the most effective places to enroll customers. It doesn’t have to be a tedious process. Often a phone number is sufficient to keep on record. It also helps to make it clear what the sign-up process is like. Make sure customers know it’s easy and be sure to reveal the benefits of the program upfront.
2. Make it exclusive
Don’t fear exclusivity. If something is available to everyone, it’s usually exclusive to no one. One of the biggest reasons people join loyalty programs is to get something special or unique.
Even if the program is available to all your customers, (there is nothing wrong with that), find ways to make the membership feel like they are part of a club, not just a list of customers who shop at your store. The offers they receive shouldn’t be the same offers you use to attract new customers.
A note on exclusivity: Two temptations often get in the way of building a successful program.
- One is to build a program that has multiple levels and rewards the most loyal customers more than the rest of the members. This may work for your business, but keep in mind, the more levels there are, the more time it will take to build and manage. Don’t let the program get in the way of the purpose, which is to make customers feel appreciated and feel like they belong.
- The other temptation is to get as many customers in the program as possible. It is not uncommon for businesses to offer loyalty cards or memberships to first-time customers. But is it really a loyalty club if first-time buyers are members? Food for thought.
There is no right or wrong level of exclusivity, so long as it feels exclusive and increases customer retention. That may mean inviting everyone who walks through the door or reserving the club to your biggest spenders. It’s your call.
3. Make it repeatable
The difference between an offer and a loyalty program lies in the ability of the customer to repeat the process. If customers only get the offer, discount, or deal after their second purchase, it’s not going to entice them back in for a third or fourth purchase.
Likewise, if it requires dozens of purchase to get the first reward, it may seem a bit out of reach and decrease a customer’s likelihood to participate.
We see this a lot with credit card companies. In many cases, getting a reward requires lots of spending and lots of time to rack up points. It’s not an easily repeatable program. It takes years to get to that second reward, and that can discourage participation. That said, they are playing the long game and enticing customers to be lifelong card holders. So this fits their model and mission. Tailor your customer loyalty program to support your strategy.
Programs with a repeatable process increase usage. There are many ways to make a program repeatable. It is not as much about the offer as it is about keeping members interested in the program. Keep in mind the timeframe in which you’d like customers to come back.
4. Make it compelling
The loyalty program should encourage members to take action. A compelling offer is something the customer wants and is willing to work for. It should require some work on the customer’s part, but not so much that they give up. You can’t afford to give an item away for free every other purchase, but it can’t require 15 purchases to redeem.
Point systems were one of the most prominent reward methods in the past. However, more and more, these programs are replacing points with other, more compelling rewards. Many companies have found that points don’t encourage usage nearly as much as tangible rewards that make your customer feel more connected to the business.
We reached out to Carol Roth – creator of the Future File legacy planning system, former investment banker, small business advocate and host of The Roth Effect – to get her take on how to create a compelling loyalty program. She agreed with our take on making it compelling:
“Loyalty programs can be very effective, but in today’s day and age, your loyalty program should be more personalized and less points-per-dollar oriented. That is very transactional and loyalty is built on building relationships. Access to special perks, events, content, services, products, and more can be customized to your business and your customers’ wants.”
5. Make it reciprocal
Building a rewards program can take a bit of work, especially as you work out the initial kinks, but it can also be one of the best ways to increase customer retention. When outlining the program, be sure there is a high level of reciprocation, meaning your customer gets real value and so does your business—in other words, make it a win-win. Whether the value you’re trying to create for your business is increased sales, customer retention, or increasing word of mouth referrals, be sure the rewards program provides equal value in the eyes of your customer.
6. Make it “on brand”
Your brand is your business. The relationships you have with your customers, the general atmosphere of the store, the products or services you offer, and the lifestyle you help them support all contribute to that brand. As you consider the various rewards you can offer your members, be sure they mirror your business’s personality and reputation.
For example, if you run a high-end restaurant, giving away a free T-shirt may seem like a good idea because it gets your name out there, but it doesn’t fit the expectations of your customers. They’ll expect high-end rewards, not random swag with a logo on it.
On the other hand, people who enjoy going to the salon to be pampered will likely enjoy a gift certificate to a high-end restaurant in town. Both are “on brand” in that they support the experience of pampering oneself.
Think about why your customers come to you. That should be the core of the rewards you offer.
Pro tip: Think outside of the box when it comes to your rewards. Points, discounts, limited deals, and punch cards may be the perfect fit, but there is so much more you can offer. We talking about this in more detail in our post entitled 5 simples strategies to keep customers coming back. If you need some help getting your creative juices flowing, check it out. And remember, the more on-brand your offer, the more compelling it will be for your loyalty members.
Loyalty program effectiveness depends on your customer knowledge
None of these elements is more important than the other. In fact, each element depends heavily on one another; they’re intertwined.
Ultimately, you need to understand your customer base if you want to build a program that speaks to their needs and wants and meets the standard they’ve come to expect from your business. You deserve to know how much of your total customer base is made of repeat customers. It will help structure the best plan to improve the health and stability of your customer base.
Small businesses have flexibility beyond that of larger corporations. Big companies, like airlines or big-box retail and wholesale stores, have to accommodate millions of people and provide an experience that is universal across state lines. They have to play to their averages. Small businesses don’t. They can be far more specific, engaged, and personal to win the neighborhood. But that starts with understanding your customer base.
You might also like: Customer relationships are a two-way street
Looking for small business software to increase repeat customer visits? Check out all customer loyalty program software reviews on FitSmallBusiness, and don’t forget to check out their review of Womply.
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