Loyalty programs can be an effective way to reward regular customers, drive repeat business and deliver great customer service. It’s important for retailers to ensure they are getting the most out of loyalty programs All programs are not created equally, however, which is why it’s important for retailers to ensure they are getting the most out of the investments they sink into creating and maintaining loyalty programs.

What Is a Loyalty Program?

Loyalty programs, sponsored by retailers and other businesses, offer rewards, discounts, and other special incentives as a way to attract and retain customers. They are designed to encourage repeat business, offering people a reward for store/brand loyalty (hence the name). Typically, the more often a customer patronizes the merchant—and the more they spend—the greater their rewards.

How a Loyalty Program Works

Loyalty program incentives vary. Typical incentives include:

• advance notice of/early access to new products
• early access to sales
• free merchandise or enhanced services
• special services, like free or expedited shipping
• members-only discounts

To join a loyalty program—also known as a rewards program or points program—customers typically register their personal information with the company and are given a unique identifier, such as a numerical ID or membership card. They use that identifier when making a purchase.

How Did Loyalty Programs Start?

Loyalty programs have been around for so long; it’s hard to say when the first vendor started rewarding people for buying from them more than once. However, the modern form of customer loyalty programs started in the 1980s with American Airlines. They introduced the first frequent flier program, Advantage, to gain a competitive edge after the Airline Deregulation Act of 1978.

1. Ability To Influence And Track Positive Behaviour Change

The ability to influence and track positive behaviour change has expanded vastly with the proliferation of available customer data. It delivers a fair exchange of value for customer loyalty and provides a foundation for building relationships beyond the transaction and customer loyalty. Another risk factor is internal silos. All business stakeholders need to be aligned around the customer needs and be willing to reevaluate internal business processes to ensure accurate tracking and reporting.

2. Ability To Differentiate & Target Members On a Segmented

The ability to consolidate consumer data, and identify meaningful insights that address not just demographic differences but different motivations of your consumers is fundamental to loyalty program success. The level of customer profile enables retailers to understand how customer needs may change by channel or by day.

The benefit of this approach to the retail consumer is: It feels more relevant and personalized. The customer feels like he matters to that retailer, and that is the beginning of building an emotional connection with your customers. The best examples of segmentation/ personalization enable the customer to manage their own personalization settings for the relationship, Yeow said.

The pitfall: Collecting profile data and not using it to personalize communications and experiences is a missed opportunity. Consumers provide you with their personal information and expect something of value in exchange.  If data is collected and perceived to not be used, it erodes consumer trust. That is the opposite of customer loyalty and advocacy.

3. Ability To Recognize & Reward Transactional Behaviours

Rewarding customers for non-transactional behaviour has become a minimum expectation. Programs that only recognize transactions feel very one-sided as if customers are valued for profit only, Yeow said. This approach limits the opportunity to build an emotional connection to the brand; limiting its potential.  That emotional connection is required to build customer devotion. A customer who feels devotion adds another level of value.

“They are more likely to recommend the product to others, engage with social media efforts and engage with offers,” Yeow said. “Social media has provided loyalty marketers with quick, easy and repetitive ways to provide rewards for engagement behaviour. Many beauty brands are successfully offering prizes and rewards for engaging with them via Instagram. This is one way to reward non-transactional behaviour, increase the share of voice and helps to promote advocacy via one of the largest social platforms.”

The benefit of this approach to the retail consumer: Consumers who are rewarded for all types of interactions feel more like they are participating in a two-way relationship with the retailer and are being recognized for all of their efforts in the relationship.

The pitfall: The risk is becoming uncompetitive and losing relevance.

4. Offering Relevant Rewards

The most successful loyalty efforts start by understanding the customer base beyond transactions to motivations, lifestyle and ultimately persona. Starting from customer insight enables programs to offer rewards that are relevant and have the ability to inspire that customer. Practical rewards like free shipping are also immediate and tangible. Another practical reward example is Nordstrom offering free alterations. Those examples are relevant, practical and immediate, Yeow said. Millennials and younger are driven by immediacy and instant gratification.  Integrating loyalty into point-of-sale provides the ability to reward the customer’s current spending with real-time connectivity, returning a benefit straight to the customer via their mobile device or even on the POS/receipt itself. This means a retailer can automatically update the point balance to deliver the instant gratification and recognition consumers crave for being a member and using the program.

Yeow said successful programs balance practical rewards with aspirational rewards and frequently communicate progress. Offering both practical and aspirational rewards enable retailers to make customers feel like rewards are easily reached and can also be a tool to encourage additional spending. “Spend and get” rewards are typical retail aspirational benefits. Members know when they spend a certain amount, they will receive a discount or cash-back coupon. Achievement of a membership tier level can also be the aspiration, providing additional ongoing benefits. Aspirational rewards lead to what we call the “golden moment” when a member claims their reward. Members who’ve claimed that reward, the aspirational one they’ve been working toward, is more likely to become devoted. More likely to tell others. More likely to become a long-term customer.

The benefit of this approach to the retail consumer: The consumer receives rewards that are tailored to their needs, feel within their reach and are received at the right time.

The pitfall: If a consumer is rewarded in a way that is not relevant or poorly timed it is a wasted effort. That Consumers will feel like all of the business and personal information they have given has been a wasted investment on their part.

5. Capitalizing On The Benefits Of Each Consumer Touchpoint.

The customer journey is not a straight line. Depending on the product it can take many months and incorporate many channels. The best loyalty offerings provide continuity and are convenient and seamless for the consumer. Apps have emerged as a very strong tool in this area. The Starbucks app is a great example of using mobile and in-store to create a seamless experience and drive sales. customer loyalty programs are beneficial to get more loyal customers and keep the brand on top of your mind. What you need to remember is you need to provide value to your customers in order to keep them coming back.

What type of loyalty program are you using for your brand?

If you are simply trying to get as many consumers to sign up for your loyalty program as possible, then a traditional free program might be the best fit. These types of programs don’t have many barriers to entry, but by nature don’t do a good job of differentiating your brand on their own. On the other hand, if you’re concerned about getting your most committed customers to engage with your brand, even more, premium loyalty could be exactly what you need to elevate those relationships to the next level.