Loyalty Programs 101, or 5 Points for Your Points Program
Your customers are your most important asset, but did you know it costs 6-7 times more to acquire a new customer than to engage a current one (Bain & Company)? And did you know that existing customers spend 67% more than a first timer (BIA/Kelsey)? It’s true! So how can you target your existing customers and increase their purchases with you and not with your competition?
Loyalty programs are a proven way to encourage your existing customers to buy more and buy more often. Also known as rewards or points programs, loyalty programs allow customers to earn points while they spend which can be redeemed for rewards and freebies. Today, any business that depends on repeat purchases and bumps up against direct competitors could benefit from a loyalty program. But what makes a great loyalty program a hit rather than a miss? Below are five key features of a successful loyalty points program to inspire or optimize your rewards program.
1. A Great Loyalty Program Is Easy to Join
Joining your loyalty program needs to be easy. In the days of a physical punch card, a clerk would give customers a card to keep in their wallet or purse, ensuring their sign-up. Today, in the digital era, your loyalty program might require an online sign-up, an app download, or a registered cell phone number. Whatever the subscription mechanism, the sign-up process needs to be as frictionless as possible to maximize participation.
To assist in this, many loyalty programs often provide a welcome offer or incentive. The welcome offer accomplishes two things: (1) wets the consumer’s whistle and gets them in the mood for earning incentives, and (2) helps you outweigh any potential barriers to signing up. If your sign-up process has a high barrier to entry, consider an awesome incentive to welcome your new loyalty member.
Many airline credit cards, such as Southwest’s Rapid Rewards card or the American Airlines AAdvantage card – offer up to a 50,000 mile sign-up bonus for new cardholders. Since joining a program like this requires a high barrier of a credit card application, it makes sense that the sign-up offer needs to be high. Your sign-up offer doesn’t need to be nearly as large, but it does need to be valuable enough to entice your current customers to join.
2. A Great Loyalty Program Is Easy to Understand
Great loyalty programs have a simple incentive structure that customers can remember. If customers can recall what they’ll earn and how, they’re more likely to make a purchase and participate in your loyalty program.
U.S. coffee titans Starbucks and Dunkin’ Donuts each have a payment-based app loyalty program that benefits from its frictionless purchase experience and a super easy-to-understand incentive structure. At Starbucks, every visit is worth a “star,” and 12 stars equals one free reward, which can be redeemed for a drink of your choice or a food item. Dunkin’ Donuts leverages a dollar-based loyalty program, awarding points for each dollar spent: $1 spent equals five points, and 200 points scores you one free drink of your choice.
Each approach – visit-based or dollars-based – has its pros and cons, but both programs are easy to remember and understand. Customers know what they need to do to earn points, and when their rewards will be coming. Speaking of rewards…
3. A Great Loyalty Program Has Great Rewards
The backbone of any rewards program are the rewards themselves. Whether it’s free merchandise, VIP treatment, exclusive perks, or cash back, the rewards need to be valuable to your target customer. Popular products or new products are a great place to start when you’re considering what rewards to provide. Also, think about including branded promotional products along the way. Your loyal customers will love the chance to sport their loyalty on swag.
The most popular rewards programs feature rewards that resonate. For instance, Best Buy’s Reward Zone gives us customers something they love: cash. For every 250 points earned, they get back $5, so they can choose what they’d like to spend their reward on. Research what might attract your target customers when choosing your rewards, and think about offering them a choice of reward or a rotating selection.
4. A Great Loyalty Program Stays in Touch
The best loyalty programs aren’t silent between rewards. They build and nurture the customer relationship through ongoing communication. Traditional and digital direct response channels are available, from direct mail to email to SMS, to engage your customers even when they are not actively shopping.
Walgreens Balance Rewards program sends monthly emails to its members in order to highlight current promotions as well as communicate the member’s current reward point balance. By reminding their customers of their point balance and how close they are to their next reward, Walgreens is able to move customers up the rewards funnel and increase their purchase frequency and size.
5. A Great Loyalty Program Is Profitable
If you gave away a free car every time a customer spent $5 with your business, you’d have the most popular loyalty program of all time. You’d also have the least profitable one. When you’re building your program, be sure to do the math and make sure you’re getting a return on your investment. Track customer spending habits and particular product margins carefully when you’re first designing your program to ensure it’ll be a success. Account for different levels of customer participation to ensure that you’re profitable at nearly every step and that the entire initiative represents a return for your business.
In addition to planning, be sure to persevere and commit to your new loyalty program. You’ll need to promote it, perhaps with branded products advertising the new program (i.e. “[Your Business] Rewards,” “[Your Business] Perks”), and stick with it. Your customers will be disappointed if they learn the program they’ve been earning points in has been abandoned only a few months after launch.
If you’re thinking about adding a loyalty program to your business’ marketing mix, consider these five points about points programs when you’re designing it. Research your favorite programs and borrow from the most successful ones, making sure it makes sense for your particular business. Do your research, make a plan, and follow these five tips, and you’ll be on your way to building customer loyalty and your bottom line.
Does your business have a loyalty program? What works for you? What are your favorite loyalty programs?
Coffee Loyalty Cards: Nick Webb | Elite Access: Larry Johnson | Profit Piggy Bank: TaxCredits.net