Build a Customer Loyalty Program That Actually Works
Turning a passerby customer into a loyal brand advocate is both science and art, and it should be the main focus of businesses today.
As we talked about the importance of consumer loyalty, it has become obvious why companies, in particular startups, should focus on growing a loyal flock right from the get-go. A customer loyalty program, when built properly, will help with increasing the volume of repeat purchases, which directly impacts the bottom line. However, when done wrong, the building of such a program can tap deep into your resources and time without delivering the desired results.
So how do you build a loyalty program that actually works? The quick answer is focus on your customers. Instead of trying to build a program that’s valuable to you, as the businesses, build a program that your customers perceive as valuable. Just like there’s a certain psychology pertaining to consumer loyalty, there’s also research that proves the psychology of effective loyalty programs. Professors Joseph Nunes and Xavier Drèze have come up with “The Endowed Progress Effect”, a breakthrough in consumer research, analyzing the impact of artificial advancement on customer effort. They showed that the same level of effort is accepted and performed at a much higher rate when given a head start.
The value of cultivating a customer loyalty program
The Loyalty Report from 2017 shows that the average customer pertains to 14 different loyalty programs. However, the same report shows that consumers only have the capacity to engage with 7. You want to be amongst these seven, as to not lose money on time and effort. Why is this important?
- Increased transactions – customers who are part of a brand’s loyalty program convert more often
- Increased AOV - loyal customers spend more money on a brand they like than others
- Increased exposure – customers who are part of your loyalty program are also advocates of your brand. They tell their friends and their family about you. It is no secret that word-of-mouth marketing has become more effective at driving acquisition than branded content and advertising. Not only that, but numbers show that referred customers also spend more money than average.
- Increased revenue: 40% of online shopping revenue in the U.S. comes from repeat customers, who make up only 8% of site visitors.
There’s competition today for literally and virtually any product or service. The fact that your customers keep coming back to you proves they trust and love your brand. This behavior is not easy to achieve and a stellar customer loyalty program can help you do it. It will help prevent you from losing customers in the face of potential lower prices or different alternative from another company.
The attraction lies in simplicity
The first step in building a program that works is basing it on a simple point system. People love rewards and free stuff, but they want it quick and easy. Nobody wants to do complicated math to understand the benefit of a certain loyalty program.
The point system is the most common methodology for loyalty programs, enrolled customers earn points for every transaction and those points translate into a reward. It is this relationship between points and rewards that should be simple enough to attract, not deter. Conversion should be easy and intuitive. Let’s take a look at two case studies below that master not only simplicity, but also engagement.
Case Study: Sephora's Loyalty Programs
The point based system of Sephora is the best example of a program that works. Customers get a card that they can swipe at every purchase, or use when shopping online, and there’s a track record of the money they spend. $1 = 1 point. Pretty simple, right? Points can be redeemed at checkout, which usually translates into paying less money for a certain purchase or order.
The beauty of Sephora, pun intended, is that the program is both simple and encouraging. The brand also provides different statuses for loyalty, such as VIB and VIB Rouge, which scale up the rewards. However, to reach that threshold, customers need to keep shopping with the brand.
Case Study: Virgin Atlantic Flying Club
Similar to Sephora’s threshold approach, Virgin Atlantic, and possible all airlines with a loyalty program, use a tier system. This helps reward initial loyalty, but also encourage more purchases. Point systems are all about short term rewards, whereas tier systems promote long term value and therefore encourage commitment. Virgin Atlantic rewards initial loyalty by offering miles, which are added with every flight. In addition though, they also provide tier points and loyal customers have three tiers to go through: Club Red, Club Silver and Club Gold. And here is how simple they’ve made it:
- Club Red - earn miles on flights & get discounts on rental cars, airport parking, hotels, and holiday flights.
- Club Silver - earn 50% more miles on flights & have access to expedited check-in and priority stand-by seating.
- Club Gold - get double miles, priority boarding, and access to exclusive clubhouses.
The benefits and rewards offered in early stages gives customers that sense of “head start”, which was proven by The Endowed Progress Effect to impact effort levels. Past the initial point, customers realize that reaching the higher status is not impossible, so they keep at it.
Most brands, especially new ones, struggle with finding the balance between rewards that are attainable and rewards that are desirable. A tiered system is a way to find this balance. You just need to make sure it works for your business.
It’s not all about the money
We’ve covered in detail the importance of customers relating to brands in today’s “over-branded” world. While your customer loyalty program should provide consumers with tangible benefits, these needn’t necessarily all be monetary. You can structure different types of non-monetary systems around their values. Once you determine the shared values between your brand and your customers, you can build programs that offer related rewards.
Any company can provide discount codes or promotional coupons or even points that can be redeemed towards such discounts, but if you can provide value to your customers in a non-monetary way, then you have a unique opportunity. You will be able to connect with your audience and build loyalty through a system that’s stronger than adding points to a membership card.