Loyalty Program: The Elements of a High-Converting Strategy
Setting up a loyalty program for your business or brand is possibly the first serious step to building a bond with your customers.
Say you own a spa.
The moment your customer walks out the door relaxed and slightly glazed from your essential oils, glowy and all…they forget about you.
And if, when they walk out, they see another spa business, they might try that one next time.
Let’s say you own a spa AND have a loyalty program in place.
The glowy and relaxed customer comes out of your business and notices another spa business.
“Maybe I should check it out”, he thinks.
“But I’m only 3 massages away from my bonus massage. And what if that new spa is not worth it after all? I’m sticking with my spa.”
Loyalty cards keep your customers in check.
What is a loyalty program?
The loyalty program definition is very broad. And it would probably be best to first define loyalty in marketing. But this is a different post.
A loyalty program, also called Customer Loyalty program, Rewards program, or Treats program is a reward-based marketing strategy aiming to:
- Retain or attract new customers
- Increase engagement and brand loyalty
- Move users further down the funnel
Whatever industry you are in, a loyalty program with a loyalty or rewards card can double your marketing actions without doubling the budget.
What consumers think about loyalty programs
Yes, customers today are very cautious. And they may take some time to consider becoming members of your loyalty program.
But all doubts usually go away with:
“OFFERS AND SPECIAL DISCOUNTS, YOU SAID? You betcha! Sign me up, sis!”
So what is it that makes us join loyalty programs?
- I just love love LOVE the brand.
- Love how the loyalty card shows in my wallet every time I open it.
- I feel like an ambassador of the brand every time I see the card.
- It’s (hopefully) a way to get noticed by the brand when I spend more.
- The brand might reward my loyalty one day not so far away.
- I am always on the lookout for knock-offs and early access to sales. This might be a good start.
- A loyalty card helps me collect points which I might be able to use on my next purchase.
- I can keep track of my expenses and previous purchases with the brand.
- My birthday is in a few months; this loyalty card might get me a cool Birthday gift or a juicy discount/coupon.
- If I need to exchange an item or get a refund, I might get special treatment in-store as a loyal member and not a random customer.
- With a registered loyalty card, I will never lose my balance, even in case of theft or loss.
What are the benefits of loyalty programs?
Let me switch over to marketing gimmicks and give you the gist:
- Your loyalty program differentiates your brand from the competition.
- Thanks to loyalty programs, you can reduce your advertising spendings.
- Retaining existing customers is so much easier (and more budget-friendly) than acquiring new ones.
- Loyalty programs helps move existing customers further down the funnel as part of a consistent strategy.
- Identify churn customers simply by checking user activity over a specific period.
- Customer loyalty programs help you discover which customers are your strongest brand evangelists.
- Through loyalty program rewards, you can look for members who have influencer potential for your brand.
- When a member drops out of one channel (e.g. unfollows you on Instagram) you can still reach out to them through the rewards program.
What loyalty programs do to our brains
There is one unquestionable law: that of positive reinforcement.
Here is your Psychology 101 class: In operant conditioning, the behavior you wish to encourage, you reinforce positively and reward.
Over time, the reward gained will be associated with the reinforced stimulus and the behavior will be repeated.
In e-commerce, for example, when a consumer shops with your brand and they earn a gift card of $1 every time, or get a free sample, or get a bonus that they like, be sure that they will be coming back for more.
Every reward you send out to your customers is like a virtual standing ovation for the action they just completed!
7 Types of Loyalty Programs
What better way to encourage repeat spending than with points? Let’s be honest, there is something about this point-based reward system that motivates us to go on: we are certain that, what we are striving for, we are going to get.
Although we might consciously not realize it, there are 7 common categories of a loyalty program.
1. Point-based loyalty program
With point-based loyalty programs, we have access to a comprehensive list of customer data.
This data is great for customer data analysis and can track cross-device sign-ins.
2. Paid – VIP loyalty program
Not everyone can wait until they reach VIP status- some might be willing to buy their way to VIP status.
By paying a standard fee, members of this loyalty program get a premium service for an agreed price.
3. Tiered loyalty program
Oriented to VIP, this loyalty program type is designed with exclusivity in mind.
Every action the member completes is matched with an equivalent of reward points and a status (here: Preferred- Gold-Platinum).
What is great about the loyalty program at hand is that it presents every prospect with a detailed list of what they will be getting in every step of the way.
See similar loyalty program examples: Starwood loyalty program (see Starwood Preferred Guest (SPG), Marriott loyalty program, Many airline travel companies, The North Face
4. Partnered loyalty program
Offering to your customers more opportunities can work wonders for your customer retention.
And here comes strategic partnership! Partnering with relevant for your customers companies for a loyalty program shows you truly understand and care about their needs.
Plus, it opens the door to new business relationships.
Take a look at how Nike partners with giants like Classpass, iTunes and Headspace to enhance customer experience and increase loyalty.
5. Cashback loyalty program
This type of loyalty program is characterized by instant rewards, as well as rewards with an expiration date.
It’s mission is to reward clients by giving them back part of the amount they spent on their last purchase.
This usually happens in the form of virtual points or virtual currency.
6. Hybrid loyalty program
Like the title its self implies, this loyalty program combines more than one type of loyalty strategies.
While the most common one is that of a point-based loyalty program with a tiered one, you shouldn’t limit your imagination here.
Just do whatever fits best to your business!
7. Gamification loyalty program
While gamification is not a new word for marketers, it’s only recently that we have started reading about respecting loyalty programs.
And it’s here to stay! According to a research by TechValidate” 30% of companies using gamification improved registration conversion rates by upwards of 50%“.
What is gamification?
Basically, it’s a loyalty program that uses challenges or badges to engage the customer in a fun and interactive way. Aiming of course to increase interaction with the brand.
Loyalty Program Examples
Let’s take a look at a few loyalty program examples.
These will help us draw a more detailed framework for the benefits of loyalty programs in different industries and how these can be put to better use.
Retail Loyalty Program
TESCO – “Tesco ClubCard”
It never really occurred to me to join TESCO’s club card (which may or may not serve as evidence regarding my housekeeping skills).
But, with my loyalty program article coming up, I started noticing a lot more things.
So, here is what my receipt from Tesco looked like (yes, Susan, I only bought junk food):
The companies offline way of notifying me of my loss of profit is very spot-on, timely, and practical.
It is spot-on because I could have gotten more for my 5.40 pounds.
Also, it is timely because I read it when I just have paid contactless and I’m holding my wallet in my hands (no better timing than that to tell me I could have spent less).
It is practical because it refers to a specific number of points I could have collected, however vague this measurement of points might appear (which I’m guessing refers to one point for every pound spent).
What makes the TESCO approach to loyalty programs a paradigm of practicality is that the “loss of profit” communication is followed up by the immediate action to be taken:
- Join online by visiting tesco.com/clubcard/join, orText or Call in either of the two numbers provided
And what sends me to loyalty program design heaven is what follows the barcode:
I could win a 1000 Tesco gift card (and bonus Clubcard points – repetition jogs memory) by visiting tescoviews.com.
Apparently, there is an ongoing customer survey which upon visiting and entering a private code, greets you with:
Amazing, isn’t it? How everything is baked in?
I was going to take the test views survey myself, but when I saw the reminder about the Clubcard I texted my sister whether she accidentally registered for a Clubcard.
I’m not missing out on this, nah-uh!
Travel Loyalty Program
Aegean Airlines – “Miles + Bonus”
Travel rewarding programs are among the most popular.
Every aspiring digital nomad has multiple loyalty program cards and is excited every time they hear from their favorite airline.
What’s it gonna be this time? Free miles? Bonus miles? Special discounts to a hotel chain?
Aegean airlines know how to reward customers. In addition to the occasional rewards Aegean, this year decided to celebrate 20 years of flying by offering 20% extra miles on all their flights for a limited time.
To benefit from the offer all you had to do was fill in your Miles+Bonus member ID when booking your flight.
One step closer to Gold, hooray!
The air travel industry has a very unique combination of means to communicate their benefits.
Upon booking your tickets, you need to provide an email to receive the confirmation email.
Afterward, as soon as you get the first email, the header or footer will most definitely read “Join our Miles and Loyalty program today” and then a subheading “You could win a trip to the Maldives!”.
So, the loyalty program becomes an integral part of the onboarding process.
Another way that the loyalty program could be triggered could be through email automation.
For a user to book their tickets they need to be signed in if they are return customers.
By signing in, you gain a full track record of their purchases.
So set up a quick drip campaign to keep track of the number of trips booked per account.
Once this number totals higher than X over a period of Y days, the automation is triggered and the customer enters the Loyalty program sequence.
A third way is through a specially-designed landing page to which even first-time subscribers are referred so that they enter the sales funnel and convert more easily.
Hotel industry loyalty programs
Accor Hotels – “Le Club”
A couple of years back when I set out on a Eurotrip with a friend of mine, we decided we should set an ISO of sorts for our accommodation.
So we went with ibis hotels, which belong to Accor Hotels.
When booking with ibis, I signed up for their loyalty card and every city we left brought in more points which we could use in our next destination.
Also, I still get an occasional discount when I book as a registered user for my favorite cities.
Also, a couple of times I’ve managed to book a room when none of my friends could.
Because ibis reserves a few rooms for its loyalty program members. (I know what you’re thinking! Does the Four Season have a loyalty program? No it doesn’t, you can cry on my shoulder now.)
If you are in the hotel industry be sure to set up your own loyalty program.
Perk ideas could include:
- Extra 15% discount when they book by December (if you are a summer destination).
- Extra 10% for that same year when they refer a friend who makes a reservation (and added benefits: neighboring rooms, quick access to the pool, a designated area in their restaurants, special discounts in experiences in the local area, and so on).
- One free ticket (or more) if they choose to join the hiking group or go to the local museum.
- Premium places at the workshop to be held in your premises, at the price of regular, or a 2 for 1 scheme.
Of course, loyalty programs can always get an extra boost from a goodie bag on checkout, to lock the memories in. Which also serves as a souvenir doubling as a way to stay top-of-mind.
Restaurant loyalty programs
Friday’s – “Friday’s Club Card”
Restaurants have this amazing potential: they offer a product/service which can be purchased on a daily basis.
TGIF has designed a loyalty program that is perfectly aligned with their motto of “In here, it’s always Friday”.
This is reflected in the wording of their landing page and signup process (see below).
According to their Rewards page:
“As a member, you get perks all year round, including a free dessert in your birthday month, a chance to preview new menu items before anyone else, and invitations to exclusive events.
Each visit gets you a complimentary treat, and every third visit earns you a Jump the Line Pass that lets you skip to the front of the crowd.”
Having the chance to get dessert for free every now and then makes signing up for the restaurant loyalty program so attractive, that not doing so is going to cost you more.
So, you end up going to Friday’s instead of a cafe, because it will count towards getting something for free next time!
Then, this helps you with increasing customer loyalty; your quest for more loyalty program points takes you to the store more often, eventually, you become more familiar with their friendly staff, and your experience in the store just keeps getting better!
And here’s a restaurant Loyalty Program I designed!
Note how besides the loyalty program per se, the address, phone number, website, and social media accounts of the business are readily available on the card.
Everything that a consumer might need is there on this card.
I designed this for a Poke Hawaiian Sushi place. Every pokebowl corresponds to one stamp in a box (stamps use their branding elements, e.g. a totem, a pokebowl, etc.).
As you see, the first reward is up with one’s second pokebowl.
This reinforces positively consumers’ order frequency because they get something back every few times.
Most businesses simply offer a reward after 10 orders; for instance, this coffee shop around the corner gives me a coffee stamp for every coffee I buy.
You’ll find more loyalty program examples and ideas in our Bonus content (see below).
The no1 loyalty program mistake
Here’s a loyalty rewards program that has taken away more than it was supposed to add to my experience.
Viktor and Rolf – Secret Service
I used to wear Viktor and Rolf’s Flowerbomb perfume for a decade.
At some point, they launched their Secret Service whereby visiting a beautifully animated page you wandered across different floors and supposedly entered different rooms.
The more codes I entered, the more frustrated I got that no Rooms opened, no emails were received, no gifts were sent.
So, essentially, what this tactic accomplished was to generate anticipation over a reward which was never received.
Over time this did compromise the brand’s reliability to my perception because I had shopped so much and was tricked into waiting for something in return, when what I was actually doing was keeping their customer base updated myself, since every time, I just entered a code found in the packaging of my perfume/body cream/hair mist/Christmas special edition and logged that in my account.
Lesson learned: don’t fool or mislead your customers. They love your brand and they don’t like being disappointed by what they put their money and loyalty in.
How will the loyalty program trend change in 2019?
We’ve seen tried and tested marketing tactics transitioning to Experiential Marketing.
Where there were event sponsorships, now there are carefully designed experiences with brand alignment between sponsor and sponsee.
Where there were seasonal CocaCola bottles, now there are CocaCola bow label bottles.
We find that the more we can immerse the user in an experience that involves our brand/product, the stronger the association that will be formed.
Of course, loyalty programs are no exception to the Experiential Marketing trend.
So, what used to mean rewards per se, is now translated into smoothing out any hiccups that may stain a customer’s experience with the brand/service.
Here are some of the examples I liked best:
The North Face loyalty program – VIPeak
The North Face rewards page guides users into subscribing to their VIPeak loyalty program. With a direct relationship between money spent online or in-store and points earned, as well as by participation in events (see below) users have a clear understanding of what they’re in for.
According to the steps above, online purchases are worth more points than in-store purchases, which serves as an incentive for shopping online.
Joining the VIPeak program comes with access to exclusive events, rewards twice a year, and early access to sales and offers.
Also, downloading the app can earn subscribers additional Peak points.
Note how clearly the relationship between “money spent” and “points earned” is stated.
What is great about this program is that it encompasses the online shopping experience, with the in-store shopping experience and the outdoorsiness that the brand stands for by rewarding the member for any of the above.
Hilton – Honors
Hilton’s loyalty program offers a number of perks for their members:
From lowest price guarantee (and a promise to match any lower prices and give an extra 25% off), to Hilton’s coalition with American Express, to the Hilton check-in/check-out app, the Hilton Honors program appears to be a 360-degree experience.
You see, everything from booking the room to checking in, to collecting and redeeming points with American Express, seems to have been taken care of.
This kind of loyalty program makes members feel valued and their needs catered to.
Essentially, they are dealing with everything that can ruin the experience with them. For instance, what can be a real mood-ruiner, even while on holiday, is to have to queue up to check in.
It also takes the spontaneity out of the experience because staying at a hotel and having to check in, leave your id at the front desk, etc take away from the coziness of the very goal of The Hilton; to help guests feel at home.
Starbucks- Starbucks Rewards
Of course, Starbucks would not restrict itself to serving coffee. Otherwise, it’d be no Starbucks.
So, the exciting experience for its Starbucks loyalty program members starts as soon as they use the Starbucks app to order or pay for their coffee.
You can pay for your coffee, stream music for free, and so on.
Rewards are frequent and encourage users to spend more time with the app.
In the future, the Starbucks app can help serve a more unique or personalized experience to its members.
Amazon – Amazon Prime
Some say that discounts will fade away in our minds over time, but the fabric of a positive experience will last.
Amazon Prime may have launched as a two-day free shipping delivery service, but it’s come to be a lot more.
Free unlimited photo storage, listening to ad-free music, watching movies and TV shows, all make part of a truly premium service, one that far exceeds user expectations.
Loyalty Program Tips
The more competitive your industry, the more you are in need of a very competitive loyalty program. How?
- Create a tiered Loyalty Program for online purchases.
- Every time customers make a purchase give them an extra point. This way, they stay engaged longer (Loyalty sequence 1 & Loyalty sequence 2).
- Inform your buyer personas using correlated data. Then, you can create custom discounts which go out automatically.
- Keep users engaged with potential: random winner generator every week. You could give away the user’s most-purchased product, or complementary items, by combining their history of purchases and loyalty card.
- Create a loyalty program persona that will inform members of where they stand in the program, how far along they are from reaching the next tier etc. The level of personalization you can achieve is INSANE.
- Set up a referral-based loyalty program or a social shares one. For every action taking place in either of these settings you can have an automation ping to your Marketing team to make sure that these do not go unnoticed.
- Help your customer double their loyalty program points or buy more points half price. You could even help them send or share their points and give them back twice as much as they gave away, as a form of gamification.
- Ask your users to donate their points to an NGO of their preference. This will help you show your users you care for the causes they are supporting, all the while when creating a positive brand image.
- Create a loyalty program that addresses members who have never redeemed their points, those who have redeemed their points only once, or those whose points are past a certain number. Send them customized recommendations for 500, 1,000, 5,000 points and so on. For those who do redeem their points, give them back another 500 points so they can quickly reach their next milestone.
How to set up a loyalty program
So far I am pretty sure I’ve convinced you that a loyalty program is a must for your business. So, are you ready to get down to work? It’s so easy!
1. Set your goal
What is your goal by setting up a loyalty program:
- Get more registrations?
- More referrals or purchases?
- Maybe aim for social shares?
- Raise awareness for a cause?
2. Determine what you can offer
What ways of redeeming points can you offer? Remember there should be a straightforward relationship between money spent and rewards gained.
For example, be clear about every dollar corresponding to one point or more.
This way, it will be easier for your customers to get enthusiastic about your offering. Also, they will engage more with your brand, generate a positive word – of – mouth for your loyalty program, and bring more referrals.
Having said that, one example of that is matching every dollar spent with one point.
For instance, I usually find it frustrating that to buy miles for my Miles and Bonus program for the airline loyalty program I will need to spend so much more money.
As a matter of fact, the airline loyalty program sector as a whole is a pretty good example of complicated rules.
Once, to understand the difference between Tier Miles and Reward Miles I had to do some online reading, ask around, then ask at the front desk of the lobby while everyone else of the Gold status members was enjoying their glass of wine.
And, I mean, I did my fair share of googling and forum chatting before that.
3. Set a budget
Setting a marketing budget is vital if you want this to work.
But, before you do, check whether the average spending of your loyal customers will be worth signing up for these rewards.
In other words, if your average customer spends an average of $40 every time they shop with you and the first milestone of your loyalty program is once they’ve hit the $300 mark, you understand that anything less than 10% of that amount is going to take away from your loyalty program.
This is basically saying to your customers that their money should go to you but not the other way round.
4. Set the rules
Set up your Terms and Conditions.
I am not an expert here so you will need to do your fair share of research yourself. But here are a few things that might come in handy anyway:
Check out these T&Cs in the aforementioned loyalty programs by The North Face. Should be a good starting point!
5. Put a name on it
You could use a pun with your name- no matter how lame (pun intended).
If that is not applicable, then go for a benefit-oriented naming “advantage card” etc.
At the same time, keep in mind for all your wording to be carefully selected and benefit-oriented (e.g. “Perks start the moment you join” – HILTON Honors Loyalty Program).
Don’t forget. Τhe feelings you elicit in your website visitors these feelings will be subliminally associated with the reward program you are promoting.
And make sure you throw in enough brand identity elements.
They serve as the brand reminders: loyalty stickers, loyalty card, fridge magnet, wallet pen, credit card USB could be some of the cute little things your customers win.
Wrapping it up
Yes, loyalty programs are effective. And yes, you can create yours in almost no time. Because it will increase growth, boost customer retention and improve your brand’s reputation.
Choose the loyalty program type that suits your business, decide your budget, rewards and Terms & Conditions and off you go!
You are ready to take your business to the high-conversion land!
So what are you waiting for? Can’t wait to hear your comment and thoughts!