The Gist

  • Loyalty goals. Tailor programs to reflect organizational objectives and customer needs.
  • Program evolution. Embrace customized rewards and experiential components for success.
  • Data gathering. Utilize customer data to drive informed business decisions and optimize retention.

When organizations take stock of which practices do the most to boost or protect the bottom line, customer loyalty programs should be near the top of the list.

Industry logic says that it typically requires five-to-seven times more investment to acquire a new customer than it does to retain an existing one. An important way to keep customers coming back is to offer them incentives and rewards for doing so.

But a successful customer loyalty program can’t be created in a vacuum. It should be part of a broader customer service and engagement commitment. Consumers tend to buy goods and services they trust, and they repeat those purchases when they have had good experiences with the product or service, and with the organization overall, noted John Giaquinto, senior director of customer loyalty and digital marketing at Hannaford Supermarkets.

Loyalty Program Offerings Should Reflect the Organization’s Goals

Customer loyalty programs come in a variety of formats, have different requirements and offer different incentives and rewards. Exactly what is included in a given program basically boils down to how an organization defines a loyalty program and what its goals are, according to Giaquinto.

“To me, it’s essentially tracking customers as individuals — designing incentives to grow their engagement and retain them,” Giaquinto said. “That can be something that is done without promoting a structured loyalty program or without the customer’s knowledge, especially in a purely ecommerce scenario. I would still consider that loyalty.”

“As far as a defined, customer-facing loyalty program is concerned, they usually consist of a mixture of elements that are a ‘hook’ or a clearly-defined reason to sign up,” Giaquinto explained. “That can be accumulation of points or cash back; a tiered system where you reach thresholds that provide additional discounts or earnings or benefits; subscriptions where an enrollment — for a fee or not — gets access to additional values or gives a discount off something such as free shipping, or even simple two-tiered pricing where an enrollment gets you completely different prices.”

In addition, Giaquinto said many programs feature additional, shorter-term offers and benefits that can be personalized down to a 1:1 level. This can include product coupons, discounts and content.

Related Article: Customer Retention Strategies for Driving Loyalty in Uncertain Times 

Program Details Are Evolving to More Customized Rewards

Quid-pro-quo programs still dominate in many industries, such as retail services, travel, hospitality and credit card finance, explained Howard Schneider, a customer loyalty and engagement consultant. But the big evolution has been to programs that have more experiential components, and are less reliant on a strict invest-to-redeem structure.

“That is to say, by offering unique content to members, or to members who are in certain thresholds, such as unique features, a higher level of service, the ability to sample, or early access to new products. The more of those features are incorporated, the more successful I think programs are,” Schneider said.

Exactly what form a customer loyalty program should take depends on an organization’s positioning and marketing strategy, and what their relationship is with their customers, Giaquinto said. Most US retailers will benefit from a loyalty program, provided they serve customers who shop frequently and those customers have other choices. 

But not every organization needs to offer a variety of loyalty program features, and not every aspect of customer service needs to be bundled into a formal program, Schneider stressed. Customer service and customer engagement should be part of every organization’s strategy. 

“I think every enterprise should be focused on customer engagement, retention and loyalty, one way or another, as the DNA of their business,” Giaquinto said. “When it comes to programs, a loyalty program is not going to put a new venture on the map. A loyalty program isn't going to increase sales by 20%. Loyalty programs operate at the margins, and they operate in an environment where what you need to do is emphasize retention, emphasize growing your customer lifetime value, emphasize doing something extra if you need to, for the sake of your customers who are at risk of attrition.” 

Learning Opportunities

Related Article: 9 Ways to Build Customer Loyalty  

At the Heart of Every Successful Program Is the Gathering of Customer Data

At the very heart of most customer loyalty programs is a very selfish motive, Giaquinto said – the desire to get more data on each customer.

“The first reason customer loyalty programs were created, interestingly, is not to retain customers. At least not directly,” Giaquinto explained. “It was to gather customer behavioral data to drive better business decisions. Today, most retailers in the US are competing with other retailers that have a loyalty program, and also with pure-play ecommerce entities, all of whom can track individual customer behavior through time. You would have to be extremely lucky to consistently make solid business decisions without this data. And if you are relying on being lucky while your competition is being smart — you won’t be around for long.”

Of course, once an organization has this customer data, it can keep optimizing for better retention of customers. If the organization reaches scale, this should mean incremental sales at the top line, and even market share gain, Giaquinto said.

Technology should be an enabler of every program strategy, Giaquinto continued.

“If you want customers to have a simple reward for shopping a certain number of times, an identification card that works with your point of sale, coupled with a database that tracks transactions, might suffice,” Giaquinto explained. “If you want to create personalized, AI-suggested offers on products in real-time, you need robust APIs, a personalization engine, and infrastructure to display and manage offers and discounts.”

Finally, Giaquinto said if organizations are poised to implement a new customer loyalty program or refine an existing one, they should think broadly and long term.

“Understand that the way you measure transactional activities shouldn’t be the only way you measure your loyalty program, and should absolutely not be how you judge its success,” Giaquinto advised. “Most of all, keep reminding yourself that the goal is customer behavior change at scale, and that what changes human behavior rarely makes sense.”

As to specific actions that the organization should take, they are simple, Giaquinto recommended: “Test. Learn. Optimize.”