7 Tips for Developing Effective Customer Loyalty Programs
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7 Tips for Developing Effective Customer Loyalty Programs

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Customer loyalty programs can be a double edged sword. If used properly, they do wonders in bringing customers back for more. On the other hand, if used poorly, they can lead to a lot of wasted time and resources, not to mention a great deal of lost revenue. For this reason, we have assembled a list of tips to consider so that you can make top notch customer loyalty programs for your business. Move over Starbucks!

7 Tips for Developing Effective Customer Loyalty Programs 

1) Know your customers – Before embarking on any type of business venture, you have to know your audience and the same holds true when crafting solid customer loyalty programs. So first, before doing anything else, look to see what motivates your customers—specifically your loyal ones. As Bob Konsewicz, a strategic consultant for Maritz loyalty, says “the top 10 percent of your customers will spend about five to six times as much as the rest of your customer base.” So, with this being the case, naturally it would make sense to preserve and maintain this loyalty to make sure that they keep coming back for more. Thus, you should reward your already loyal customers with the things they like. Are they driven by discounts or perks, rewards or special statuses? Use data, such as through customer surveys, to find out exactly what matters most to these customers and design your program accordingly. Remember, great customer loyalty programs don’t just uphold the current loyalty of your top customers (though this should be a priority), it also incites your regular customers to climbs the loyalty ranks. Create a multi-tiered plan that caters to both, targeting individual customers through different offerings. In this way, you maximize your program’s overall effectiveness.

2) Know your competition – If you’re in a very crowded space with little differentiation, you might need to establish customer loyalty programs simply out of necessity—especially if your competition already has them. When crafting yours, don’t forget to look at what others are offering, for some rewards have become such an ingrained part of a service that it would be a sin to deny them. As Rafi Mohammed says, “Can you imagine an airline abandoning its frequent flyer program?” If it did, it would be at a major disadvantage. For this reason, when building your own, make sure to include those rewards that have become industry standards—those perks which have embedded themselves so deeply in the customers’ value set that they have become inseparable from the actual product or service itself.

3) Look beyond discounts – Customer loyalty programs are much more than simply providing customers with discounts, they are about incentivizing the customer to come back in whatever way possible. Some exclusivity remains a good thing and providing perks and rewards, instead of simply discounts, often stands as a better and less imitable way to increase loyalty in the long run. Let loyal members know first about certain events or give them a free gift with their purchase. As Mohammed points out, “the free benefit is an extra, not a substitution.” If the customer would have bought that anyways, then that is revenue lost, so why not instead provide them with something they wouldn’t have necessarily purchased. Look for ways to delight the customer and remember, even the smallest gestures go a long way.

4) Give an artificial head start – Letting customers work up to something provides an incentive to continue coming back. For instance, think of the time you had 5 punches on your smoothie card, half way there to getting that free smoothie. Chances are you kept going to that smoothie place over the others, simply because you had already worked up the points there. Using this logic, by giving customers a little “artificial” head start at the beginning, you will increase the odds that they will continue to come back. In fact, a study by consumer researchers Joseph Nunes and Xavier Dreze (known as the Endowment Effect) found evidence that “the closer people get to completing a goal, the more effort they exert to achieve that goal.” By giving out 300 loyalty cards to a car wash—half of which had 8 spots to be stamped for a free car wash, and the other half which had 10 spots that needed to be stamped, but at the same time had 2 spots already stamped for them—they found that the second group had almost twice the amount of completions. As Gregory Ciotti writes, “According to Nunes & Dreze, the head-start loyalty card helped customers reframe the completion process, and the fact that they didn’t have to “start” something played a huge role in their motivation to complete the card.” Thus, by giving customers a little, albeit fake head start, they will be likely to continue on in the process.

5) Spur customers’ competitive streaks – Humans are naturally competitive, so why not use your customers’ animal instincts to your customer loyalty programs’ advantage. As Nunes says, “research has shown that consumers get excited about amassing points even if the points have no currency value.” For this reason, depending on the type of business you operate, a system that keeps “score,” whether by points or by some other means, can be a great way to incite customers to continue participating.

6) Utilize Analytics – Apart from just giving discounts or rewards to customers, customer loyalty programs provide a goldmine of valuable information just waiting to be tapped. In fact, many companies use them just for that reason. The grocery store giant Kroger invests millions each year in their loyalty program and pays partner Dunnhumby a hefty sum just to analyze all the information gathered. In this way, they are able to better direct promotions and rewards to individual customers and, more importantly, get to know their customers better. Your small business probably doesn’t have the same resources as a Fortune 500 company, but that shouldn’t stop you from capitalizing on your customer loyalty programs’ data. In this way, you can see exactly what types of people are buying certain products and how they are buying them, so that you can target your promotions, rewards and advertisements accordingly to achieve success.

7) Don’t use it alone – Probably the most important thing to realize about customer loyalty programs is that they should not be used alone. Customer loyalty programs alone don’t create loyalty, they only serve as part of the process. At the end of the day, forming strong, healthy relationships with consumers does more for loyalty than anything else.

 

 

This post was written by Arie Hefter.

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2 Responses to 7 Tips for Developing Effective Customer Loyalty Programs

  1. Deborah says:

    Great tips. there are huge implications for the convergence of IT and Marketing in customer loyalty programs. I dug a little deeper into it on our blog here http://www.metia.com/seattle/deborah-hanamura/2012/november/customer-loyalty-programs-punch-cards-are-dead-long-live-big-data/ Check it out and let me know what you think! @metiaUSA & @dhanamura

  2. Meredith Wood says:

    Deborah! Thanks for stopping by. I really enjoyed the article. Thanks for sharing 🙂

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