How to design a killer loyalty program

By Cathie Ericson

When you think of a killer loyalty program, what comes to mind? ,

Free coffee from a punch-card? Free airline tickets from a credit card company?

Maybe… But killer loyalty programs have the potential to offer so much more.

Loyalty programs can be just as imperative in spurring customer retention for small businesses, and yet surprisingly, far fewer small businesses have developed a program.

It’s too bad they’re missing out.3 out of 4 companies with loyalty programs report generating a positive return, according to Loyalty 360.

If you haven’t created a loyalty program, or feel like yours is languishing, here is everything you need to know about how to design a killer loyalty program.

Realize why you need one

The operative word in that last line is “design.” A loyalty program can be so much more than buy 10 cups of coffee and get one free. A well-crafted loyalty program is designed to create an emotional reaction to reward customers for their long-term investment in your business.

That’s why it’s important to first divest of any notion that a loyalty program is the same type of marketing as SEO or social media.

Those are often aimed at attracting customers and encouraging first time buying, loyalty programs serve a vastly different function — to keep customers returning.

And while you always want to be growing, existing customers can and should be the lifeblood of any company. Here are four reasons why:

• They are cheaper to market to: A Brand Keys loyalty survey found that it costs nine to 11 times more to find a new customer than retain an existing one.
• The education cycle is shorter: They already know what they want and how to do business with you, removing the learning curve from each transaction.
• The more customers know about you, the more they will like you — ideally of course. That can spur them to act as unpaid ambassadors, willingly explaining why your business is superior.

Find out what your customer wants

Before you roll out a loyalty program, go straight to your customers to find out what would resonate with them.

• Would they download an app?
• Do they prefer rewards pegged to their traffic or their dollars spent?
• Would they pay for long-term exclusive rewards?

If you already have a program, similar conversations with existing members will help you uncover the merits and flaws of your existing loyalty program.

Either way, customer input is fundamental in designing a killer loyalty program — it has to seem attainable or why should your customers bother?

Segment your audience

Sometimes one size doesn’t fit all: You may choose to offer different loyalty programs to different types of customers.

Maybe some customers will prefer to opt in for a program that gives them free merchandise, which is appealing to a teen, or one that gives them a percentage discount, which might be more attractive to a high spender.

One example of a retailer with a tiered loyalty program is Target, which recently expanded a pilot of its “Target Circle” program that was designed for customers who don’t wish to carry the co-branded REDcard. Smaller retailers can use this model to create their own segmented tiers.

Or…make the program work for (really) loyal people

You don’t have to be all things to all people.

One way to truly reward the loyal customers who deserve it the most is to make it harder to qualify for perks — but make them totally worth it. Airlines are masters of this; if they weren’t, there wouldn’t be such a thing as “mileage runs,” where customers shell out cash and buy an airline ticket and fly to somewhere unexpected, all in the hopes of reaching that next tier of service because they know it will be so very worth it.

So while you don’t want to make the casual customer feel put off, there’s something to be said for sizing up the perks so truly amazing rewards go to the top echelon of consumers.

Start strong, give loyal customers a bonus for signing up

Credit card companies have this strategy dialed in: New cardholders get a big boost up front that makes them feel like they are already close to redeeming a coveted award.

Even if your loyalty program is far more modest, you can use the same strategy — for example giving a new member enough points so that they are a quarter of the way to their first reward category.

A simpler version of this is the coffee shop that gives two “free punches” the first time someone buys a cup of coffee.

That jump start can get them to visit more right away, helping create a pattern that will pay off in future loyalty.

Take the work out of redeeming awards

How many times have you gotten to the front of the smoothie line, knowing you had that card that finally granted you a free beverage after laboriously getting it punched nine times…then not being able to find it anywhere?

Or, realizing you just deleted the app that you need to show the clerk because you were short on storage.

Short-signed business owners might take that as a plus — fewer rewards to give out. But what you’re really doing is teaching customers that the effort isn’t worth it and not even to bother.

Instead, take a cue from programs like Sephora or Panera that have all your information stored in the point of sale system when you enter your phone number. Think how delighted your customer is when you tell them they’ve earned a free bagel, rather than making them work for it.

And there’s a side benefit to storing information in a POS: You’re able to collect additional data on your customer’s purchases that can help you personalize future offers.

For example, maybe they only visit your restaurant on weekends — you could offer a sweet deal to get them to grab dinner during the week. Perhaps your records show that your customer purchases a fantastic resort wear wardrobe in March — why not send out a discount just before she comes in to make sure she doesn’t try a new store?

Finding patterns in your data can help you make the program, even more, laser-focused on how to reward their loyalty…or spur new purchase occasions.

Create closer relationships with your VIPs

The other benefit of a killer loyalty program is that it helps you track your raving fans — these are the people that you want to cater to, since they not only have proven to be lucrative, repeat customers, but they are liable to share with their family and friends as unofficial brand ambassadors.

Court these potential influencers, consider hosting a private party with your top customers and offer them something of value — a discount on services, an evening with a stylist — in exchange for their time.

If you’re rolling out a new product or service, offer them the chance to be in a pilot to try it out free of charge.

Don’t forget to follow up.

Send them surveys and ask open-ended questions on social media to make sure you are filling their needs. Use any opportunity you can to create conversations to pinpoint their preferences and how you can serve them even better.

Keep marketing your loyalty program

From email messages to social media, it’s important to target communications to your loyalty program members so that they are aware of the benefits and how to redeem them.

Make it a two-way conversation by asking what they most like, then capitalize on user-generated content by sharing their positive comments about your program with other followers and customers to drive additional sign-ups.

A loyalty program, when done right, can make your customers even more connected to your company, products and services. The key to success — as with any marketing vehicle — is asking and then listening.

Learned something? Click the 👏 to say “thanks!” and help others find this article.

Originally published at QuickBooks Resource Center.