How to Build a Compelling Loyalty Program Concept

Loyalty programs are marketing strategies that encourage and incentivize continued customer engagement with businesses and enable brands to influence spending habits, drive share of wallet, increase basket sizes, and eventually strengthen brand loyalty.

There is a substantial opportunity for businesses to benefit from loyalty programs and optimize their marketing spend via targeting repeat purchases. However, developing a precise strategy and meticulous analysis is vital, particularly in markets where the propensity to shop around is relatively higher.

Defining the concept and objectives that would support business priorities is one of the most important principles of a successful loyalty program. As this has a significant impact on the look and feel of the program as well as the implementation process, it is essential to spend adequate time designing the core concept before finding the right infrastructure and technology for it. A well-prepared function and feature set which is future-proofed would streamline the process and ensure the technology solution is aligned and supports the business objectives. This solid foundation would ensure your business avoids costly modification of the program after inception.

As the current macroeconomic conditions put unprecedented downward pressure on businesses, fostering greater loyalty by engaging, nurturing, and rewarding customers is paramount to continued business growth and success and reducing churn. Implementing an advanced ‘best-in-class’ loyalty management solution is essential to achieving a competitive edge in today’s world.

In this article, we wanted to walk you through the steps to develop a thriving loyalty program concept.

1) Analyze Your Existing Customers and Their Spending Habits

It would be a good starting point to analyze the existing customer and transaction data to drive meaningful insights on your customer segments, their behaviors, their shopping missions, what makes them loyal vs. non-loyal, and what inspires and encourages them. Then, by taking a deep dive into your current customer behavior data, you can thoroughly understand which efforts are performing well and which are not and therefore gain insights about what is working when, where it is working, and why it is working. Finally, you can visualize all these insights onto a map to identify patterns of success factors that help you achieve your business objectives.

2) Determine the Key Objectives of the Program

It is imperative to define the objectives of your program so that it fits your overall strategy and encourages the customer behaviors you prefer.

Typically, particular customer actions are followed by a reward in a customer loyalty program. Based on the objectives your brand wants to accomplish, you decide which actions you will recognize and offer incentives.

Historically, loyalty programs rewarded all customers when they purchase. However, you do not need to limit it to purchases. You can reward any behavior that benefits your brand. Businesses often incentify below-mentioned behaviors;

• A certain amount of expenditure to capture share of wallet
• Specific product purchases to drive sales of higher-margin products
• Product reviews, recommendations, and photo uploads to foster engagement and better understand customers
• Referrals to bring in new customers
• Store visits to enhance omnichannel experiences
• Social media interactions (e.g., share, like) to drive brand awareness

When customers have many touchpoints with the brand, they tend to be more loyal in many other ways than they would by merely purchasing.

3) Identify a Unique Value Proposition

Identifying the unique value proposition of your loyalty program is an inseparable part of defining its overall concept. Even though your primary focus is on your customer base, it would help to benchmark and understand what your competitors are doing since you will likely target the same consumers.

Depending on your strategy and budget, you can pick one from the typical approaches;

1. Avoid taking risks of entering unknown zones, build something similar to one of your competitors, and learn from competitor experiences.
2. Blend an existing solution that has proven success with your innovative ideas to create your own version.
3. Create a brand new loyalty program based on your unique vision that could disrupt the market.

Please note that replicating a proven solution would not solve your needs and is unlikely to help you achieve your business objectives. If you have the resources, look for creative elements and new ideas you can add to differentiate your solution. Nevertheless, it would be realistic to bear in mind that the logic of your loyalty program will not potentially remain unique for a long time since competitors may also adopt your innovative ideas to keep up.

Some non-monetary and proven ways to differentiate your company are by creating unique customer experiences, such as organizing exclusive events that are interesting for your customer base and creating private customer communities like an ideas forum or a network of brand evangelists. These help you add unique value by making your customers feel like they’re part of an exclusive club with higher social status.

4) Decide on the Rewards Mechanism

Simplicity is pivotal when designing rewards and conditions in a loyalty program. Your customers should be able to easily understand what behaviors trigger which type of rewards and on what conditions their rewards are redeemable. Complexity and too many conditions confuse customers and make it difficult for them to fully grasp the benefits. According to a J.D. Power airline loyalty program satisfaction study, “Many airline loyalty programs are failing to deliver on their intended purpose because members do not understand how to redeem the awards they accumulate. Nearly half (45%) of program members say they do not understand how to redeem their miles and/or points.”

In addition to simplicity, the value of the reward is important. Always keep in mind that the bottom line of registering for a loyalty program is saving money. A general rule of thumb says that the total reward value should be at least 10% of the expenditure.

Another important factor is the ease and promptness of redeeming. Customers must be able to easily and quickly redeem their rewards anytime and anywhere. Having a hassle-free redeeming process will make them prefer using your program more frequently. A McKinsey survey indicates the most common problem related to loyalty programs is redeeming points. If customers feel that they are being treated unfairly, they will not be loyal.

By offering a variety of rewards (such as coupons, discounts, cashback, special experiences, and donations), you can increase the possibility of satisfying even your most demanding customers.

Another important factor is the sense of exclusivity. People like feeling they have the privilege to access exclusive offers others don’t. By rewarding your highest spenders differently than others and including VIP elements (i.e., early access to specific deals, exclusive products offered only to them, free same-day delivery, etc.), you can encourage the rest to spend more.

In order to prevent your loyalty program from getting outdated and dull, it would be useful to mix & match and alter incentives regularly, such as introducing new rewards, changing the redeeming process, or offering seasonal promotions.

5) Incorporate Personalization and Gamification

The industry agrees that most consumers enjoy personalization; however, a KPMG customer loyalty survey indicates a gap between this common belief and reality. Among the survey participants, only %20 consumers globally perceived personalization as a significant benefit of loyalty programs. In other words, relevance is the key factor that drives revenue, and only genuinely personalized offers stand out.

Businesses can “unlock tailored experiences, offers, and customer journeys across touchpoints through advanced data and analytics,” as McKinsey states. Tailored experiences are only possible through leveraging real-time data to offer instant relevant content instead of static segment-based targeting that assumes all customers in a segment have similar purchasing habits. Offering relevant deals to the customer, such as a discount on the product they have been browsing but not yet purchased or early in-stock notifications about an item they are interested in buying based on their search data, is much more impactful.

In order to catch your customer’s attention, increase engagement, and bolster emotional bonds, gamification elements are highly effective. Games and competition urge a sense of immersiveness and enable your customers to engage with your brand more often and even create communities that induce social sharing, thereby increasing your brand’s visibility.

Reward-seeking behavior, the continuous need for dopamine, and FOMO increase the effectiveness of gamification in loyalty programs. While customers complete specific challenges or advance through levels, you can reward them with achievement badges or points and display results in leaderboards for further encouragement.

6) Define KPIs and Set P&L Model

The key objective of a loyalty program should be attaining the ideal balance between incremental revenues and costs via attracting “profitable” members and generating maximum incremental profits.

Businesses find it very challenging to accurately measure the incremental impact of loyalty programs, as stated by McKinsey. Unclear KPIs and complicated ROI calculations make it even more complex and hinder having a healthy and sustainable program. In that sense, it is highly recommended to create a standalone P&L for transparency on returns. Starting with a baseline P&L to understand the starting point and identify the potential paths forward and connecting it to a single P&L statement and its key levers facilitate performance discussions and budget allocations.

Calculating the costs and earnings from a loyalty program may be challenging based on its structure and the complexity of offered incentives. A simple formula suggested by PwC in the article “Loyalty analytics exposed: What every program manager needs to know” is;

Cost of Loyalty Program = Incremental Revenues – Incremental Costs

7) Work Meticulously on Branding and UX Elements

Loyalty programs require end-to-end omnichannel experiences; all customer-facing elements should be consistent and seamlessly customized.

Some key customization steps to consider are;

• Start with a catchy and appealing name for your loyalty program so that it is easy to remember and can be quickly spread across the web and social media. A great name will contribute to the program’s success by creating a sense of belonging and a desire to join, engage, and share.
• Create an eye-catching logo aligned with your branding, however different from your corporate logo.
• Brand your rewards currency based on your business type (i.e., calling coffee points ‘beans’ rather than just ‘points.’)
• Attain consistent branding across your loyalty platform (be it a mobile app or a web portal)
• Ensure a consistent brand voice across all marketing materials
• Offer branded member-only merchandise (i.e., sweatshirts, mugs, t-shirts, etc.)
• Design a simple and frictionless onboarding process (do not ask for too much information at the sign-up step; wait until building a trusting relationship)

8) Choose the Right Software System That Can Streamline Your Objectives

Once you design the core concept of your loyalty program, it is time to find the right infrastructure and technology for it.

The essential qualities you need to look for in a technology partner are an end-to-end approach, a future-proof technology infrastructure, advanced data analytics capabilities, and experience in building successful loyalty programs.

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Kartaca is a trusted loyalty solutions provider with a proven track record of building next-generation loyalty solutions with state-of-the-art features that meet the needs of our clients, their partners, and end-users.

Our bespoke loyalty solution Lixus enables quick and easy campaign delivery, dynamic campaign and communication planning, and a scenario-based rewarding mechanism based on your business objectives.

If you are looking for a reliable technology partner for your loyalty solutions, please contact us.