Best Practices: How to Build a Rewards-Based Loyalty Program That Is Engaging To Your Customers

Rewards-based loyalty programs can be highly effective marketing tactics for B2B and B2C businesses aiming to drive customer engagement and specific, desired business goals and objectives. These loyalty programs should, in essence, be communication vehicles providing robust reward offerings and frequent and relevant touch points to keep participants actively engaged.

However, loyalty programs contain several variable components and each business and audience is different. There is no silver bullet in loyalty program creation, no off-the-shelf program design that will work for every business. Because of this, the following best practice considerations should be taken when designing a loyalty program to effectively speak to your customers:

Defining loyalty: Businesses can easily confuse loyalty programs with frequency programs or relationship programs, but it is crucial to know the difference. A frequency program is designed to incite customers to simply buy more, more often. A relationship program means that there is a basic level of interaction established between business and customer. A true loyalty program involves a company knowing who the customer is, how often they buy and what products they prefer. With this information a company can then deliver custom, relevant information to each customer, which will trigger specific, desired behaviors. 

Businesses should also consider that an “active” loyalty program participant frequently engages with the program in a number of ways and is regularly redeeming smaller, more frequent rewards, rather than saving up for one, large-ticket reward and seldom engaging with the program sponsor. 

Understanding audience and defining goals:Loyalty programs have been around for a long time, but their value remains. 2011 Parago research showed that 77% of consumers report that stores offering rewards-based loyalty programs incite them to shop more, and 83% of consumers said that these loyalty programs influence their purchasing decisions. However, amidst the current lagging economic climate, consumers have also become more empowered in the shopping process. Customers know that their loyalty is a hot commodity. With this in mind, marketers are challenged to create loyalty programs that are unique, rewarding and most of all personalized. And within each company’s customer base are a variety of types of consumers, which must be understood.

Each business will have top-performing and low-performing customers. This is typical. The key is to create meaningful structure and segments and provide separate rewards that speak to each group. Gone are the days of a blanket loyalty program that will speak to a company’s entire audience.

For example, brand loyalists may most enjoy a reward associated with the brand, such as branded apparel or merchandise. But a mid-level loyalist may prefer cash back or coupons.  And whereas price and discounts are more important to lower performing customers, top performers place more value on the experience – such as VIP treatment and exclusive services.

Structuring reward mix: When meaningful reward options are delivered in a timely fashion, customers will be wowed and will continually come back for more. Once a customer is truly impressed in this way, their perception of the sponsoring company is increased and so is retention.

Customers that are engaged and satisfied with loyalty programs are those that are frequently redeeming their rewards and engaging. Providing customers multiple ways to earn credit or points towards rewards will effectively boost engagement and overall performance. If there are not multiple ways to earn and point values are not aligned with earning potential and award mix, then participants will become less engaged in the program and will likely churn as a customer.

Earning points doesn’t always have to be tied to purchasing a product; participating in surveys or games are also cost-effective ways for customers to earn credit, and companies to gain more value and interaction.  The more opportunities to drive customers to the program website, and to earn and redeem rewards through various behaviors, the closer the sponsoring business will be to increasing retention long-term.

Properly aligning the point values with the award mix is extremely important. Merchandise offerings are very popular in loyalty programs, but if the point value is $0.01 and the customer can only earn 100 points for each behavior, they will only be earning $1.00 at a time. This structure makes it very difficult for a customer to earn enough points to “burn” them on something meaningful if high-priced merchandise is the only option. So if $0.01/point is desired, then a more attainable reward offering should be considered – such as gift cards.

Communication: Before planning communications for a loyalty program, the business must fully develop the key messages, and the desired behaviors of the customer. Each industry, company and program will be different.

From there, companies should consider what frequency of communication will be most effective. Is it necessary to communicate monthly? Only when customers purchase? Only when customers reach certain thresholds? There is no right answer because each audience will have different preferences. In fact, within each company’s customer base will be consumers that prefer differing levels of communications, just like varied reward preferences exist.

Next is determining which communications mechanisms are most effective for each customer. In today’s hyper-connected world there are myriad options: email, snail mail, text, phone call, social media and more. Communications can’t be one dimensional, either. Program messages included in emails and text messages have to also be echoed by sales associates and with in-store awareness.

Finally, businesses must try to be as “real time” as possible in the execution and communication of their loyalty programs, in order to keep customers engaged. For example, sales associates proactively telling customers how many points they have and assisting them in redemption during the sales process will be highly rewarding. Conversely, a loyalty program that remains hidden solely on a website or kiosk will be cumbersome to clients and easily forgotten.

Technology platform: The reward environment must be built with the customer in mind. Making the program tools simple to use and easy to understand is key. This is another area where marketers have the choice of tailoring the loyalty program specifically to their customers. Should the program be completely managed online?  Have social media components? Include mobile components? Most programs now have an intersection of one or more of these options, but considerations must be made in accordance with customer profile and preferences. 

Measurement:

All of these options for personalization can only be made with the use of targeted, frequent measurement of the loyalty program success. To make sure that the program is moving the needle, companies must define a set of controls to understand success metrics and then continuously measure against them and optimize the program. Are certain rewards very seldom redeemed? Replace them with something that could be more valuable to the customer. Are desired behaviors very rarely seen after text message communications? Perhaps an email communication would be more effective. Is customer service frequently flooded with requests for support? Online support and FAQs could help satisfy the customers, etc.

Achieving Satisfaction:

True loyalty is attained when both engagement and satisfaction converge. When a customer is truly satisfied they become excited and want to find more reasons to participate, i.e. they purchase more products or buy a product from another line of business to earn points or credits faster. Ongoing, active status in a loyalty program will eventually result in customers feeling like part of a trusted community. In return, they will reciprocate the feeling with continual support of the brand.

By Glen Holbert. Glen Holbert is the Executive Vice President of Sales at Parago, a leading provider of end-to-end engagement management programs for consumers, sales channels and employees. Glen joined Parago in 2008 with over 20 years of sales and leadership experience in the incentives industry. He is responsible for the revenue growth of the organization, building and maintaining a solutions sales organization, and expanding the company’s reach into new industry segments and programs. Prior to joining Parago, Glen worked with some of the nation’s leading incentive companies including MotivAction, LLC, BI Performance, Maritz Inc., and Marketing Innovators International.

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