Home » Customer Loyalty Programs: Best Practices & Strategies

Customer Loyalty Programs: Best Practices & Strategies

April 29, 2022

How many loyalty cards do you have stuffed inside your wallet? Most Americans will list off grocery and airline brands, a few half-stamped coffee cards, and a half-off voucher for a local takeout business.

When it comes to loyalty and retention, a stash of cards hidden away doesn't help anyone. Customers forget what's in their wallet, and businesses have no way to remind them.

There are approximately 3.8 billion customer loyalty program memberships in the USA, averaging around 30 per household. Less than half of those memberships are actively used, with 28% of members never redeeming a single point.

If that’s not compelling enough, Bond Brand Loyalty estimates over $100billion in points are left unredeemed by loyalty program members in the US.

So how can businesses do better?

Here's what we know about loyalty program best practices and how you can leverage your tech stack to make a better loyalty program.

What is a loyalty strategy?

A loyalty program strategy is a plan for how your brand can leverage loyalty programs to increase customer retention, engagement, and overall spend.

There are a few different approaches that help reduce churn and improve customer loyalty, but they operate under similar principles: provide your customers with incentives, such as reward points, special discounts, or free merchandise or bonuses (like free shipping).

The best programs are those that reflect the needs of your business and your customers – and, ideally, will also integrate directly with all of your client touchpoints to surprise and delight at every step.

What is a loyalty program?

Customers earn rewards that encourage them to interact more with your brand.

There are a few types of loyalty programs - loyalty cards, membership clubs, frequent buyer programs, and rewards programs. Each type has its own benefits and drawbacks, so it’s important to choose the one that will best reflect your brand and how you operate.

Why should brands adopt loyalty programs?

Plain and simple: it keeps your fans coming back.

With competition everywhere, it's important for businesses to set up a system in such a way that speaks to their existing consumer base.

In 2020, 40% of consumers reported having ceased doing business with an organization because of customer service issues. It's not enough to just provide tasty food to ease angry customers. Brands need to go beyond with their rewards program to retain existing customers.

Consider the whole customer lifecycle and find ways to retain customers along every step of the way. It's about relationship management and helping create a positive journey for your patrons.

What makes a good loyalty program?

There is no one-size-fits-all answer to this question, as the best way to create a successful loyalty program depends on your current customers’ needs and wants.

The best practice when it comes to retaining customers is to tailor rewards to your target audience and make them easy to redeem.

If you know your guests prioritize convenience, then set up easier ways for them to order online or pay with their phone. If they expect luxury, let them earn rewards based on dollar spending.

The best customer loyalty programs also provide opportunities for exclusive experiences and access to special events. You can develop multiple tiers of membership that give special priority like early access or limited discounts to your most loyal customers. Create a VIP feel to retain customers and improve your repeat customer rate.

What a loyalty program can do

The best customers are those who come back again and again, bringing you business and data to track customer insights.

Food retailers with a successful program find that 65% - 95% of their sales go to loyalty members. In practice, such a program sees 75% of repeat customers using their membership at least once a week and 88% using it at least once a month.

Loyalty programs are a win-win for businesses and guests. They help you understand your consumer base, complete market research, and encourage customers to return. They also help you actively show appreciation for your existing customers.

But how do you create a loyalty program that actually builds customer relationships?

Here are some suggestions on how to create a successful customer loyalty program. 

Define Clear Goals

A customer loyalty program is a structured system that incentivizes customer behavior with the goal of maintaining customer loyalty and increasing customer lifetime value. In order to design an effective customer loyalty program, businesses must first identify their target audience and what motivates them.

Consider McDonald’s Monopoly game, which has been running since 1987. The game offers customers the chance to win prizes ranging from free food to cars and vacations. In order to play, customers need to purchase specially marked products, which encourages them to visit McDonald’s more often.

The grand prize is usually something major, like a new car or a trip to an exotic location. But there are also smaller, more attainable prizes, such as free food or drinks.

Customers spend money when they feel like they're gaining more value. Offer good customer service, incentivize higher purchases, and make it easy and fun for your customers to earn points.

Focus on the Customer

When it comes to loyalty programs, there’s one key question that businesses need to ask themselves: what do our customers want? Too often, companies try to create loyalty programs that are “beneficial” for them, without considering what their customers might want.

This focus on customer experience has been key to McDonald’s success. The company understands what their loyal customers want (free food, the chance to win big prizes) and designs its loyalty program around those desires. It's about defining customer loyalty as it pertains to your business and following through those needs in your customer loyalty programs.

Of course, not every company is in the same position as McDonald’s. However, the same loyalty program best practices hold true: focus on your customers and what they want, and you’ll be more likely to build your loyal customer ratio.

Good loyalty rewards programs should offer incentives and rewards that are tailored to the customer. This could mean different things depending on your business. For example, a restaurant might offer a free dessert to customers who have frequented the establishment five times or more. A clothing store might give a discount to customers who have made three or more purchases within a certain time period.

The key is to think about what would motivate your customers and design rewards that fit those motivations.

Keep your customers engaged

Once you have a loyalty program in place, the next step is keeping your new customers invested. This can be tricky. A simple points system isn't a magical solution to doubling your repeat purchases or ending your customer acquisition problem.

Instead, focus on your loyalty program strategy and follow best practices for offering value to your loyal customers.

First, make sure your loyalty program is easy to use. If customers have to jump through hoops to earn rewards, they’re likely to give up and move on to a different program.

Second, make sure your rewards are meaningful. If customers feel like they’re not getting anything out of the program, they’re not going to stick around. It's about creating a positive customer experience, not just handing out free items.

Third, keep your customers informed. Let them know about new rewards, changes to the program, and upcoming events.

Lastly, make sure your program is flexible. Customers’ needs and wants change over time, so choose a digital vendor that offers user-friendly customization for best practices.

Utilize Customer Data

A huge benefit of customer loyalty programs is your access to valuable customer data. This data can help you understand your customers and your brand in more detail, which in turn can help you build a better business.

With customer data, you can gain insights into who represents your most profitable customers, what aspects of your customer loyalty programs are most effective, and how individual customers make spending choices.

For example, if you know that a particular group of customers is always looking for discounts, you can create a loyalty program that offers them exclusive deals. Or, if you notice that a certain product is always being sold out, you can create a loyalty program that offers bonus points for purchasing that product.

It's a fantastic tool for improvement - your customer loyalty program helps you gain more information, which helps you improve your customer experience and retention ratio.

Customer loyalty programs should be flexible enough to adapt as your customers’ needs change.

Starbucks is a notable example of a company that has successfully done this and improved their customer relationship management. From offering a tiered rewards system to a digital punch card, they have continuously evolved their program to best suit the current consumer climate.

Make sure that your program is also flexible in terms of the rewards that you offer. Different customers tend to want different promotions, so offer a mix of reward types, such as discounts, free products, and exclusive experiences. This way, you can cater to the different needs and desires of your wide customer base.

Another important aspect of creating an effective loyalty program is ensuring that it is easy to use. Your customers should be able to redeem their rewards easily and quickly, without having to jump through hoops.

Create a Personalized Program

Your customers will appreciate feeling like your loyalty program is specifically designed for them. This can be achieved by personalizing the program based on customer data. For example, you could send targeted emails or push notifications to your customers based on their purchase history.

You can also use customer data to customize the rewards that you offer. If you know that a particular customer loves your product, you could send them a discount code for their next purchase. This type of personalized treatment will make your customers feel valued and appreciated, and it will encourage them to continue doing business with you.

Offer value through your program

A rewards program isn't just a symbol to show appreciation to your customers. It's also your opportunity to offer real value to your customers - whether through discounts, free products or services, or special access to products or events. In addition, offering rewards that are attainable will keep your customers motivated to participate in your loyalty program. By offering value to your customers, you'll be able to keep them coming back for more.

Every brand in today's market - from car rental companies to frequent flyer miles to QSRs - can benefit their business and their customer base by implementing a loyalty program.

Offer both top-tier and attainable rewards for loyalty program best practices

It's important to offer a variety of rewards, so that customers feel like they have something to work towards. This could mean different things depending on your business.

Restaurant customer loyalty programs could offer a free meal after a customer has made 10 purchases, while a clothing story loyalty program could offer a discount on the customer’s next purchase after they accumulate one hundred loyalty points.

Make sure that you also offer rewards that are attainable for your customers. If the rewards are too difficult to obtain, customers will become discouraged and stop participating in the program.

By offering a variety of rewards, businesses can ensure that customers feel like they have something to work towards, and that they are being recognized. This ultimately leads to higher levels of customer satisfaction.

Think beyond the purchase

A loyalty program is about so much more than a means to another purchase.

As any business owner knows, satisfied customers are essential for success. They not only provide valuable feedback, but they also help to drive new business through word-of-mouth advertising.

Take into account how you can reward customers for other actions outside your brand - such as referring to friends, rating your products or services, or posting about your company on social media. Best practices mean loyalty programs offer customers the chance to earn more points by participating in these interactive promotions. This allows your loyalty program to cross multiple channels, with the help of you patrons, and attract new customers.

Add a social good element

While it's important for loyalty programs to offer valuable rewards that appeal to customers, many businesses are now looking for ways to add a social good element to their programs.

Such programs can take the form of charitable donations, volunteer opportunities, or even simply offering discounts for sustainable purchases.

By building loyalty around a shared commitment to making the world a better place, businesses can create an emotional connection with their customers that goes beyond simple transactions. In today's competitive market, that kind of connection can be essential to building long-term customer relationships.

Location intelligence and targeted offers

Loyalty program engagement depends on whether customer needs are met, how quickly rewards are earned, the quality and variety of the rewards offered, the effort required to redeem points or claim a reward, and how ‘fun’ the experience is… there's a lot to consider.Customers who earn rewards straight away spend up to 25% more compared to traditional redemption models, and 55% more compared to no loyalty scheme at all.

Using mobile intelligence through your integrated POS can provide the opportunity to personalize your loyalty offer to each customer. Surprisingly, few loyalty programs actually take advantage of this value proposition.

Figure out what individual customers really respond to, and then use that information to deliver rewards and experiences to build customer loyalty.

Sure, many loyalty programs require investment, but there’s a definite ROI. Loyal customers value their relationship with a company, spending 60% more in each transaction, purchasing 90% more often and contributing 3 to 35 times as much as less-engaged customers!

You don’t get that kind of value from stamping coffee cards. To increase share of wallet from loyalty programs, Foursquare recommends using location intelligence, consumer preferences and targeted messaging that focuses less on making sales.

This approach results in significantly increased visit frequency, customer retention, and average check value.

In a nutshell

A loyalty program is most likely to find traction if it is:

  • Easy to use
  • Fun and engaging
  • Meets the needs of the existing customer base
  • Delivering value

Brands need to design loyalty for the customer - not the sale - and refer to data to create personalized solutions for ROI. The best way to both capture and use customer data for loyalty program success?

Spoiler: it’s not coffee cards.

Key Takeaways

  • A loyalty program strategy is a plan for how your brand can leverage loyalty programs to increase customer retention, engagement, and overall spend.
  • There are a few types of loyalty programs - loyalty cards, membership clubs, frequent buyer programs, and rewards programs. Each type has its own benefits and drawbacks.
  • Plain and simple: it keeps your fans coming back. With competition everywhere, it's important for businesses to set up a system in such a way that speaks to their existing consumer base.
  • Consider the whole customer lifecycle and find ways to retain customers every step of the way.
  • It's about relationship management and helping create a positive journey for your patrons. 
  • The best practice when it comes to retaining customers is to tailor rewards to your target audience and make them easy to redeem.