Designing Successful Customer Loyalty Programs in 2018

More than 65% of small businesses don’t have customer loyalty programs. Usually, these kinds of programs are perceived as too expensive, too complicated, or too labor intensive to set up and maintain. Plus, some business owners hesitate to create loyalty or reward programs for fear that all this time and effort may not lead to higher profits. It’s true: if not designed well, customer loyalty programs will not have a measurable net positive impact on your bottom line. A McKinsey study evaluating companies with rewards programs found that those spending more on loyalty either grow at the same rate as those who do not — or grow even slower. Rewards programs appeared to be hampering these companies’ progress, rather than feeding it. That’s not to say that no rewards programs work. In fact, designing customer loyalty programs that work need not be as burdensome as one might assume. Follow these steps to design a customer loyalty program this year.

Step 1: Figure out what a “loyal” customer looks like.

You may have your favorite regulars, but truly, not all customers are created equal. In this case, your loyalty program needs to be designed for customers who generate more profit for the company — not necessarily the people who seem to be your biggest fans. Customers who generate profit should benefit the most from that value creation. This is one big trap that many companies fall into. It’s a mistake to reward customers either for the wrong reasons, or believe that all customers should be rewarded equally. For example, someone who posts a nice review about your menu on Facebook does not create the same value as someone who buys lunch from you every Monday. The latter example is a better investment of your loyalty rewards than the former.

Step 2: Design rewards that won’t put you in the red.

There’s an appropriate level of reward that must not exceed the value of what your customer brings in. You wouldn’t spend $100 rewarding a customer who only brings in $75 in business, would you? Logically that makes sense, but in practice it can be hard to discern how much value a customer creates. A social media shout-out, while nice, doesn’t actually put money in your pocket. Make sure that you are setting up your rewards structure in a way that isn’t going to bleed your budget, one loyal customer at a time. Don’t think your budget can handle a penny more for these rewards? That’s where resource planning comes into play — there are countless ways to scrounge up some extra cash from seemingly nowhere with money already being spent within the company. The way you structure your program has something to do with the financial viability of your rewards. Consider what the goal of your program will be. For example, let’s pretend you want to increase the number of times a customer visits your restaurant in a month. Two common loyalty programs are discounts — dine out during this month and get 25% off your bill — and punch cards. Researchers say that discounts don’t encourage diners to go out more frequently — but they may encourage bigger order amounts or final checks. A punch card, however, can motivate someone to keep coming through your doors to get to the gold at the end of the rainbow: a free meal. Both are great loyalty programs, but with marginally different profit results.

Step 3: Make your loyalty program stand out.

In a recent survey of customer loyalty programs, 44% of consumers reported that it would be easy to replace one rewards program with that of a competitor. In their mind, customer loyalty programs were one and the same: they all blend together in a flurry of promises, discounts, incentives, and endless fine print. To make your loyalty program successful, design it around the individual customer. Discounts and rebates are nice — and even nicer when crafted to resolve a specific pain point or deliver a personalized experience. Use someone’s purchase history and customer data to predict what they are going to need next. Anticipating a person’s next need makes it easy for them to be a loyal customer. You may structure your rewards program to include specific life events: birthdays or anniversaries can all be opportunities to reward loyalty with a nice discount.

Step 4: Make your rewards something your customers want.

Just as not all customers are created equally, not all rewards are considered valuable to customers. Research has shown there are five elements to a customer loyalty program that make it worthwhile: cash value, redemption choices, aspirational value, relevance, and convenience. By aspirational value, we mean the objective “sexiness” of the reward: a discount on your utilities bill doesn’t have the same thrill of excitement as a vacation giveaway. Keep in mind that designing a customer loyalty program that meets of these criteria is very hard — and can be very expensive. Your design does not have to cover all of these bases, but it does have to stand out from the crowd (step 3). Therefore, make sure your customer loyalty program at least measures up to (or, ideally, exceeds) that of your competitors in each of these five areas. You might even automate your rewards program through an email campaign or app that syncs with your POS to make rewards easy, immediate, and trackable. This will also lower the start-up costs for getting your customer loyalty program off the ground and running! If you can, implementing a membership program can also be useful. Use a membership website builder to ensure it has been done correctly. Remember: it costs a company, on average, seven times more to acquire a new customer than it does to keep an existing customer. Loyalty programs are a great way to boost your bottom line — but only when they are designed well!