The success of your brand (and any brand) depends on building customer loyalty – and keeping customers loysl and engaged.
But the digital age has placed more power in customers’ hands, and made customer retention harder for your brand. With all the information they need at their fingertips, today’s customers are more educated than ever. They can easily compare purchasing options, and if they think that one of your competitors offers better value, they’ll quickly jump ship.
Don’t worry, though. Your brand has plenty of tools available for cultivating loyal customers. One strategy to encourage customers to keep purchasing from you is through a customer loyalty program.
But how to start a loyalty program? We’ve got you covered. We’ll also explore loyalty program benefits, types of loyalty programs, and how to measure your program’s success Let’s dive in – but first, let’s briefly define customer loyalty and loyalty programs.
What is customer loyalty?
Customer loyalty is a customer’s devotion to your products, services or brand. It measures how willing a customer is to keep making purchases from you, instead of leaving you for a competitor.
Customer loyalty is the result of high customer satisfaction: when your brand consistently meets or exceeds the expectations of your customers.
When customers are satisfied with your products or services, and believe these goods are valuable, they’re more likely to stick around.
But that’s only half the battle. Customer service is just as important, if not more important.
- Customers remember their experience when dealing with your brand. They’ll only remain loyal if this experience is top-notch.
- Show your customers that they have value, and you’ll reap the rewards.
What are loyalty programs?
A loyalty program is a type of structured rewards program that rewards existing customers for staying loyal to your brand over a long period.
These programs usually reward customers’ repeat and frequent purchases.
However, they can reward any number of desired actions, such as:
- Leaving positive reviews
- Trying new products, features, or brand experiences
- Visiting the brand website or using the brand app
- Visiting a physical store location
- Attending a branded event
- Making branded social media posts with appropriate tags and hashtags
Regardless of the actions rewarded, though, rewarding purchases is central within nearly every loyalty program.
The Zumiez Stash loyalty program rewards customers for a large number of actions, including entering purchases, watching branded videos, visiting social media accounts, and visiting a physical store.
Businesses can run physical loyalty programs (using a punch card or stamp card), or use loyalty program software to track customers’ purchases over time.
Why loyalty programs work
Loyalty programs work because they operate on reciprocity: they encourage customers to help your brand by offering something valuable to the customers in return.
And once a customer has signed up for a loyalty program, and see the rewards available to them, they’re more motivated to commit to you.
- They see themselves getting closer and closer to an incentive for something they already use and enjoy, so they want to keep working towards that coveted reward.
- If there’s a limited time available to earn the incentive, they’re even more motivated, because they don’t want to miss out on the reward.
Loyalty program benefits
The main benefit of loyalty programs is ease of customer retention and satisfaction. Loyalty programs encourage customers to stay with you because you make them feel like VIPs. This star treatment makes it easier for your customers to trust you.
Retaining customers thanks to a loyalty program brings a wealth of benefits. Your existing customers really are your best customers!
- It’s more cost-effective to retain consistent customers than to acquire new ones, due to the high costs of customer acquisition.
- If the majority of your customers remain loyal, you won’t have to spend as much money on ads, and you won’t have to spend as much valuable time finding people in your niche.
- Your existing customers are more likely to spend more on your products.
- And the longer your customers remain loyal, the higher their customer lifetime value.
- In addition, once you’ve cultivated a strong relationship with your existing customers, they’ll refer their friends.
- So, they’ll become powerful advocates who can bring new customers your way!
Loyalty program statistics
Consider these statistics that show the benefits of loyalty programs (and of customer retention in general).
- According to a Bond survey of more than 55,000 consumers, 79% said that loyalty programs make them more likely to continue doing business with the brands that offer them.
- 73% of customers are “more likely to recommend brands with good loyalty programs,” and 66% “modify [their] brand spend to maximize loyalty benefits.”
- 49% of consumers believe that they spend more after joining a loyalty program.
- 65% of people ages 18-23 and 69% of people ages 24-29 are highly influenced by loyalty programs.
- 69% of customers choose retailers based on where they can earn loyalty rewards points.
- 76% of consumers think that loyalty programs form an important part of their relationship with brands.
- It’s 5-25 times more expensive to acquire a new customer than to retain and satisfy an existing customer, and 16 times more expensive to bring a new customer up to the same level as a current loyal customer.
- 65% of your sales will come from existing customers, and 80% of your future profits will come from just 20% of your existing customers.
- On average, repeat customers spend 31% more than first-time customers.
- A repeat customer spends 67% more in their 31st to 36th months of their relationship with a brand than in their first six months since an initial purchase from a brand.
Will a loyalty program work for my brand?
Despite all the benefits of starting loyalty programs, loyalty programs aren’t the best fit for every business. Answer the following questions to determine if a loyalty program is a good fit for your business.
Do people purchase your product or service frequently?
- For example, do you offer a recurring service or subscription model? Or, do you just happen to offer frequently purchased items, such as food and clothing?
- Loyalty programs work best with high-frequency purchases.
How large is the average purchase from your brand?
- Loyalty programs tend to work best with less expensive products and services, as they are usually built to encourage strings of multiple purchases over a shorter period.
- However, they can also work with larger, less frequent purchases, like airline tickets and travel packages, as long as you use a tiered reward structure.
What market is your business?
- Loyalty programs work best for these business types: restaurants/food service, retail stores, ecommerce, recurring services (fitness classes, salons routine maintenance), and hospitality (hotels, flights, cruise lines, travel agencies).
Most importantly, do you already provide top-notch products/services and exceptional customer service?
- This is crucial for satisfaction, and customer satisfaction is what leads to customer loyalty.
- Set these foundations for satisfaction before you start a loyalty program, or else a loyalty program will be a waste of time and resources.
- Gauge customer satisfaction through surveys, customer reviews, and one-on-one conversations.
How to start a customer loyalty program: 8 essential steps
Have you decided that a loyalty program is right for your business? If so, follow these best practices to start a successful loyalty program, and optimize it for the best results.
1. Understand your customer base before you start
Customer preferences can help inform the structure and rewards of your loyalty program, so you can make sure it resonates with your target audience.
Segment your customers based on their behaviors and loyalty levels, as different customer groups have different needs, expectations, and preferences. What motivates them to keep purchasing? Tailor marketing strategies, product offerings, and customer experiences to each group to increase the effectiveness of your loyalty program.
You might also use customer surveys and analytics from your existing software
2. Set program goals
Generally, your loyalty program goals will be to increase your customers’ purchase frequency, improve retention, and boost your average customer lifetime value. But you could set other, more specific goals based on the brand-building actions you want to reward.
Before you design your program, answer these questions:
- How will you measure your program’s success (ex. Increase in the number or percentage of active customers? Increase in average purchase frequency?)
- What activities do you want to reward to help you reach these goals (Purchases? Leaving reviews? Making posts with certain brand hashtags? Attending events?)
3. Use personalization to offer value
Designing a loyalty program isn’t always enough to drive customer retention in itself. Rather, you need to offer value to your customers so they’ll stick with you. Customers are members of around 15 loyalty programs on average, but they actively use only 7 of these memberships.
One way to offer value is through personalization. Personalizing your loyalty program is vital, but not enough brands do so (this is a great opportunity to make your loyalty program stand out!)
- Three-quarters of customers are likely to be more loyal to a brand if they think that brand understands them at a personal level.
- However, only 22% of customers who use loyalty programs are “very satisfied with the level of personalization” that loyalty programs offer.
How to personalize your program? According to Bond, customers are looking for programs to engage with them “through the right channels,” “in the right place,” “at the right moments,” and “with the right messages.”
When loyalty programs are tailored to individual preferences and behaviors, customers feel valued and understood. That “personal touch” fosters a deeper emotional connection, resulting in increased loyalty, repeat purchases, and stronger customer relationships.
4. Choose your loyalty program type carefully
Choosing the right type of customer loyalty program to motivate customers is key to offering value.
Common loyalty program types include:
- Points-based loyalty program: Customers redeem points for rewards of their choice; points systems vary from business to business
- Cash back program: Customers earn cash back on their purchases, or credits that they can apply to their next purchase
- Tiered loyalty program: As customers make more purchases, they become eligible for higher rewards
- Threshold program: Like a tiered program, but customers must keep purchasing regularly enough to stay in certain tiers
- Punchcard program: Customers earn punches on a digital loyalty card with each purchase; enough punches, and they get a free item
- Gamified program: Customers complete loyalty “missions” to advance through “levels” of loyalty; the gamification features are similar to the levels of a video game
- Paid loyalty program (membership program): After customers pay a flat membership fee, they instantly gain access to set perks
We cover these types in detail, and how to select the best type of loyalty program for your business, in a dedicated article on types of loyalty programs.
5. Select the right customer rewards
Selecting loyalty program rewards that motivate your customers to make repeat purchases, and meet the needs of your business, is also vital.
Possible types of rewards include free products or services, credits towards a purchase, exclusive items, and VIP experiences. When you offer customers a variety of reward types, this allows you to cater to a broader range of preferences and behaviors, enhancing the program’s effectiveness.
Whichever rewards you choose, be sure to set up a motivating reward structure (based on how many purchases, points, or actions it takes to earn rewards).
Rewards like exclusive experiences, recognition, and enhanced service levels are particularly appealing for high-value customers. Other rewards like personalized support, VIP access to events, early access to new products, or recognition in loyalty tiers, can create a sense of exclusivity and strengthen the emotional bond between the customer and the brand.
Choose rewards that your customers want to earn, and that align with your brand’s values and messaging. This alignment creates a stronger emotional connection between customers and your brand, fostering loyalty.
Effective rewards also strike a balance between perceived value and actual cost: enticing enough to motivate customers, but also cost-effective for the business.
6. Make the program easy to use
Customers should be able to find and sign up for the loyalty program in just a few clicks or taps. Explain how the program works in a few brief steps, and only require a few form fields to sign up. Even better, enroll customers automatically when they first purchase, and simply send an email outlining how the program works.
Once customers are earning rewards, redeeming them should be intuitive and hassle-free. Make sure it’s clear how to earn and redeem the loyalty program perks. If your user interface is confusing, this will deter customers from participating fully in the loyalty program (even if the rewards seem enticing).
7. Promote the loyalty program
Once you’ve launched your loyalty program, it’s time to kick things off and let customers know about the rewards they can earn. You can promote your program in these (and other) ways:
- Send emails to all of your customers at once, outlining the program and how the rewards work
- Launch the program to your most dedicated customers first (with personalized emails) and then to all customers
- Announce the program with a hero image on your homepage
- Dedicate a page on your website to the program
- Post about it on social media
- If you have a customer SMS list, text the customers who have opted in
- Include a section in your brand newsletter
- Post physical signage in-store
8. Communicate well with customers
Timely and regular communication about your loyalty program’s benefits, rewards, and updates helps maintain customer enthusiasm and loyalty.
If you send customers notifications about newly earned points, upcoming rewards, bonus opportunities, or available discounts, this can motivate customers to participate actively in the program and drive repeat purchases. Businesses most often send these via email or through a customer portal, but SMS can work as well.
Well-timed notifications with an optimized frequency help boost engagement. But don’t go overboard. If you send too many notifications, customers could get too annoyed and disengage with you.
Measuring a loyalty program’s success
Remember that it’s not enough to implement a loyalty program and hope for the best. Like all other marketing efforts, you’ll need to track your loyalty program’s success by measuring ROI. Here are some ways to measure its results:
1. Analyze customer data to improve your program
Data analytics plays a critical role in evaluating how effectively your loyalty program is performing. It enables businesses to track key performance indicators (KPIs) and identify areas for improvement.
By analyzing customer behavior, such as purchase frequency, average order value, churn rates, and reward redemption rates, businesses can gauge the program’s impact on retention and revenue.
2. Check on customer satisfaction
Another way to gauge loyalty program success (this time, more indirectly) is to measure customer satisfaction.
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- You could use an NPS survey, which asks customers how likely they are to recommend your products or services to their peers.
- You can also compare your customer retention rate, and examine average customer lifetime value, before and after you start your loyalty program.
3. Gather customer feedback
Collecting feedback from customers about your loyalty program can uncover a wealth of insights. Regular surveys, reviews, and direct interactions provide valuable information on what customers appreciate and what they find lacking. These insights enable businesses to make informed enhancements to their loyalty program.
To improve the appeal and efficacy of your loyalty program, it’s essential to act on customer feedback promptly. Then, share the changes implemented based on customer input. This will boost trust and engagement.
4. Use loyalty program software
With loyalty program software, you can automate the tracking of customer transactions, point accrual, and reward redemptions, gaining real-time data on program engagement and effectiveness.
Loyalty program software makes it easy to measure these key metrics:
- How many customers join the program
- How many customers are engaging with your loyalty program
- Number of active vs. inactive members
- How long customers actively use the program on average
- The number and frequency of purchases program members make
Referral programs: A step beyond loyalty programs
Although starting a customer loyalty program can bring plenty of benefits when done well, a referral program might be a better fit for your business. Referral programs offer unique advantages that loyalty programs can’t produce.
Customer loyalty programs encourage customer retention, but they don’t help you acquire new customers. Meanwhile, referral programs take loyal clients one step further, by turning them into reliable advocates who create word of mouth. So, referrals help with both retention and new customer acquisition.
And since referral programs award incentives when customers bring you new business, these rewards encourage your existing customers to stay loyal. Plus, customers brought in through referral programs have a higher lifetime value on average, so a loyalty element is built into referral programs.
Wrapping things up
If you’re thinking about starting a loyalty program, make sure that it will fit your business (you’re good to go if your business model involves frequent, inexpensive purchases.) Be sure to choose a type that best fits your business, offer value to your customers, select rewards carefully, and plan to track your program’s success.
Keep in mind, though, that loyalty programs are not the best choice for every business. Your business might benefit more from other customer retention techniques, such as referral programs. Check out this article where we compare loyalty and referral programs.
