Building customer loyalty is a critical objective for any business owner.
But what constitutes a successful loyalty program?
To be sure, all loyalty programs are not created equal. There are several things that can make a given rewards program better than others.
Combining the qualities discussed below and avoiding the common pitfalls will increase the chance that a loyalty program will be successful.
Loyalty Program Divisibility
This is a concept that focuses on when and how often a customer can redeem points. If it takes a customer six months to get enough points to redeem for the smallest prize, there is little motivation to keep spending.
However, if there are lots of smaller prizes that they can redeem for at earlier intervals, then this adds divisibility for the program as a whole. If there are prizes at 2,500 points, then that program would be four times more divisible than a program where the lowest prize is 10,000 points, ceteris paribus.
Momentum in Loyalty Programs
This is an important part of a loyalty program and it involves barriers to exit. Once a customer becomes invested in a loyalty program, it should provide incentive for them to return and maintain that program.
The sense of momentum is important. Momentum is how much and how early they become invested in the program. Programs that have early investment, or a strong sense of momentum, are generally more successful than those with lower momentum.
Type of Prizes Awarded in Loyalty Programs
There is an important distinction between pleasurable and pragmatic rewards. Pleasurable rewards include vacations, spa treatments, big screen televisions and other items that are not necessities. Pragmatic rewards could include cash bonuses, lower rates, extra product or decreased shipping costs.
People respond more to prizes they find pleasurable. It is important then that your system have those rewards in place. Cash bonuses are always appreciated, but an African safari or Hawaiian vacation may also have a certain appeal to some customers.
Relationship Expansion via Loyalty Programs
This is another intangible benefit that you can create from a loyalty program. A sense of a special relationship should not be overlooked when looking at your customer loyalty program. If a customer can present a card and be greeted with something as simple as a smile and their name, it will build the personal experience. Steps like these are easy, but they create rapport with the customer, which is highly beneficial to improving customer relations.
Point-Cash Combinations in Loyalty Programs
Giving the customer the opportunity to combine cash with their points to redeem awards is universally appreciated in loyalty programs. People would rather spend fifty bucks and 5,000 points, even if spending 10,000 points may be a better deal. Having the option available may actually turn a profit for your firm, simply because customers are willing to pay a slight premium to move up a level or two in reward.
Key Success Factors for Customer Loyalty Programs
Overall, loyalty programs can be successful if they employ certain things. The list above provides a good starting point for launching a customer loyalty program, but researching the different types of loyalty programs is an important next step if firms want to be successful.
Loyalty programs are difficult to change once they've been implemented, so take the time up front to design a loyalty program that will get you the results you want, in the short-term and in the long-term.