The different types of loyalty programs on the market
Rewarding customers through a loyalty program has become a popular concept for many businesses and as reward programs continue to grow in popularity, more and more similar concepts are becoming available on the market. Currently, the most requested schemes are customer loyalty programs, frequent (discount) rewards and referral programs. Although the three concepts all hold the same goal of keeping customers loyal to a business and building brand awareness – they also differ in a number of ways.
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Customer loyalty program
A loyalty program targets customers who devote a significant amount of money and time to a business, their products and services. The program requires commitment from both the customer and the business and can influence the customer’s buying habits because they know they will be rewarded. Customer loyalty programs are well known for providing members with a V.I.P treatment, something that a non-member would not receive or have access to. An example of the reward could be access to a private lounge in an airport or a bonus free night stay at a hotel it could also include a range of gifts from the latest technology items, homewares and gift cards ranging in amounts.
- Customer loyalty programs reward customers who make frequent purchases with a business;
- The program is based on a point-scheme – earn a certain amount of points and be rewarded with a gift of your choice;
- Provides members with a range of physical gifts and gift cards to choose from within a predetermined rewards pool;
- The members generally consider the achieved reward as more valuable than a discount or rebate;
- Non-tangible rewards bring a customer closer to the business and its brand. A good loyalty program includes both, tangible and non-tangible rewards.
- A customer loyalty program grows the business, attracts new customers and re-engages and protects existing customers;
- It creates a competitive advantage for the business against its competitors;
- They provide a better, more valuable experience with every purchase, rather than an instant free purchase;
- Forms a true sense of partnership between the business and the customer;
- The business builds and maintains a database of customer information, including transactional information for that customer;
- One marketing umbrella is created for a business to showcase their products and services;
- It creates new real estate for the business to use to promote information about them;
- The program allows the business to have clarity on which customers are their most profitable;
- A correctly structured loyalty program can create margin for the business, but if the structure is incorrect it could end up costing the business.
- Spending money on rewards could affect the businesses bottom-line at the beginning of a loyalty program until the concept gains traction;
- Businesses need to promote their loyalty program because if they don’t, it is less likely to gain sales.
Frequent (discount) rewards
Frequent reward programs rely solely on the commitment of a customer and the purchases they make on a regular basis. The program is designed to target customers who want to earn discounts, credits or points that they can instantly put towards any future purchases once they have reached a target. An example of a frequent reward program is coffee loyalty cards, where the customer purchases a number of coffees and their tenth coffee is free.
- Frequent Rewards are generally product/s that are stocked or sold by the business;
- The concept focuses on tangible items through earning points or credits to receive instant discounts or free goods.
- Frequent reward programs allow customers to receive an immediate discount once they have reached the target of points. This keeps them regularly engaged;
- With the program being product-based, it provides a lower cost for the business;
- Often this style has a simpler mechanic and can be implemented with a smaller investment.
- Due to the instant rebate and discount, the program doesn’t provide the business with a psychological connection with the customer;
- Often the customer perceives the reward as a simple discount and thus of lesser value.
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Referral programs are an effective way for businesses to increase their customer-base, loyalty and lead database. This style of the program uses the already established loyalty between the business and its customers to promote products or services. This results in the customer becoming an advocate for the business. A referral program is a method of promoting products or services to new customers through referrals from their current customer base. This concept relies on the power of ‘word of mouth’ advertising, which is often referred to as the best type of advertising. This then carries onto a relationship between the existing and new customers.
- Referral programs leverage existing loyal customers to attract new customers;
- The program is commonly promoted via an email marketing strategy that requires the existing customer to click on a link or forward the email and refer a friend;
- The existing customer is rewarded for making the referral.
- Referral programs obtain new customers at a low cost;
- Businesses leverage already engaged customers to spread information about the company’s services;
- Businesses offer current customers a reward for a referral. They only receive the reward after they refer your business to a friend or family member;
- It is generally a better marketing offer, resulting in cost savings;
- There is a higher conversion ratio;
- The company leverages trust between one person and another to generate business credibility.
- This style of the program has a smaller marketing reach;
- The business must have a very good long-term and ongoing operational performance with very high customer satisfaction; otherwise, customers will not refer their friends and relatives.
While all three styles of loyalty programs have their differences, they all share the same purpose to build customer loyalty and retention, as well as sales growth. As mentioned above, if the overall structure of a loyalty program, no matter what style, is done correctly during execution the costs of the concept will be a minimum for a business. It will also demonstrate clearer results for customer retention and profits moving forward.
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There is no doubt, loyalty programs are a long-term proposition. Taking the plunge and diving into launching a loyalty program does require commitment, research, planning and preparation. Ensuring the program is well structured and executed correctly from the beginning, will enable your business and your customers the best opportunity for success.
Here are a few steps to help you achieve a positive outcome.
Define your purpose:
Implementing a loyalty program for the sake of keeping up with your competitors or because it’s on trend, are not good reasons. What do you want out of it for your business? What will it offer your customers? How will it support your existing and future marketing goals?
Financials and ROI
This is by far the most important consideration. How much is your audience going to have to spend to get something? Yes, audience, not customer. You need to consider potential customers as well as existing customers. The loyalty financial modelling should include anticipated spend and incremental gain for both customer retention and acquisition. The reality is – if current and potential customers have to spend thousands of dollars with you to earn enough points for a toaster after twelve months – they aren’t going to care. What percentage of your margin are you prepared to invest in rewards? What is the frequency of your customers purchase and how will a rewards program increase that, as well as their basket size.
Although this may seem daunting, if you balance it against your current customer acquisition and retention spend – you may be surprised.
Who will be responsible for managing the program internally? How will you drive the program within your business? Interestingly – A well-run loyalty program hosted on a modern loyalty platform can actually relieve some of the responsibilities from your internal resources.
Partnering with a loyalty professional will guide you on the best way to efficiently administer your program and how to best use your internal resources. Most agencies will offer a solution that can vary their involvement from full service – including concept, launch, execution and ongoing management including automated comms and customer service, through to purely a conceptual or consulting role.
Ahhhh – data. What will we do with you, now that we have you??? This is one of the most common pitfalls. The data you can get from a running a loyalty program is GOLD! Analysing, segmentation, personalisation, journey planning – where to start can be daunting. Don’t panic – plan. And remember, it’s ok to start small. In fact data segments should be of a significant enough size to make them worthwhile. Your segmentation criteria must fulfil a specific purpose. Be prepared to try a few different options. If you focus on the fast wins first, this may help you identify what your customers engage with, enabling you to adjust and enhance your plan as you go.
You need to measure your success on the metrics that matter. Part of your planning needs to include identifying what these are.
Also make sure you use the data you currently have for your customers in the launch phase of your loyalty program. Again, it’s okay if you are starting small.
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Thinking about embarking on a loyalty program, but want to delve deeper into why loyalty programs could be an important inclusion to a business’s marketing mix.
Read on for our top three reasons
1. Build Trust
Consumers are becoming more discerning about who we choose to do business with, where we spend our money and the brands we want to support. Businesses that demonstrate trust, strong core values and actively develop relationships are becoming more relevant in the current climate, than those that simply offer a big, bright, sparkly sales pitch.
Loyalty programs provide a solid foundation on which to build your customer trust to enable you to nurture and grow relationships with your customers. Executed correctly, they provide the opportunity to give your brand a personality and a heart and allow customers to create an emotional connection to how they interact with you.
When you are offered a reward for continually doing business together, this is a strong incentive to stick with what you know and trust, and not be swayed by a short term price drop. Customers will stick with you if they trust you.
The rewards you provide can further cement the trust factor through giving certain customers access to exclusive perks.
2. Get to know your customer
Introducing a loyalty program will, over time, increase your knowledge of your customers interactions with your brand. When they purchase, what they purchase, importantly what they don’t purchase, as well as any behavioural nuances. Knowledge is power. Getting to know your customer provides permissibility to interact with them on a more personal level. Having this knowledge will enable you to tailor RELEVANT offers and benefits that they won’t want to ignore.
Furthermore, it will allow you deepen your connection beyond purely a transactional state and further heighten the emotional connection.
A great way to do this is to include additional opportunities to earn through behavioural based activities that can easily be incorporated into a loyalty program.
Segmentation, journey planning and personalisation will become your best friend once you have the data, allowing your customer to become yours.
3. Move discussions away from Pricing
If the product or service you are offering is at a similar price point to your competitors, a loyalty program will help you offer something extra that is not simply a discount. Repeated discounts can not only devalue your product over time, but promoted correctly, loyalty currency can have a higher perceived value than a discount.
In addition, conversations around price increases can be diluted by incorporating the loyalty benefits of continuing to purchase that product or service.
From a B2B perspective, loyalty programs are a valued tool amongst sales and account managers for this reason.
The same principal of having an extra offering works for ageing customers, improving your overall customer lifetime value.
Offering a loyalty program to re-engage lapsed customers rather than a purely financial deal is a far better opportunity to nurture the relationship over a longer period than a one-off discounted purchase.
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The answer to this is simple – it must balance customer centricity with a viable business outcome.
A focus purely on customer acquisition / retention without any business-based parameters could end in financial disaster.
Focus on only business outcomes and your loyalty program could suffer a very painful death, including turning a brand advocate into an adversary.
From a customer centric perspective, a good loyalty program includes:
1. An Exceptional User Experience
Customer interaction with the loyalty program assets must be simple and seamless. The loyalty platform is generally the key program communication vehicle so must feature easy navigation, and clear simple instructions on how to participate, earn and claim.
All touch points should have clear CTAs, consistent branding and messaging. Complicated, requests, points equations, and purchase requirements will quickly disengage you customers. For example:
Buy A product and B product to receive X points, or buy three of C product and receive Y points, but you must do this before Z date and have a minimum of Q points to claim V rewards.
So – what am I doing??? Am I better off or worse off? Or just confused, so I will do nothing.
2. Strong customer service
If a customer wants to buy something, claim something or provide feedback, the way in which they do this should enhance their connection with your brand, whether this be online or offline.
Clearly outline what steps they need to follow, customer service contacts and what the anticipated response time for each action will be. Managing customer expectations is an important factor in overall customer service that is often missed and can detract from the success of a loyalty program.
3. Ongoing engagement strategies
The entire premise of a loyalty program should not just revolve around “buy this get that”. Doing the same thing to get the same benefit isn’t enticing over a long period of time and will result in program drop off.
Consider injecting new life into the program by:
Introducing tiers – tiers work wonderfully in rewarding long-terms supporters by providing them recognition and exclusive benefits. In addition, it works for mid-range customers, giving them an incentive to push to have their status elevated.
Behavioural activities – whether it be participating in a survey, watching a video or a social interaction, including an opportunity to be rewarded beyond a transaction is not only a great way to re-invigorate your program, but also a learn more about your customers.
Relevant rewards – sometimes too much is…. too much. Good loyalty programs focus on having rewards relevant to both their customers interests and the appropriate points levels. Rewards pools should be updated regularly to account for prize trends and points forecasting.
From a business perspective a loyalty program must have business outcomes associated to its success. These can range from incremental sales, through to brand awareness and customer acquisition and retention. Set out your measurement metrics at the commencement of the program, including how frequently you will measure them. It can be as simple as a “check-in” each month, with a quarterly deep dive scheduled in. Whilst its important to have key milestone check points, it is equally important to be prepared to pivot based on what the data reveals from your program. You don’t know what you don’t know until you monitor it.