Why You Need A Customer Loyalty Program And How To Build One

In the abnormal times of pandemic, there is an unparalleled amount of business and customers going online every day. This brings brand competition and competition for each customer to a new level and pushes brands to search for fresh ways to ensure their business growth and sustainability.

If a business wants to be successful and even stay alive, there is less space to lose a customer after the effort and resources allocated to acquire them. So it is only natural that making sure that a customer returns is an increasing priority to online businesses.

Brand Loyalty vs Customer Loyalty

Having a customer purchasing again in your shop, choosing you over the competition every time, is a dynamic called customer loyalty.

There are a lot of factors that come into play to trigger customer loyalty.

Everything starts with brand awareness. This is how a customer perceives your brand. Very simply put, a customer needs to be aware of your brand and ultimately see you as the best option for his needs, to purchase in your shop.

Brand awareness is built in every interaction between a brand and a customer.

Brand loyalty is a concept intertwined with brand awareness. The perception that a consumer has of your brand, combined with a good experience when shopping with you, will trigger a sense of loyalty and reinforce it over time.

Brand loyalty has little to do with pricing and promotions. Instead, it’s a bond based on emotions, made up of the experience of interactions and the alignment of interests, mission or aesthetics.

Customer loyalty is a less emotive dynamic. Based on a perception of better value for money through pricing and promotions that will also inspire loyalty to your customers.

These are not black and white or closed concepts. Not only are they commonly interchangeable, but they both influence and complement each other. A perception of better value will have an emotional impact and an emotional bond will affect the perception of value.  They also refer to loyalty and have the same key result: keep your customers coming back. And this is what you aim for in the end.

Enter: Customer Loyalty Programs!

The name could not be more explicit – these are programs designed to boost customer loyalty.

Picture the customer that just purchased an item in your online shop.

You paid to make him aware of your brand and bring him to your shop. He went through the customer journey that you designed to the best of your resources while you put in the effort to ensure that he had a pristine customer experience. Everything is in place to cement brand loyalty.

But this is not where it ends. This is where its customer journey should restart and the next purchase should start. Given that it is at least 5 times more expensive to acquire a new user than to retain an existing one.

So how to avoid failure and increase the chances to convert a customer into a returning one?

That’s the reason why Customer Loyalty Programs exist – boost the retention of your customers.

The benefits of loyalty programs

But this is not the only positive impact of Customer Loyalty Programs. There are several more reasons to have a loyalty program in place:

  1. Save on customer acquisition.

Benefit number one. As stated before, it is 5 to 25 times more expensive to acquire a new customer than to retain an existing one.

  1. Customer retention boost.

Customer retention refers to customers that are not loyal to your brand, but are retained (keep buying from you) for the time being.

Which is also good. Not only you reap the benefits of ongoing purchases. But as returning customers, you also have the opportunity to interact with them often and work to build a bond and win their loyalty.

  1. Positive reinforcement.

By rewarding your customer for their loyalty, you show your customer that they are important to you and that you value them. And in return, you offer promotions or deals that give them a sense of better value for money on future purchases.

  1. Increased sales.

Existing customers are more likely to trust you. This means that they are also more likely to buy new products, more expensive products and to buy more quantity. Especially when they feel that they benefit from a better value for money on their purchases.

  1. Gather information.

You can ask your customers to create an account and register on your website. Reward them for filling surveys, incentivize wishlists and track their shopping behaviors. This data will allow you to know your customers better and optimize your campaigns and your offers to improve your brand awareness and loyalty.

  1. New customers.

Well-designed or valuable Customer Loyalty Programs can be a way to create brand awareness and attract first-time customers looking for good deals.

  1. Keep in touch.

A Loyalty Program can be the perfect excuse to get in touch with your customers from time to time and remind them to come back. If you keep things active and often updated you’ll inspire your customers to check in on you regularly to not miss out.

  1. Incentivize engagement and specific actions.

You can create campaigns and contests to reward your customers for their engagement with your brand on different levels. You can also incentivize your customers to take specific actions, like sharing their testimonials and get customer reviews that otherwise would be silent good experiences.

Loyalty Programs for all occasions

There are several different types of customer loyalty programs. They are used to fit what you want to achieve and who you want to reach. But also to align with your brand identity:

  1. Point-Based Loyalty Program

Point system programs are probably the most popular. Every time a customer purchases in your shop, you offer him a number of points that can be saved and later redeemed for rewards and discounts.

This is a common program that has some nice pros. You can adjust the point value system at any time and offer points for any other actions other than purchases.

Gathering loyalty points offers an immediate sense of reward and tracking them can be engaging and even addictive for your customers. On the other hand, the point system is prone to some complexity and tying the points to the value of the rewards can be confusing.

  1. Tiered Loyalty Program

This is a variant of the point system. Your customers gather the points the same way, but instead of spending them, they “level up” their benefit status every time they reach milestones. These milestones are determined by a fixed number of points.

It sets clear targets for your customers and pushes them to achieve that top-level VIP status. It works perfectly if you aim for long term-bonds and high commitment of your customers.

However, it requires a different reward dynamic, as instead of simply redeeming for a benefit, benefits become permanently acquired by status level (until reset). It may leave out customers that are more casual or set almost unattainable targets for less frequent ones.

  1. Paid Loyalty Program

This is a way to offer immediately that VIP status for a price.

It can be a great way to share the burden of better benefits with your customers. It also pushes for a high commitment in the sense that your customers are paying for their benefits. Amazon is the perfect example – prime memberships make sense for frequent customers because they get a clear value.

On the brand side, they get you to share the cost of those benefits, which allows them to offer even better benefits and deals. All while incentivizing that you come back often to get more value for the price.

This program requires a clear value for price benefits to convince your customers to buy into it.

  1. Values focused Loyalty Program

These programs are designed to build brand loyalty. Not focused on the customer’s direct benefits, but on contributing to a common cause and strengthening the bond between brand and customer.

They may include some customer-targeted rewards, like Birthday discounts and early access to new products, but the spotlight is the social or other shared values actions. It resonates with specific audiences, while it can be ignored by customers looking for deals and direct rewards.

  1. Partnerships Loyalty Program

Offering rewards and benefits on partner brands can be a great way to provide added value to your customers and to tap into new customers if the partnerships work both ways. If the partnerships are strategic and make sense for your customer base, it is a win-win situation for all parties involved.

However, if they don’t appeal to your customers, your loyalty program is as good as nothing.

  1. Gamified Loyalty Program

Gamification of customer interaction and rewards can be an effective way to keep your customers hooked and engaged.

It requires some creativity to create achievements and the badges to go with it, the mystery loot crates filled with rewards, and so on. If it is well-designed and done right –  by that I mean relevant, balanced and directly adapted to your customer base – it can be a vibrant success. Otherwise, you’ll just overwhelm your customers and become disconnected from them.

  1. Cashback loyalty program

This can be the simpler and more instantaneous loyalty program for all situations.

For each purchase, your customer gets back a percentage of what he spent to be deducted on his next buy. You can add an expiry date to the cashback value to push him to return sooner.

It’s simple and works across all bases, but it may not be as memorable as you would like.

  1. Hybrid Loyalty Program

This is not a loyalty program per se, but a combination of different loyalty programs. The goal is to offer your customers the best features of different programs.

It’s common to see a Point-based loyalty program combined with something else, like a Tiered, Partnerships or Gamified program.

This flexibility to mix can help you be more granular to appeal to your customer base or to simply be more memorable. There are no rules, just be creative to come up with what better suits you.

  1. Referral Loyalty Program

This is not a loyalty program in the traditional sense. It doesn’t focus on rewarding purchases. But it rewards another key value that your customers bring in – more customers.

Because you can still structure a reward system to fit your customers, a well-designed referral program will be as effective in building loyalty as any other. And it will bring a huge value in the much cheaper referral customer acquisition.

However, it brings other challenges and limitations. Referral customers can be anyone and may not be a fit for your brand. So they may end up never converting (doing a purchase). But if you reward only conversions you risk increasing the bar too high and lose the interest of your loyalty program users.

Because of this, I see it as a “must have” incentive when combined or part of another Loyalty Program type.

Designing your loyalty program

There are excellent examples of success for each of these types of loyalty programs. But keep in mind that it took time to perfect and find the formula that works for each brand. Some of them required more resources, specific technical tools, the right partnerships, the education of your customer base, etc…

The important is to build your own Loyalty Program, one that fits your case. So take inspiration from success stories, but don’t just copy. Here are some simple tips to help you started on your own Customer Loyalty Program:

  1. Have a clear idea of your goals. What do you want to achieve with your loyalty program? It can be anything, better retention, new users, more registrations, awareness for a cause, buzz around your brand, etc…

  2. Know your customer base. You are designing this for your customer base, so you need to know what resonates and appeals to them.

  3. Define a budget. This includes defining the rewards and benefits you will offer and your marketing expenses. They all need to be sustainable and aligned with your business reality, as you don’t want to put stress on your finances or waste resources.

  4. Choose a program type. We already covered some of the most popular loyalty programs. So at this point, you should have an idea of what makes sense for your brand considering your goals, your customers and your budget.

  5. Set clear rules. Clear rules will help you cover all aspects of your loyalty program, but it will also make it easier for your customers to grasp the concept and get into it.

  6. Stay close to your customers. Communicate with your customers to keep them updated on their progress. Use the right channels to inform them of level-ups, available rewards and reminders.

Now launch it. Start simple. Simplicity is the perfect starting point. Remember that you are designing a Customer Loyalty Program for your customer base (not for yourself), they are the ones that need to understand how it works and feel motivated to use it.

All about the Customer Experience

A Customer Loyalty Program can play an important role in keeping your customers close.

But the main reason for a customer to return is a great customer experience. It means that you caught attention, offered frictionless processes, were there all the steps of the way for your customers and fulfilled and exceeded their expectations.

So while your loyalty program will not build a memorable customer experience alone, it will complement your customer journey and reinforce an already great customer experience by adding an extra layer of emotion and value. It will also provide that extra push and reasoning to trigger a purchase when needed.

Any customer journey is meant to be designed as an open-end and self repeating cycle. You invest once to open that path to purchase and start the first cycle. But once a customer purchases from your shop, he will know the way back. It’s up to you to wave or provide that ride back in if necessary.

It will all add up to repeated sales, which increases your customer LTV (LifeTime Value) and in turn dilutes your CAC (cost acquisition cost). Simply put, more return for the same investment – if a customer keeps purchasing in your shop over time, you get an increasingly better value for each dollar spent on bringing him in. For these reasons, retention is the way to sustainable business growth. Especially with the growing competition in eCommerce.

Interesting Related Article: “7 Key Benefits of Customer Loyalty Programs