The come-back of loyalty marketing – How to build a loyalty program that works?

For a long time, customer loyalty has not been in the focus of commercial organizations. More effort has been directed to acquiring new customers or improving other areas of digital development.

However, things are rapidly changing. During the pandemic, companies have witnessed a downward trend in retention rates and customer loyalty in general. Research shows that 75% of people have changed their shopping behavior, and 39% of shoppers have shifted preferred brands or retailers during the pandemic. We have also seen rapid growth in D2C businesses as e-commerce has conquered the consumer market. Because technological improvements have streamlined online shopping, consumers expect frictionless and predictive shopping experiences.

What signs indicate that you should focus on improving the loyalty of your existing customers? Most importantly, if you are losing customers to a competitor or have a weaker relationship with your customers than you used to, it’s time to shift gears with your loyalty program. Also, if you have declining loyalty program metrics, it’s time to update your operations because poorly managed loyalty programs can backfire and hurt your customer relationships. If you fail to meet the needs of loyalty program members, they might not only leave the program but also associate your brand with a bad experience.

Here are the key areas that you should focus on when building or renewing your loyalty program:

1. Build on business strategy and objectives. Loyalty programs tend to be quite costly. It is paramount that you tie rewarding mechanisms into your strategy and key objectives. How do you define value if you aim to maximize a customer’s lifetime value? Do your customers generate purely transactional value? Is writing reviews, posting on social media, or participating in studies valuable for you? If the answer is yes, you should design a loyalty program to drive this type of behavior.
2. Be customer-centric. The typical earn and burn model that focuses only on transactional rewards is long gone. In addition to rewards, customers expect companies to recognize their needs and engage with them. To build loyalty, we must understand our customers’ needs and motivations; then, we can create meaningful loyalty programs that deliver the value that keeps customers engaged with us.
3. Use meaningful segmentation. The biggest reasons why loyalty programs fail are the poor use of data and inadequate segmentation. Loyalty programs can provide plenty of valuable data about your customers through, for example, their interaction frequency and individual needs. Knowing what data to collect and how to segment your customers are key to arranging the data in a meaningful way.
4. Utilize the data to activate the customers. Using data to find the most important segments and behavioral patterns and investing in them are key to building profitable loyalty programs. Using personalization and automation to communicate with the right customers through different touchpoints ensures relevant customer experiences and efficient activation. When done correctly, loyalty programs generate the right customer data set and allow intelligence and predictiveness in commercial operations.
5. Clear governance is needed in the implementation. As loyalty programs are positioned at the intersection of different functions, business lines, and markets, a strict governance model and precisely defined KPIs are needed. Launch the new loyalty program by considering necessary changes in operations, ownership, and technology (martech and data). Loyalty programs often require specific tools to manage tiers and rewards and recognize rewardable behavior. Also, individual loyalty data should be passed through marketing, e-commerce, and POS systems. By doing so, we bring to life the membership across all touchpoints and channels, digital or physical.
6. Focus on profitability. A loyalty program should be a money-making tool for your brand. The delicate balance between the value you create for your client and the value they generate back to you is the sweet spot of any successful loyalty program. Determining whether the program is profitable can be surprisingly tricky, but it shouldn’t be. Even though a finetuned measurement framework is mandatory, the numbers should lead directly back to your strategic objectives and CLV, clearly stating the monetary and non-monetary value created for your business.

If you want to find the right solution for your business, contact us at Marketing Clinic!