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 Chuck Schaeffer How to Create a Loyalty Program That Works


10 Step Customer Loyalty Program Framework

For many retailers, the impetus of a loyalty program is the ability to identify customers and measure their behaviors. Unlike B2B industries which have customer lists, many retailers deploy loyalty programs in order to build a customer database and begin acquiring deeper customer intelligence.

With increased customer intelligence, retailers are equipped to design engagement and promotion strategies which increase new customer acquisitions, grow customer share, improve customer retention and shift consumer spend toward higher margin goods. But succeeding requires a strategic and thoughtful approach.

Here’s a 10 step framework to designing and deploying a loyalty program that I’ve successfully used several times.

A Recommended Approach

  1. Begin with Loyalty Objectives. A loyalty program can be a powerful tool in advancing consumers along a continuum from browsers to buyers to repeat customers to advocates. But for programs to support business cases and forecasted payback results, more specific objectives are needed. Two overarching goals are to increase customer profitability (probably by increasing customer sales of high margin products) and to transition customer affinity from products to the brand. This later goal actually works to achieve the first goal, as when consumers evolve from purchasing individual goods to a broader range of products from the retailer, profits grow comparably.

    Loyalty program objectives may include things like:
  • Grow customer share with our most profitable customers
  • Acquire new customers with traits similar to our most profitable customers
  • Identify existing customers who are not yet most profitable customers but possess similar traits as most profitable customers
  • Use consumer loyalty attributes and behaviors to deliver more relevant and personalized campaigns to improve up-sell, cross-sell and customer share
  • Use loyalty program communications and nurture campaigns to increase customer tenure and decrease customer churn
  • Use loyalty program attributes and behaviors with retention campaigns to reengage idle or lapsed customers

The most strategic and successful loyalty programs look beyond simple points and redemption practices and instead design a system which offers consumers a wide variety of options and incentives which permit the retailer to collect useful data about customer preferences, interests, motivations, lifestyles and purchase choices. When retailers possess the customer intelligence needed to understand how to best engage and delight consumers, they are also equipped to meet their business objectives.
  1. Position Your Program. Simply creating an undifferentiated loyalty program will probably not achieve your business objectives or the benefits of a loyalty program. Retail research and publishing firm Colloquy estimates that in 2013 there were 2.647 billion loyalty program memberships in just the US (a 26.7% increase from 2010), with the average US household enrolled in 21.9 programs. 56% of those members were inactive (defined as no engagement within a 12 month period). Consumers face information overload and unless your loyalty message stands out, it won’t break through the noise. Innovation, differentiation, relevance and making an emotional connection with your customers are essential program requirements to help your loyalty program stand apart in a crowded market.

    Also recognize consumers react most positively to three loyalty program qualities, being simplicity, transparency and trust. Successful loyalty programs will make the consumers life simple, clearly state program terms and honor their promises to consumers.

  2. Determine Customer Incentives. The challenge here is find out exactly what it takes to achieve an emotional connection and reaction from each customer. Customers are not homogenous, and different customers are motivated by different rewards. It’s a good idea to begin with a Voice of the Customer analysis and then ascribe rewards by programs which designate recognition (i.e. you’re a Platinum customer) and award incentives pursuant to customer personas or customer segments.

    Incentives must be relevant and valuable enough for consumers to join and remain in the loyalty program. Incentives should be allocated using a tiered approach to encourage higher spending levels with more significant rewards. Also recognize that non-financial rewards are more motivating to many customers than discount, rebate, coupon, gift, gift card, voucher, certificate, product or cashback rewards.

    There’s a clear trend of perks (soft benefits) over discounts (hard benefits) among several consumer segments. Many customers prefer recognition, inside or early access to private events, early product access or lifestyle event awards more so than discounts or possessions. These customer experience rewards also help provide differentiation and a more memorable incentive. It’s important to tweak reward options periodically to keep the programs fresh and experiment to see which rewards best deliver the intended results.

Next - Customer Loyalty 10 Step Framework >>

Customer Loyalty ProgramsCustomer Loyalty FrameworkLoyalty ProgramLoyalty SoftwareLoyalty CustomerCustomer Loyalty Risks




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Consumers react most positively to three loyalty program qualities, being simplicity, transparency and trust. Successful loyalty programs will make the consumers life simple, clearly state program terms and honor their promises.


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