A Complete Guide to Loyalty Programs

A Complete Guide to Loyalty Programs

Nichole Gunn

Attracting and retaining customers as a business requires careful planning and efficient work. Retailers and other business-to-consumer (B2C) brands may opt to use loyalty programs that offer discounts, rewards, or other incentives to people in return for store and develop brand loyalty.

The same can be said about business-to-business, or B2B loyalty programs where manufacturers provide incentives to distributors and vendors in an effort to improve the entire distribution channel and reward those that stay with the brand.

No matter which method you go for, you’ll still have to know your target audience. Let’s take a look at what loyalty programs are and what makes them so powerful in this Complete Guide to Loyalty Programs.

What is a Loyalty Program?

A loyalty program is a marketing strategy devised to attract new customers and retain current ones. It works on the basis of rewarding customers that choose to return and stay with the brand, increasing brand loyalty.

Loyalty programs don’t need to utilize highly specific types of incentives since they can be flexible to a point where you can offer different rewards to different groups of people for different behaviors. However, you’ll still have to study your target audience and figure out what sort of loyalty program will appeal to them the most.

Brands that work on loyalty programs together with channel partners often see higher success rates and better customer retention, primarily because all parties can use their unique points of view to create an efficient loyalty program.

Loyalty programs nowadays cover a wide range of commerce categories and are more customer-centric than ever before due to market competitiveness. They often make a significant difference in increasing brand loyalty and customer satisfaction.

The Importance of Loyalty Programs for Businesses

There are numerous benefits associated with loyalty programs that we’ll go into more detail on later, but the two most important ones are improving customer satisfaction and gaining key consumer data and insights.

Better customer satisfaction will result in both the retention of said customers and the attraction of new ones, usually through word of mouth. Because of this, loyalty programs are pretty cost-effective ways of spreading the word about your business.

When it comes to consumer data, companies already gather a lot of it through anonymous purchases but it isn’t universally useful for all purposes. For example, anonymous data doesn’t provide customer-specific info such as what type of person purchases specific types of product, or which incentives are better than others, etc.

It is, however, particularly useful for high-volume businesses whose business model benefits greatly from return customers and, since gaining new customers is more expensive than selling your products or services to existing ones, they end up saving money on costs as well.

In a B2B environment, businesses can reward other businesses for their hard work by motivating them to achieve even more. This is done through the usage of various incentives.

Loyalty programs can actually help the entire distribution channel achieve more, whether in terms of purchase satisfaction or increased revenue and better transaction experiences. For example, a supplier or vendor creates a loyalty program for their dealers that rewards certain behaviors or achievements with points. The points are given based on a specific goal (e.g. reach X monthly sales) and can be redeemed for certain benefits or items.

Brief History of Loyalty Programs

The oldest evidence of loyalty programs traces back to the 1920s and Betty Crocker; a fictional brand character created by the Washburn-Crosby Company to promote their food and recipes.

Betty Crocker’s loyalty program featured coupons that customers could use to redeem free flatware and various other products. Eventually, it reached a point where the company would give out reward catalogs with some of their products so the customers could see and pick whichever free product they wanted with the coupons. The loyalty program was introduced in 1929 and was shut down in 2006, making it one of the longest-active loyalty programs in the world.

Eventually, most businesses would grow to incorporate loyalty programs as a large part of their overall marketing campaigns due to the numerous benefits they provide. The following are some of the more significant benefits.

Loyalty Program Benefits & Goals

Increased Customer Retention

Customers that are rewarded for their loyalty to a brand are much more likely to stick with that brand instead of spending time searching for products or services from another one. You’re basically supplementing their satisfaction with your products or services with incentives to show gratitude and strengthen the customer-brand relationship.

Increased Customer Lifetime Value

Customers that receive coupons, discounts, early access to products, and other incentives will often spend more when purchasing from the brands that reward them. In simpler terms, a business profits more since customers want to patronize them.

On the other side of the coin, the customers themselves will get more value from a brand’s products due to bonuses and rewards they receive. It’s a win-win situation for both sides.

Increased Customer Referrals

Word of mouth is one of the most cost-effective methods of brand promotion. It’s difficult to pull off, though, since there’s no guarantee a customer will tell anyone else about you.

Referral programs are a great way to help earn more of this referral business, as they have benefits for both the business and the customer.

By implementing loyalty programs, the potential for increased referrals is doubled. Not only do rewards motivate buyers to refer your brand, but the loyalty program itself makes your brand worth referring.

Competitive Advantage Over Other Businesses

Businesses that don’t use loyalty programs may miss out on potential revenue, primarily because customers always look for personal benefits from their shopping experience. Even something as simple as free shipping makes a huge difference.

With both brands and channel partners benefiting from the high customer attraction and retention rates, and the influx of vital consumer info and data, it’s clear that loyalty programs can be used to shift the balance of power in the market.

Types of Loyalty Programs

Loyalty programs, especially B2B loyalty programs, will have guidelines and stipulations that are highly specific to their unique audience. However, these are the most common and effective types of loyalty programs that channel partners or brands can implement:

Point-Based Programs

Point-based loyalty programs are commonplace in retail environment where customers are rewarded with points for every purchase they make. After acquiring a sufficient number of points, they can redeem them to receive a discount, a free product, or for other goods and services.

Remember, loyalty programs are flexible. Discounts and products aren’t the only rewards customers can get in exchange for their award points.

Tiered Programs

Tiered loyalty programs can often be found in the travel market, especially airline and travel agencies. The loyalty program itself is divided into multiple categories, often named after precious metals like Silver, Gold, and Platinum.

Each subsequent loyalty program tier will provide more and better bonuses than the previous, incentivizing customers to chase higher tiers. A simple example of a tiered program is the following:

  • Tier 3 (e.g. Silver): 10% Discount
  • Tier 2 (e.g. Gold): 15% Discount
  • Tier 3 (e.e. Platinum): 20% Discount

Another thing to note is that the difficulty of achieving the next tier should increase with each tier, meaning it should be easier to reach Tier 2 from Tier 3 than Tier 1 from Tier 2.

Cash-Back or Rebate Programs

Cash-back programs can be highly versatile when it comes to how they’re devised but in essence, they give customers specific cash-back amounts for specific purchases. These programs are great for channel partners because they can distribute the cash-back to various vendors and stores, improving general brand recognition and sentiment.

Coalition Programs

Coalition programs (also called ‘Shared Loyalty Programs’) consist of multiple completely unrelated brands banding together in a partnership. Their main benefit lies in the fact that customers can enjoy a much larger range of incentives and more freedom since they can benefit from each brand’s loyalty program.

Cash-back elements can sometimes be found in coalition programs where some or all brands promote this incentive to customers who purchase products or services from coalition partners.

Hybrid Programs

Mentioning cash-back and coalition programs in the same vein leads us to the final type of loyalty program – Hybrid.

Simply put, hybrid loyalty programs utilize two or more other loyalty program types in an effort to maximize the effectiveness of all. While hybrid programs can be complex for smaller businesses, they are very useful for larger ones, especially those that don’t focus on just one niche.

How to Create a Successful Loyalty Strategy

Creating a successful loyalty program requires a lot of work and analysis and is an ongoing process that regularly requires adjustments or improvements. You need to plan an attention-getting launch for the program, a loyalty program marketing strategy, and a way to accurately measure the program’s performance. With all those things in place, loyalty programs become a lot easier to manage. Here are the steps you need to take to improve its chances of success.

Understand Your Target Audience

First, you’ll want to start with analyzing and understanding your target audience. Every customer has their own wants and needs, so you’ll need to figure out what they’re looking for. You’ll also want to know how their spending habits look like. Here are a few questions to ask about your target audience:

  • How much do they buy each year?
  • What do they buy and how frequently do they buy it?
  • Can you sell them other products?
  • How long have they been your customers (if at all)?
  • How quickly do they pay?
  • How much profit can you make from their purchases?
  • Do they buy from other suppliers and if yes, from who?
  • How satisfied are they with your company?
  • How can the customer-business relationship be improved?

The answers to these questions should give you a basic understanding of how your target audience works and what to aim for when creating a loyalty program.

Determine Program Goals and Objectives

Every loyalty program must have a purpose and objectives to achieve over the course of its existence. These goals must be set from the beginning, else you run the risk of confusing your customers and channel partners.

Are you looking to increase your sales margins and profit by guiding your customers to higher loyalty program tier levels (i.e. motivating them to spend more on a yearly basis buying products from your brand), or do you want to receive unrelenting loyalty from them? Questions like this should be answered with specific goals, milestones, and key performance metrics (KPIs) attached in order to achieve maximum success.

The goals, timeframe, and value of your loyalty program should be clear to program stakeholders, managers, and participants alike, so everyone is on the same page.

Choose the Right Type of Program

Each loyalty program we mentioned in this article has benefits specific to certain industries. This means that you probably won’t use points-based programs as a travel agency and will instead opt for a tiered program.

Analyze the characteristics of each loyalty program in an effort to identify the one that you and your customers will profit from the most, whether it’s profit, loyalty, or recognition.

Offer Attractive Rewards

There are many ways in which you can reward customers that show loyalty to your brand and continuously purchase products or services from you. But, the value and attractiveness of the reward play a big role in whether or not they’ll even be interested.

Let’s go back to the airline company example – passengers that are given a choice between two different airlines. One offers free flyer miles that increase with the loyalty program tier. The other offers a set discount (e.g. $50). Customers will almost always go for the one whose program will reward them with free flyer miles, because those miles are perceived to have a greater value in the long-run as they accumulate.

Offer rewards that align with your brand and with the customer, and that are big enough to keep them around but small enough not to strain your budget. The same applies to vendors or channel partners that you want to reward for their cooperation and willingness to pursue success with your brand.

Make it Easy for Customers to Participate

If participating in your loyalty program is tedious and complicated, customers won’t even bother signing up. Avoid this by making it easy and simple to join. In most cases, companies require some personal information and that’s about it. Think of online loyalty programs where all you have to do is sign up via email.

However, be mindful if you want to gather specific data about your target audience through the loyalty program. Develop creative ways to get this info without harming the overall customer acquisition and participation process. For instance, submitting more data such as contact info, feedback, preferences, and product interest could earn participants more rewards later.

Track and Analyze Program Data

The work isn’t over once the loyalty program is launched. People are ever-changing creatures and what we once liked, we may get bored of it as time passes. On top of that, the chances of doing everything perfectly from the get-go are slim.

Naturally, gathering data from how customers interact with the loyalty program, if there are any changes in sales, and more is necessary to understand what works and what doesn’t. Don’t take your foot off the gas; analyze the data you gather and make any necessary changes to push the loyalty program to the next level.

Continuously Improve the Program

Based on the info you track and analyze while the loyalty program is active, identifying key areas where improvements are needed is vital to keeping the program itself active and efficient. At this point, you’ll probably be making slight changes to how things work because all the major obstacles were dealt with prior to launching the loyalty program (goals, target audience identification, rewards, etc.).

Stay ahead of your competitors by introducing a fresh new reward or changing up reward-earning behaviors and promotions as time goes by. Remember – your customers may be loyal now but if a competing brand offers the same products but with a better loyalty program, they’ll eventually leave if the quality of said products is the same.

Lastly, keep an eye on what your competitors are doing! Learn from them and implement their ideas, but even better. Keep pushing toward having the best loyalty program out there and you’ll enjoy a healthy relationship with your customers for a long time.

Examples of Successful Loyalty Programs

Here are a couple of examples that showcase the power and effectiveness of loyalty programs that we created for brands we’ve partnered with in the past:

Building Materials Supplier

A building materials supplier we partnered with requested a new loyalty program for their most loyal customers. The program was designed to give customers redeemable points they’d earn from purchasing specific products.

The supplier previously spent more than 30 hours a week just fulfilling redemptions but after the loyalty program was implemented, time spent on this task fell to zero. They also started to earn 8x more revenue from participating customers compared to revenue from non-participating customers.

Distributor of Water Movement Solutions

The loyalty program we developed for a water movement solutions distributor rewarded dealers for eligible sales, motivating them to make more sales. Dealers were required to meet a $10,000 annual purchase minimum in order to qualify for the program. They would earn a point for each dollar of a qualifying sale.

These points could then be redeemed in return for items from a selection of a few million. After the program was activated, our client doubled sales, going from $30.6 million to $69.5 million. They also saw an increase of 46.8% in monthly sales.

Vehicle Equipment Manufacturer

A vehicle equipment manufacturer asked us to help them create a points-based rewards program for their dealers. The dealers could earn points by submitting product registrations with an easy-to-use electronic file-uploading tool. Once they gathered enough points, they could redeem them for various items.

The manufacturer was also able to collect valuable consumer data while also achieving higher sales numbers. In fact, they saw a 40% uptick in sales, a 246% increase in product registrations, and a 5.36:1 program ROI.

Manufacturer of Wheelchair Accessible Vehicles

This global manufacturer of mobility products (including wheelchair-accessible vehicles) had a problem where they couldn’t get end-user email addresses. Without these emails, our client had a hard time marketing to the end-buyer. And, while they already had a loyalty program, it was missing instant gratification and had limited reward options.

We overhauled their existing loyalty program to reward customers with cash (on a reloadable card) whenever they met the manufacturer’s goal. They could earn more cash if they follow submission guidelines and include their email addresses. If the submissions lack a valid email address, they lose points.

Following this change, the manufacturer saw that 95% of sales reps and dealers participated and warranty registration submissions with valid email addresses increased from 37% to 92%.

Final Thoughts on Loyalty Marketing Programs

Loyalty programs have been around for almost a century and this longevity is what gives them credibility. They are incredibly beneficial in all retailer spheres and other industries and can often tip the scales in favor of the brand that implements them.

Let’s take a look at everything we’ve covered in this article:

Importance and Benefits of Loyalty Programs

  • Improve customer satisfaction
  • Help you gain key consumer data and info
  • Increase customer retention
  • Increase customer lifetime value
  • Increase customer referrals
  • Give a competitive advantage over other businesses
  • A cost-efficient way of attracting new customers
  • Instant results

Encouragement for Businesses to Consider Implementing a Loyalty Program

If you want to implement a new loyalty program or adjust an existing one due to subpar results, then feel free to reach out to us and let us help you! We’ve worked with numerous clients over the years and have managed to achieve success in a wide range of industries. Here are a couple of examples of just how powerful loyalty programs can be for businesses:

The Future of Loyalty Programs

There’s no doubt that loyalty programs will be around for a long time in the future. Their effectiveness and versatility allow businesses to expand their marketing strategy and help them achieve their business goals.

The only question is how they will evolve as time goes by. Having said that, the loyalty programs of today are excellent additions to any brand and will prove useful in the long run, provided they’re properly maintained and improved.

Want to learn more about running a successful loyalty program?