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A Guide to Building a Retail Loyalty Program

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A Guide to Building a Retail Loyalty Program
Uber laid off 350 workers last year alone as part of a major drive to increase its profitability, but what is very interesting is that a large element of the new Uber profitability plan is an extensive loyalty program that resonates with its drivers. This highlights the growing importance of loyalty programs and how valuable they are to businesses everywhere.

 

Retailers seeking to increase loyalty and customer engagement should always consider devising and implementing a loyalty program, which rewards customers for spending money and otherwise showing loyalty and engagement with a certain brand. This article will focus on the ins and outs of loyalty programs and will illustrate some of the most successful loyalty programs that have ever been created. The article will show how to build a loyalty program and will explain why these programs are so vital for retailers struggling to stand out from their competitors in today’s fiercely competitive retail market.

 

Why Have a Retail Loyalty Program?

Research has shown that customers seek out good retail experiences and will take a number of factors including product quality and price into account before they make a purchase. As such, retailers are not just competing on the basis of how good their products are and on price. There are many other factors at stake, including loyalty programs. Much research has been conducted on what factors encourage first time buyers to choose one brand over another, and loyalty programs have been shown to feature highly on the list of features that attract new customers, when price and product are largely the same.

 

Indeed, research by Gallup has shown that customers who feel emotionally connected to a brand, perhaps because they have had a good experience previously with that brand, or they have been influenced by a recommendation from someone they trust, will spend more cash, more often. The Gallup research suggests that emotionally connected customers visit stores 32% more often and spend almost 50% more cash. Loyalty programs can be used to build upon existing emotional connections that customers have with a brand, and make loyal customers feel part of a community, by offering exclusive access and exclusive offers to loyal customers. Research also suggests that incentives like this make customers feel appreciated and valued, and as such more likely to trust a brand and continue to be loyal to that brand.

 

Building on the emotional connection that loyal customers can feel towards a particular brand, loyalty programs can be used to deliver donations to good causes and charities, which, in turn, creates a “feel good” factor for loyal customers and makes them less likely to abandon a brand, in favour of another. Interesting, this “connectedness” works to make customers remain loyal even if the rival brand is offering better prices, which shows how valuable a loyalty program can be to a business.

 

Loyalty programs have a number of incidental benefits for retailers, one of which centres on the issue of customer acquisition. It makes sense that continuous acquisition of new customers is more costly than repeatedly selling to the same group of loyal customers. Many also agree that new customers don’t spend nearly as much as so called “loyalists” - customers who have already made purchases tend to be more confident and trusting in a brand. Loyalty programs reward this valuable core group of customers so that they are less likely to “shop around” and place orders for similar products elsewhere.

 

Loyal customers also provide retailers with a rich source of contemporaneous data through which effective targeted and personalised marketing campaigns can be built. A customer who has made several purchases in the last 6 months is of much more value to a retailer than a customer who has made a single purchase 24 months ago. That more recently loyal customer’s data, for example, their email address or their mobile phone number is more likely to be current, so marketing messages are more likely to be successfully delivered. Additionally, when retailers have data on loyal customers, these loyal customers can be singled out for personalised offers and discounts. Essentially, the retailer in possession of current data relating to their customers can focus more of their marketing budget communicating with customers who are more likely to make purchases and who are more likely to be interested in particular offers and discounts.

 

Benefits of loyalty programs for retailers

 

A lot of research has been conducted on how loyalty programs impact metrics that most successful retailers will typically measure, for example average order value, lifetime order value and purchase frequency.

 

Average order value

Loyalty programs can be designed to encourage members to make higher value purchases. For example, many loyalty programs will reward larger orders with proportionally larger discounts. This has been shown, time and time again, to increase the average order values of orders being placed by loyalty scheme members, as opposed to non-members.

 

Engagement

The quality and frequency of customer engagement is higher among loyalty scheme members. High levels of customer engagement are good for any brand as, in the first instance, this increases brand recognition. Higher levels of engagement also increase the emotional connection that customers feel in relation to a given brand and this increases the likelihood that these customers will make purchases and larger purchases compared to customers who are not members of the loyalty scheme.

 

Purchase frequency

Again, purchase frequency metrics rise in cases of loyalty scheme membership, compared to the purchase frequency metrics associated with customers who are not members of loyalty schemes.

 

The essential elements of a successful loyalty program

So, what does it take to create a successful loyalty program, and why are some programs more successful than others?

 

Well-thought out images and branding

A loyalty program should have an impactful title, or image. Tesco “Clubcard” is a good example of something that is instantly recognisable to many.

 

Simple to understand

A vital ingredient of a great loyalty program is that it is simple to understand. One brand with a very simple and successful loyalty program is Skullsplitter, a brand that sells dice and gaming accessories, has turned its loyalty program into a game. Described as a “guild quest”, users earn guild status and rewards by performing certain tasks like following the brand on social media, sharing posts on social media or joining a mailing list. The “quests” then add up to earn customers rewards that can be offset against buying merchandise on the brand’s website.

 

As in the case of Skullsplitter, loyalty programs should use simple language, images and pictures to help illustrate how the program works. Retailers should choose which behaviours they wish to reward, whether it is joining a mailing list, placing larger orders, leaving reviews or making repeat purchases. A retailer may wish to provide a specific boost in a given area, for example improve the number of public reviews they have on products, and loyalty programs can be used to achieve this.

 

Easy to subscribe to

A good loyalty program must be easy to join. Retailers may wish to consider creating links on their websites, or apps that allow customers to join quickly and easily. Other successful loyalty programs provide scannable key fobs that can be used as keyrings and then scanned at the brand’s store, upon making a purchase.

 

Easy to use

Successful loyalty schemes are invariably easy to use. A retailer should remember that joining a loyalty scheme takes up a customer’s time, so the last thing any retailer should create is a system that wastes the user’s time.

 

A good example of an easy to use and highly successful loyalty program is the Nectar loyalty scheme operated by Sainsbury’s. There is no joining fee and members can earn as much as one point per pound spent in-store, with these points being redeemable against Sainsbury’s merchandise. The loyalty scheme can be used online and in-store, and there is an app that can be downloaded to smart phones which makes use of the scheme much more convenient for customers. The app allows customers to scroll through offers and discounts and choose the offers that they are interested in, and it also allows customers to leave their actual membership card at home and instead use the app on their smartphone to scan their purchases and register their rewards. The Nectar scheme is also redeemable outside of Sainsbury’s, through the 400-strong network of so-called “Nectar Partners” including EBay and Esso.

 

Surprises and rewards

It is recommended that a loyalty program is appealing and stimulating to the audience it is targeting. A fashion brand may wish to offer discounts on exclusive fashion-themed events, for example as a way of capturing the attention of the audience. When a retailer has successfully captured the attention of its audience, this creates a spiral effect whereby people discuss the event or promotion either in person, or on social media, which helps to get the word out about the event or promotion. This is known in the marketing industry as creating a “buzz”, and when retailers devise an event or promotion that resonates with their audience, it gets a welcome boost in terms of brand recognition as well. 

 

Rewards don’t have to directly benefit the loyalty scheme member, which is something that the Coop’s loyalty scheme highlights well. The Coop’s loyalty scheme offers a points-based system through which Coop merchandise can be bought using the points accumulated, however the scheme also makes direct donations to a number of good causes. The “feel-good” factor that customers get as a result of their membership and continued use of the scheme is therefore a clever and highly effective incentive for customers to join and continue to participate in this scheme.

 

Relevant rewards

Retailers should spend time trying to understand what their customers actually want, because it goes without saying that a loyalty program should be relevant to all of the customers and provide rewards that appeal to the core customer base. As such, brands should offer variety in their rewards programs, for example free entry to a gig, free postage and packing, or the option to “spend” points earned on merchandise. In this way, retailers will be able to appeal to a wider variety of people, since most people will be attracted to one, if not all of the options available for using the points that are earned. This approach is always better than offering a “one size fits all” rewards system.

 

A great way to guarantee that rewards are relevant is to ask customers what they want. This can be done in a number of ways, for example through focus group interviewing, through surveys on social media or in-store or through frontline staff asking customers in a face to face setting.

 

Other ways to keep track of how relevant rewards are is to consider “redemption rates” - that is how frequently customers are redeeming rewards through a particular loyalty scheme. If a loyalty scheme is not delivering value to customers, then this is an opportunity for retailers to ask themselves how the scheme can be improved and how more value can be delivered to customers. This is a particularly useful way to measure and then optimise a loyalty scheme. Incentives with low levels of redemption can be scrapped and replaced with more attractive offers.

 

Promotion of a loyalty program

 

Once a loyalty program has been devised, the next step is to ensure it is promoted successfully.

 

Use of frontline employees

A great way to advertise and promote loyalty programs is to train customer-facing employees who come into contact with customers face to face, to explain the loyalty program to the customers they interact with on a daily basis. This is a smart way to introduce the loyalty program and it allows customers to ask any questions they may have. Some retailers incentivise the promotion of loyalty programs, and employees can earn commissions and rewards for signing customers up.

 

Advocacy and recommendations  

One of the most impactful means of marketing any product or service, is to inspire people to make word of mouth recommendations about that product or service. The most successful loyalty programs harness the power of “advocacy” by inspiring their members to make personal recommendations to their friends and family about the program and its benefits. One of the main benefits of advocacy like this, is that the person recommending the product or service is making a recommendation to someone who trusts them. This is a very different approach to generic methods of advertising, where messages are relayed in circumstances where there is little emotional connection or trust between the parties. This is why many successful loyalty programs incentivise referrals to family and friends, where loyalty card members can earn extra rewards and benefits where they make a referral to a friend, or family member.

 

Multi-faceted communication

A successful loyalty program will typically be communicated to new members in a number of ways. These include personal recommendations from family and friends, frontline staff for example sales assistants who “sell” membership of the loyalty program to customers in a face to face setting, links on email marketing campaigns, social media promotions, advertisements and the use of influencers.

 

Website

There should be a simple, fast and convenient means of joining the loyalty program on a business website. However, the most successful loyalty programs have promotions of their loyalty schemes “built in” across various sections of their websites, for example at the checkout and on individual products descriptions. Advertising banners can also be employed on certain web pages. These promotions should highlight the benefits of joining the loyalty scheme in terms of any applicable savings, discounts or exclusive access that membership may secure in simple and engaging terms. In “selling” and promoting the loyalty scheme by displaying it in places where there is a high volume of customer “clicks”, the retailer is making access to the loyalty scheme more convenient for the customer, who doesn’t have to go to the effort to research the benefits of the loyalty scheme themselves. Due to this, the higher level of visibility for the loyalty scheme is likely to attract new memberships at a faster rate.

 

Social media

Social media is a powerful platform from which to advertise a loyalty scheme, and all the best and most successful loyalty schemes use social media to promote the benefits of membership.

 

Loyalty programs – how do they benefit retailers and customers?

Loyalty programs can deliver immense benefits to both retailers and customers alike. These schemes invariably increase key retailer metrics like average purchase order, purchase frequency and order volume. Not only does the loyalty scheme offer customers incentives to remain loyal to a particular brand or retailer, the schemes have been shown to increase the emotional connection between customer and brand, which, in turn, results in customers making more frequent and higher value purchases with that brand.

 

For customers the benefits of loyalty schemes are usually instant and wide-ranging. Retailers, on the other hand, should be aware that a loyalty program can be onerous, particularly at the beginning, mainly due to set-up costs. Customers can quickly be repelled if participation in the scheme is not fast, secure and convenient. Moreover, not every loyalty program is a success which is why it is so important to ask and research what customers would actually want and what resonates with them. 

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