Tips for Building a Continuous Loyalty Program

Loyalty programs go back to the 1930s when retailer Sperry & Hutchinson started issuing the popular S&H Green Stamps, though modern programs more closely mirror the American Airlines mileage program that started in the 1980s. Since then, there have been programs featuring punch cards, loyalty points to be redeemed for products and services, free upgrades, cash back programs, and various combinations of offers and features.

Though not as long-lived as the American Airlines program, the most successful program today is likely Starbucks Rewards, which the coffee retailer even breaks out in its earnings reports.

But copying a competitor’s loyalty program isn’t going to help companies retain their best customers, according to “Continuous Improvement: The Customer Loyalty Playbook,” a recent Forrester report. Eighty-six percent of adults belong to at least one online loyalty program, so program providers should look to retool their offerings to deliver differentiation and value, Forrester analyst Mary Pilecki says.

The first step, according to Pilecki, is to establish a simple, curated value proposition. Too many loyalty programs are complicated, built on the assumption that an abundance of features provides the necessary differentiation.

“Focus on the most compelling component of your program and curate communications around that benefit,” Pilecki says, pointing to Foot Locker’s FLX program, which steps up the benefits as customers go from one tier to another. FLX participants reportedly spend 40 percent more and have 50 percent more orders than non-members.

Loyalty programs should also balance transactional and emotional loyalty, according to Pilecki. Program providers should appeal to customer emotions, not just the promise of rewards, to increase purchases and participation.

“The biggest problem with loyalty programs tends to be offering just points or rewards for purchases. Customers expect more,” Pilecki says. “Consumers are more demanding.”

Building and maintaining a successful loyalty program simply offering discounts is hardly worth the effort, according to Pilecki. Nike’s highly successful loyalty program offers member-only deals as well as early access to new products and branded events.

“Loyalty programs need to show the pinnacle of the brand,” Pilecki explains. “Members have heightened expectations for a differentiated experience through the program, and brands must capitalize on this opportunity to retain their loyal customers.”

To raise the value of loyalty programs, Pilecki advises that companies do the following:

• Align benefits with the customer, program, and company objectives. Offering discounts to customers who would buy the same level of products or services with or without the benefit provides no advantage to the company. Instead, organizations need to offer benefits that drive additional short- and long-term business for the company and added value for the consumer.
• Increase the perceived value and attainability of benefits. While some customers want “aspirational” rewards that build up over time, they will quickly become disillusioned if the required levels seem out of reach. Some programs have successfully met this challenge by offering “earn-and-burn” rewards, like $10 gift cards for those with low levels of activity and more aspirational rewards for more high-volume customers.
• Contain the resource burden on the organization. Companies might be better off partnering with a third-party rewards catalog vendor or offering automatic rewards certificates than actively managing a more complex rewards program on their own. “Regularly review the results of your program and calculate the overall ROI to ensure that loyalty is a profitable endeavor to your brand,” Pilecki advises. “If your loyalty program is costing you more to maintain than the value you gain in the form of customer retention, you’re not helping your business.”

And as customer demands change, Pilecki expects loyalty programs to increasingly move toward more experiential offers, such as members-only trips, classes, or seminars.