Loyalty Programs 101: All You Need To Know
Did you know that approximately 65% of a company’s revenue comes from the repeat business of existing customers?
We are in times when customer spending is at an all-time low, and you might already know that customer retention is more critical than ever. The solution lies within loyalty programs.
Seeing as you’ve landed here, it’s likely that you’ve been thinking about investing in creating a loyalty program for your business. Good news, you will find all you need to know right here. This step-by-step guide will answer the below frequently asked questions and more.
- What exactly can a loyalty program do for my business?
- Is it worth the investment?
- Where do I start if I want to create one?
- What else do I need to know before I start?
Remember that you can download this guide in a PDF format or bookmark this page later. Without further ado, let’s get right into it.
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- What is a loyalty program?
- Who needs a loyalty program and why?
- How to create a loyalty program
- Reward Mechanics
- Loyalty Program Types
- Key considerations
- Should I buy a loyalty solution or develop it myself?
- Bonus Tips
What is a loyalty program?
Loyalty rewards program, customer incentives program, customer retention scheme - whatever you want to call them, loyalty programs are systems set up by companies to elevate customer engagement, improve retention and increase customer lifetime value. It is a marketing strategy that aims to develop a stronger relationship between a customer and a brand with the objectives of repeat sales, increasing profits and brand equity.
A loyalty program is a strategy in which a company provides incentives and benefits to customers who frequently make purchases or engage with the company's products or services.
Who needs a loyalty program and why?
Here are five reasons why a loyalty program is a necessity for the majority of businesses in 2023:
- A loyalty program increases customer trust. It gives you the opportunity to create connections with customers and earn their trust - and a greater sense of trust leads to better customer retention.
- Increased customer trust also means better customer engagement. Loyalty members are the most highly-engaged category among all of your customers. They are more likely to interact with you on socials, to buy, and share.
- Customers that are part of a good loyalty program often become brand advocates as they are delighted and feel valued by getting rewards for what they enjoy doing.
- Personalise your marketing. Personalisation is one of the best tactics to stand out in a sea of adverts, emails and social media messages. In order to offer personalised marketing, you need data on your loyal customers - and a loyalty program gives you just that.
- Increase your profits. Loyalty programs are a proven way to increase your profits: your most loyal customers are also the ones who spend the most.
If learning how to achieve one or all of these sounds appealing to you, keep on reading.
Want a tangible example of how a loyalty program can help with customer retention? You can check out how White Label Loyalty helped engage Wesleyan’s customers in this case study.
Loyalty programs help you retain your customers and keep them coming back for more. But here's the thing—loyalty programs can do so much more than just keep people coming back. They can also turn customers into brand advocates. This means customers are more likely to talk about your product online, share your brand with friends and family, and even post about you on social media.
Loyalty programs offer you an opportunity to make a lasting impression on your customers' minds—and these impressions can have a real impact on how people perceive your brand.
So what does this mean for you? It means that when people think about what products they like best, they'll often name brands that have strong loyalty programs as one of the key factors in their decision-making process.
How do you develop a loyalty program?
The first step in developing a successful loyalty program begins with strategic planning tailored to your brand's unique goals and position in its lifecycle.
Understand that not all loyalty initiatives serve the same purpose, and align your program's objectives with your brand's evolving marketing and business needs.
The marketing and business needs of a brand change over time. From creating awareness to driving more sales, to increasing customer lifetime value. Most often, businesses simply crave an increase in sales. Nevertheless, not every business can achieve that in the same way.
An effective loyalty program should embody your brand's core values, customized to address your specific requirements and desired outcomes.
Got it? Great, you’re on the right track then.
How do loyalty program rewards work?
Next, based on the goal you choose for your new loyalty program, you can design the reward mechanics. Are you going to reward members for shopping more often, buying certain products, talking about your brand etc.?
Once you’ve decided that, think about what rewards your customers truly value. This could be vouchers to spend at your store, discounts or even third-party rewards.
You can create and offer your own products, both physical or digital, as a reward, or choose to offer discounts or your own codes or vouchers.
Another reward mechanism you can use is to offer third-party digital gift cards, vouchers and discount codes.
Lastly, you could also offer exclusive rewards such as first access, VIP events and other perks… but there are many more rewards you could offer! We can find a way to implement the rewards you have imagined for your loyalty program.
Check out our Reward Fulfilment page
What are the classifications of loyalty programs?
Loyalty programs exhibit diverse structures, falling into several distinct classifications to cater to varying consumer preferences.
These classifications encompass a broader spectrum: Points-Based programs, where customers earn points for purchases or specific actions, Tiered programs that offer escalating benefits based on customer status or spending levels, Value-Based programs focusing on delivering personalized rewards aligned with customer preferences, Paid VIP loyalty programs, and Hybrid loyalty programs.
Based on our experience, it is clear that there is no one size fits all when it comes to loyalty programs. The type of reward scheme you choose should once again depend on the characteristics of your brand.
Here’s a few options to choose from.
Points-based loyalty programs
One of the most common types of loyalty programs is founded on the premise of collecting points for purchases. Such points can later be exchanged for various rewards. Program members are typically incentivised to collect more points to reach more desirable rewards.
However, different companies choose different ways to assign points. The rule around assigning points and redeeming rewards is crucial. Too many points based rewards programs are unsuccessful because they fail to engage and motivate clients early on and throughout different lifecycle stages.
A great example of a successful points-based loyalty program comes from our client Dubai Holding: check out how White Label Loyalty helped create a first-of-its-kind rewards program to offer members instant rewards for shopping anywhere across the UAE.
Tiered loyalty programs
One of the key benefits of tiered loyalty programs is that they incentivise and reward certain behaviours by moving you up the levels. Once you establish your loyalty tiers, customers clearly see what they can aspire for as each tier should provide more valuable rewards.
Furthermore, tiered rewards programs help with segmentation and consumers feel very comfortable with them.
Want to know more about Tiered Loyalty Programs?
Paid VIP loyalty programs
A slightly unconventional (yet effective for the right business) road to loyalty is creating a paid-for VIP loyalty program. Possibly the most well-known example is Amazon Prime. The premise of such an approach is that the rewards offered by the brand are so exclusive that customers must pay for them. However, there are some clear downsides to this type of loyalty.
The loyalty starts and ends with the customer’s willingness to pay premium for better services. Some might argue that this doesn’t constitute real loyalty as it isn’t created naturally. Nevertheless, the key to every loyalty program – a customer-brand relationship – can still be cultivated. Therefore, if your business chooses to go the VIP loyalty program way, make sure there is enough engagement to keep loyal customers around.
Spend-based loyalty programs
Similarly to points based loyalty programs, members of a spend-based loyalty program are rewarded based on their purchases. However, this type of loyalty scheme is more overtly transactional. Whilst most schemes try not to accentuate how much being a loyal customer is costing their members, spend-based programs do the opposite. Essentially, they are sending a message of “the more you spend, the more we value you and reward you”.
Understandably, this type of program will not work for budget-friendly brands and many wide audience companies. However, there are consumers out there who are proud of their spending and they will expect to be appropriately rewarded.
Additionally, phone and utility providers often use arguments of spend in offering more attractive packages to loyal customers. What’s more, reward schemes in B2B are more often than not based on spend. Thus, it is clear there is definitely space for spend-based loyalty programs.
Multi-tenanted (coalition) loyalty programs
Multi-tenanted or coalition loyalty programs are a great way for different (often smaller) brands to reward their common customer together. Having one loyalty platform for several business tenants can drive competitive advantage as customers perceive greater value in using the program. Moreover, this solution can also work great for franchise businesses that want to unify marketing efforts.
One example of a multi-tenanted loyalty program is Wozton Rewards, a service providing tourists with money-saving rewards to local businesses: if you’re interested in learning how White Label Loyalty helped create this unique service, you can check out the case study here.
Purpose-driven loyalty programs
More and more businesses are creating distinctive CSR strategies and basing their brand image on purpose-driven or ethical messages. For such companies, choosing a purpose-driven loyalty program can be a real win.
Instead of rewarding customers with monetary, physical or discount rewards, brands can offer to make a donation to a dedicated cause or make a charitable action (such as planting a tree) on behalf of the customer.
Since customers of such brands are already aligned on their values, such a loyalty initiative is more guaranteed to resonate with the audience. If you think a purpose-driven loyalty program could inspire your customers to shop more frequently, don’t hesitate to implement it.
Hybrid loyalty programs
Many loyalty programs these days don’t seem to fit into any of the above categories but are rather a combination of a few. How come? Simple! Modern customer’s needs change constantly and brands are expected to be agile enough to keep adapting. From gamification to timely rewards to different forms of communication. This can pose a real complication if your business chooses an out-of-the-box solution.
Rest assured, this problem is one of the reasons that led to the development of the White Label Loyalty engine. We have created a platform flexible enough to fit any use case or business sector with endless possibilities... With its modular architecture, you can select the modules you need in order to enhance your program.
What to consider when creating a loyalty program?
There are a few other key considerations necessary for creating an effective loyalty program.
- Having the right loyalty program software.
It all starts with your loyalty platform. You need to choose a solution that will work with you, not against you. Does it connect easily with the rest of your marketing stack? Is it flexible enough to allow for quick rewards changes? Will you have easy access to data in order to make informed decisions?
- Do you want a loyalty program app?
Another question to answer right at the start. It’s clear that physical cards are not the way forward in loyalty. They get lost, forgotten and generally create friction. If you are in retail or hospitality, it is likely you might want to opt for a mobile app in order to connect offline with online. Nevertheless, other consumer industries as well as B2B and Brand to Consumer can still benefit from having a dedicated loyalty mobile app or microsite for engaging their customers.
The reason asking why will help you create the perfect loyalty program.
- How are you going to launch and communicate your new program?
Just like your content marketing needs a content amplification strategy, loyalty programs require a communication plan. You don’t necessarily need to spend your entire budget campaigning your scheme, the success can lie in the details. Think about the right placement of a promotion on your website, in your checkout process or on social media. Use your database to communicate to your existing customers. Make most of what you have first, then start expanding your reach.
- Be original and targeted.
One of the easiest mistakes to make is simply replicating an existing loyalty program you think works. By all means, take inspiration and decide which components you would like to employ but make sure your rewards scheme is original. Remember to customise the rewards to the needs and values of your customer base. Use unique names and messages that will create an overall integrated look and feel. It will make all the difference.
What are the challenges of loyalty programs?
Aside from the key considerations, there are also common challenges all brands face when creating a loyalty program.
- Inability of a loyalty program to integrate with the existing ePOS systems or CRMs. This can lead to costly technology integrations and a subpar loyalty program that fails to meet customer expectations. A loyalty program's inconsistencies or disconnects can ultimately lead to a detached and unsatisfactory customer experience.
- Lack of understanding of the loyalty program's performance. With the complexity of data collection and analysis, it's challenging to gain actionable insights that can improve customer engagement. Data without insights is merely meaningless information.
- Lack of customisation in pre-determined loyalty solutions, which means you’ll end up with a generic loyalty program that doesn’t reflect your brand.
Luckily, these are all challenges White Label Loyalty has a solution for! Check out our dedicated blog post if you’re interested in learning more.
What do the best loyalty programs have in common?
IN-HOUSE DEVELOPMENT VS. EXTERNAL SOLUTION
Creating a worthy loyalty program is no doubt an investment. Nevertheless, the size of the expense, as well as its ultimate success, vastly depends on the development path you choose. You might consider developing your program in-house or using an agency if you feel it is worth your resources.
Alternatively, you may hire experts in creating profitable loyalty programs like White Label Loyalty to speed up the process and allow you to focus on your core business. Below you will find the pros and cons of each option to help you decide.
Every detail is customised and bespoke
All development & management is under your control
Slow, complicated and very expensive development
Less flexible – every new feature will have long lead time for development
Often trial & error – without expert support, many things can go wrong
Expensive to support and maintain
R&D and innovation is your own responsibility
EXPERT LOYALTY SOLUTION
Much quicker and easier to deploy (as quick as few weeks), saving lots of time & resource
Can be customised or branded out of the box
Offers full control and insight with additional help on hand when necessary
Tried and tested
Flexible to quick changes
Integration with other systems guaranteed
Bespoke features can be costly
Necessary to choose a trusted provider
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Kristyna is our Marketing Manager. She helps White Label Loyalty reach the right businesses in need of a loyalty program and helps our clients' programs reach their full potential. She loves sharing her varied experience in marketing and loyalty by writing helpful resources on the blog from time to time for all loyalty novices and aficionados alike.