Last updated: Customer loyalty programs: How brands can create a virtuous circle

Customer loyalty programs: How brands can create a virtuous circle


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As digitally native customers set the bar for benefits they want from brands, there’s no margin for error. Retailers need to get customer loyalty programs right or risk losing customers to the competition.

What are customers looking for in a loyalty program?

With so many competing customer loyalty programs, retailers need to use every opportunity to differentiate their program and align with the wants and needs of their customers.

The most successful loyalty programs are simple and valuable, according to SAP Global Customer Experience Advisor Constance de Polignac. Retailers can succeed by speaking to:

  1. The heart: does the customer feel that the brand understands them and provides unique value?
  2. The soul: are the brand’s business practices aligned with customers’ beliefs?
  3. The head: is the program rational and does it encourage the shopper to check out more often?

None of this happens overnight, of course. Customers don’t wake up in the morning hoping to hear from a brand. So you have to create experiences that delight customers and encourage them to earn and redeem loyalty points.

When these experiences coincide with the three elements above, retailers can benefit from a virtuous circle of customer engagement in which purchase frequency increases, along with customer loyalty.

One retailer that’s been especially successful with their customer loyalty program is Starbucks. They make it easy to gain “stars” so that customers can get their first redemption faster. This proves the value of the program quickly. The coffee giant also makes it seamless to redeem and pay via an built-in payment feature.

Customer loyalty programs: Best practices for retail success

The first step to building a great customer loyalty program is to raise awareness about it. If it’s an obscure offering, then customers won’t make use of it. Get as many customers as possible set up, and then keep your finger on the pulse of the program to see if they like it.

Next, you’ll need to dig into the data to understand customer behavior. What’s driving lifetime value? When do shoppers redeem points? What triggers get them to check out more often? Where is there drop off in your program?

Answering all these questions makes it possible to pinpoint the KPI you want to work on, whether that’s increased frequency or changing your NPS. So many companies try to focus on multiple metrics at a time and this simply doesn’t work, de Polignac says. She discussed best practices in the latest episode of the LinkedIn Live series, “Keeping Up with E-Commerce.”

The KPI that de Polignac often recommends is frequency: “Because you’re driving the customer to come back just slightly earlier than he would have had naturally… you multiply that by the 10 million cardholders that you have… it turns out to be millions [of sales] every year.”

Despite the common interest retailers have in encouraging their biggest spenders to spend even more, she advises focusing on increasing consumption of mid-level buyers.  “Think of it like this, if you’re at the top of the mountain, you cannot go higher, you just want them to be maintain the top of the mountain… it will make the difference if those 50% middle segment [get] to the top of the mountain,” she says.

A strategy that retailers can use is to make sure that the benefits of their customer loyalty programs are visible at least once a year. Base this on the median annual basket size to cater to the middle 50%, instead of focusing on the average, as it’s likely skewed by your biggest spenders.

Building long-term customer loyalty

Retailers can build on their customer loyalty programs with a continuity or subscription program. There are a few factors that must be taken into account. The product must be high-margin to account for shipping costs, and easily sourced so a retailer can consistently replenish it.

Control is key. VP Product Management, SAP Upscale Commerce, Margie Bell, advises, “We have to recognize we’re dealing with human beings who go on vacation … you need to allow them to control the frequency.” That’s better than forcing them to cancel, she adds.

Retailers must set up flexible continuity programs that also have opportunities to surprise and delight to keep customer engaged. This could mean adding in a complementary item that they are likely to enjoy or offering a one-time free upgrade to the next pricing tier to keep the experience fresh and exciting.

Subscription programs offer an excellent way to stay top of mind for customers and loyalty programs prove the benefits of being a customer. When used together, these strategies make it that much easier to provide a consistently positive experience and achieve retail success.

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