Many businesses offer loyalty programs. Some resonate with customers; others fall flat.

Not all successful programs have to make evangelists. They do, however, have to create great value and experience that customers wouldn’t dare leave you for a competitor. To create such a program, uncover customer motivations, align with business goals, and provide real value to customers.

Many loyalty programs fail because of a flawed, self-centered premise: that these programs exist to increase the company’s customer retention and revenue. Effective loyalty programs are about the customer, not the business, and offer a transparent value exchange.

Complicated, confusing program mechanics also lead to a perception problem — and, eventually, the program’s downfall. If customers struggle to understand how the program works — how to accrue or redeem points and maximize their benefits, etc. — the program will fail.

The technology you choose also affects your loyalty program’s success. There are tons of loyalty program platforms out there, and to choose the best one, you must understand why you’re offering the program, how you want it to function, and what you want the value exchange to look like.

Otherwise, your technology hampers the program rather than supports it, and you set yourself up for failure.

Types of Brand Loyalty

Before you decide on your loyalty program strategy, it’s essential to understand the different types of brand loyalty. Once you know them, you can pick the one you want to aim for:

• Relational: Relational loyalty is rooted in authentic brand experience, customer satisfaction, and an emotional relationship with the brand. It has an emotional and qualitative meaning to the customer.For instance, my father-in-law travels a lot for work and has had nothing but great experiences with Delta Airlines. He doesn’t wear Delta shirts and hats, but he goes out of his way to fly Delta whenever he travels.
• Cult-like: Customers with cult-like loyalty love the brand and view it as essential to who they are. They connect with the brand on a personal identity or tribe mentality level.Jeep is a brand with cult-like loyalty. Drivers enthusiastically embrace their shared culture and often “nerd out” with each other at gas pumps and in showrooms, and leave small rubber ducks on other Jeeps out in the wild.
• Transactional: Customers with transactional loyalty don’t necessarily believe the brand offers the best products and services, but they purchase because of incentives, rewards, and convenience.Starbucks shoppers express transactional loyalty. Even if they don’t think Starbucks coffee is the best in the world, they purchase it to take advantage of their points or because it’s the closest coffee shop to their home or office.
• Inertia: Inertia loyalty prevails when customers find it too difficult to switch brands — think an internet or utilities provider.For instance, I’m not an evangelist for Spectrum’s internet service, but switching to a different provider wouldn’t be worth the hassle. This is a case of loyalty, but certainly not the best kind.

Defining Loyalty Program Objectives

Every business’s loyalty program strategy outlines multiple goals, but an effective program has clear priorities and an overarching objective.

Common goals for loyalty program strategies include:

• Acquisition: Attract new customers with a compelling value proposition, such as a sign-up incentive, promotional offer, or referral bonus.
• Retention: Increase customer lifetime value through repeat purchases. A positive customer experience that incorporates customer personalization and rewards — and cultivates an emotional connection with customers — encourages repeat purchases.
• Increased spend amount: Create exclusive products for loyalty members or offer rewards for reaching a certain spend threshold in a tier-based loyalty program. For instance, airline programs offer additional miles, hotel programs provide upgrades on a stay, and retailers offer exclusive member-only sales once customers reach a certain tier.
• Increased purchase frequency: Present time-sensitive offers or rewards that become eligible for redemption only after multiple purchases.
• Cross-selling: Incentivize customers to add more products and services, whether by offering rewards to try new product categories or marketing your other products through the loyalty program.

Loyalty Program Structures

Once you determine your primary objective, you’re ready to explore loyalty program membership structures to decide what works best for your business:

• Universal default: A universal default program automatically enrolls all customers. It doesn’t require extra enrollment actions, such as signing up separately or providing additional information. For example, a local grocery store may give a rewards card to anyone who purchases at the store.
  • Pros: The simple onboarding process maximizes participation and saves time and effort.
  • Cons: The “you buy something, you’re in” structure lacks an exclusive feel. Customers may not understand what the program entails, resulting in lower engagement.
• Opt-in: Customers actively choose to join the program, which is free. A great example is Sephora’s Beauty Insider program, which stands out as a leader in the opt-in loyalty program category.
  • Pros: Collect customer data by asking critical questions during the sign-up process. Later, you can use this data to personalize product recommendations, offers, notifications, and messaging.
  • Cons: To convince customers to sign up, you must promote the program and explain how it works. This means your team will require training on the program.
• Paid membership: Customers pay a fee to join the program, as with Amazon Prime and Chase Sapphire.
  • Pros: Some customers view a paid program as a status symbol. It has a perceived higher value among customers who consider it a justified expense. These customers demonstrate greater brand engagement and loyalty, which leads to a substantial revenue stream for the company.
  • Cons: A paid program has far lower adoption rates than a free program. You must overcome customer reluctance to pay by making a compelling case for your program’s value.
• Achievement-based: An invitation-only or criteria-based program targets a subset of customers based on characteristics of their choosing, such as income. For example, the American Express Centurion Black Card invites people in a particular tax bracket, and some social clubs hand-select the people they invite to join.
  • Pros: An achievement-based program’s exclusivity appeals to some customers because it implies they belong to an elite group. Some programs connect customers with associated benefits, like country club membership eligibility. They also provide members with socializing and networking opportunities.
  • Cons: An achievement-based program has a limited reach because of its narrow membership focus and alienates some customers.
• Card-based: A card-based program features an integrated credit card. For example, the Walgreens Visa card gives 3% cash back on all Walgreens purchases, and the Sam’s Club credit card, only available to Sam’s Club members, unlocks additional benefits at the store for cardholders.
  • Pros: Customers receive an immediate benefit from a card-based program, such as a sign-on bonus or discount on their order. They also enjoy a faster, more integrated checkout experience.
  • Cons: A card-based program excludes customers who don’t meet the criteria for a card. If people get rejected as they stand in a public checkout line and tell others about their negative experience, your brand’s reputation takes a hit. The technology required to set up a card-based program also complicates the checkout experience for both employees and customers.

Next Steps for Your Loyalty Program Strategy

Now that you’re familiar with different loyalty programs’ goals and structures, you’re ready to build your own.

Starting a New Loyalty Program

If you don’t have a loyalty program but want to implement one, start by developing your loyalty program strategy.

Survey the competitive landscape. Study your competitors’ programs to identify what differentiates your brand, and learn what customers expect from loyalty programs.

Next, design the program. Consider the value exchange, program mechanics, systems, technology, and resources required to support it.

Test the program in the market before a full rollout. Choose a single regional store representing a limited market sample and launch a program pilot.

Developing an Existing Loyalty Program

If you already have a loyalty program strategy, determine what’s not working and why you want to change it.

Analyze your data to ascertain who’s currently enrolled in your program, how much customers spend, and whether they refer others to the program. Conduct customer research and speak with people who haven’t opted into the program.

Use this comprehensive analysis to redesign the program structure and mechanics as needed. Test and validate any changes before rolling out the revamped program.

Ready to jump-start or revamp your loyalty program strategy? Method draws on its extensive experience with loyalty programs, quantitative and qualitative research, and business strategy to guide clients to success. To partner with us, send us a message today.