Loyalty Programs: The Good and the Bad

Customer loyalty programs have been around for decades, technically since Betty Crocker launched one in 1929. At the time, the loyalty idea was in the form of coupons printed on product packages.

These coupons were called 'box tops' and customers could redeem them for rewards or offers with their next purchase. Betty Crocker's box tops took off 90 years ago.

But since then, loyalty programs have come a long way. With rising internet penetration and mobile use in almost every country, accessibility by most age groups, and subsequently mobile marketing and growing online purchases, loyalty programs have had to keep up.

But not all loyalty programs are made equal.

In the world of loyalty marketing, there are those whose loyalty programs have taken their brands to international fame and fortune. And there are those that prompt customers to say "No thanks! We'll shop elsewhere!"

If you're new to loyalty, there are some loyalty program best practices that are worth exploring.

But for the purpose of this article, we're talking about how some rewards programs can build your business from the ground up and how some others can bring you all the way down.

After all customers are people, and if they're going to be loyal to you, they expect some benefit or reward in return.

What is a loyalty program? How does it work?

A customer loyalty program is a program created by companies and brands to encourage their customers to be loyal to them and continuously use their services and products.

No business wants a customer to come in and shop once, never to return. Every business wants, not only a steady flow of customers, but a steady flow of repeat and loyal customers.

Your loyal customers are those people who come in time and time again, sometimes prompted but often of their own accord. Loyal customers are your best source of marketing because if they're happy with you, they're likely to refer you to others.

Read: Best Loyalty Programs: A List for Inspiration

Companies use loyalty programs to entice customers to not only keep coming back, but to want to come back and connect with your brand in exchange for rewards.

In other words, it is a marketing strategy that rewards loyalty.

What do the stats say?

Data by Small Biz Trends shows that 67% of retail revenues come from returning customers. This means that a business is likely to get more than half of its revenues from loyal customers compared to new ones.

But that's not all, a popular statistic from the Harvard Business Review (HBR) shows that it's 5 to 25 times more expensive to acquire a new customer than it is to retain one.

Moreover, a 5% improvement in customer retention can increase a company’s profitability by 75%, adds Small Biz Trends.

This means having a loyalty program can give a great boost to your customer retention strategy.

Establishing Loyalty with Customers

There are many loyalty program ideas and examples out there. In addition, businesses have been experimenting with customer loyalty programs for years and decades.

However, the most prevalent problem we see among brands with loyalty programs is that they don't consider the rewards they offer to customers.

Creating a rewards program isn't just having a customer accumulate points endlessly. There has to be more to it than that.

When customers shop and shop and then see they've accumulated few points or that their points have translated into zilch, they feel frustrated and in many cases stop shopping at that store.

In other words, these stores have made their loyalty and rewards programs unrewarding!

Similarly, bad customer targeting doesn't bode well for customers.

Imagine a woman getting offers for a top men’s shoe brand or a man getting offers from Sephora or La Vie en Rose! What are the chances they'll be using these programs? Miniscule would be a good guess.

As a brand, it's important to remember that even if you're target audience is "everyone," you can't do that with your loyalty program. There are different segments in the 'everyone' scenario and each segment buys certain products.

Surveys confirm that roughly 70% of consumers find loyalty programs and promotions they receive to be irrelevant.

The result? People abandon these loyalty programs.

Loyalty program basics you need to know

An important aspect of a loyalty program is the benefit that a customer will get when they buy from you.

Let’s say you are a bookseller with an online shop. If you offer standard book prices without an incentive to buy, people, even avid-readers, will take time to make a purchase, if they ever do.

If you have a loyalty program in place but that’s very difficult to understand or where points are hard to earn, people will still shy away from your store.

There is no point in spending $50 to earn 5 points with the first reward being at 100 points and would give you a $10 gift. As a customer, you would literally have to spend a fortune – or $1000 – to get a $10 gift.

Would you go through the hassle? I’m a bookworm and I don’t bother!

In addition to points, you need to consider the types of rewards you offer to customers. It could be free shipping, a discount voucher on a next purchase, or a cashback reward. There are many reward ideas out there.

Loyalty Programs: Old vs New

As mentioned, brands have been creating and reworking their loyalty programs for years; however, many are stuck in the ‘irrelevant’ or 'unrewarding' categories of loyalty programs, making their programs obsolete.

People may still use the program but the moment they have already consumed all their points they would not be as engaged or excited as they would with newer, advanced, game-like loyalty programs.

Older and more traditional programs let you collect points when buying products. But you only got a reward after several sizable payments.

This usually means customers won’t focus too much on earning points and using them, which means less engagement and product purchases.

On the other hand, introducing gaming elements into loyalty programs keep customers engaged. Why? Because just like games, customers also earn points but for taking different actions on the site and stay hooked and eager to know what’s next.

For example, if you are an e-commerce business, you can include a set of actions that would earn your customers points that they can later use as a discount or accumulate for bigger rewards.

Asking them to create an account will earn them 50 points, while adding an item to their shopping cart with earn them 20 points, and so on.

The interface comes with a separate tab within the website which shows customers how close they are to levelling up for better rewards, if they can earn badges or titles, when they can get discounts, how much their points translate to when checking out, and so on.

In addition, this type of loyalty program gives a ton of personalization to customers, encourages them to continuously use your website and brand, and become loyal return customers.

Examples of great loyalty programs

There are many great customer loyalty programs out there and you may even be using one of them.

The Starbucks loyalty program is among the most popular in the world. The coffee chain even has different benefits and methods for rewarding customers in different countries.

Similarly, Sephora's rewards program is an often-cited as an example of brand loyalty using rewards. Their program boasts thousands of raving fans.

Despite their name, rewards programs aren't just about rewards. They are a means for brands to engage customers and build retention.

Let's say you're launching a new product or opening a new physical branch and want to create some hype around it.

You can get customers on your loyalty program to tweet or share a social media post about it in exchange for point. Maybe they'd earn double points for buying your product on its first day.

These are all customer engagement ideas and tactics that you can use to reward customers with points and later with rewards.

The Top Takeaways

Benefit is the primary offering your customers will consider before joining your loyalty program.

A program with constantly growing rewards and benefits will not only attract new customers but keep current ones excited to buy from you.

By creating a well-established and enticing loyalty program, you are making customers your brand ambassadors.

They will want to tell others about you and market your brand simply because they enjoy engaging with it and feel like they are a part of it and it is a part of them.

If you have an e-commerce or physical business, use Gameball’s gamified loyalty program features and entice your customers to keep coming back.

"There is a big difference between a satisfied customer and a loyal customer.” - Shep Hyken