Customer Loyalty Programs: Our 8-Step Plan to Boost Loyalty and Order Frequency

Best Practices | May 13, 2019 | 11 mins

Customer loyalty means big things for your business—quite literally.

Research shows that acquiring a new customer costs up to five times as much as retaining an existing one, and customers who continue to support your brand over time will spend 67% more than new shoppers.

That poses an important question: How do you get your customers to come back again and again? It’s not something that just happens. One of the most effective ways to foster this dedication is through a customer loyalty program.

Is a Customer Loyalty Program Right for Your Business?

For most retailers, loyalty programs inspire visions of punch cards at sandwich shops or smoothie stands, not stores that sell bigger-ticket items. An expensive purchase—like a sofa—isn’t something that customers buy regularly.

However, customer loyalty programs are beneficial even if purchases aren’t frequent. If and when the customer is ready to buy again, you want them to come back to you.

Earning frequent flyer miles is a fitting example. Even if someone only flies once or twice per year, knowing they have miles logged with a certain airline is bound to impact their ticket purchase.

What Business Benefits Can You Get From a Loyalty Program?

Loyalty programs are proven to encourage customers to return to the same retailers when they need to make another purchase—whether next month or next year. In fact, 77% of consumers say that loyalty programs make them more likely to stay with brands.

That greater sense of dedication to your business pays dividends in terms of the customer lifetime value and profits. Members of customer loyalty programs reportedly spend 18% more than other customers, and increasing customer retention rates by just 5% boosts profits anywhere from 25% to 95%.

The benefits are evident. But how do you start a loyalty program for your own customers? Follow these eight steps.

1. Set Your Goals

As with any other business initiative, it’s important that you’re clear on why you’re starting a customer loyalty program—and the answer needs to be more than, “Because it sounds like a good idea.”

What specifically are you aiming to get out of it? Do you want to:

  • Increase your number of completed purchases?
  • Achieve higher average order value (AOV)?
  • Improve customer engagement?
  • Decrease churn?

All are positive, but choose just one to start with. That allows you to target your efforts by structuring your program criteria and rewards to support that goal. For example, if your goal is to achieve higher AOV, perhaps your loyalty program will only be applicable to customers with a cart size over a certain amount.

When setting this goal, follow the SMART goal framework to ensure you’re spelling out an objective that is specific and motivating. SMART goals are:

  • S: Specific (i.e., launch a customer loyalty program to increase AOV)
  • M: Measurable (i.e., increase AOV by 20%)
  • A: Attainable (i.e., confirm that 20% is actually a reasonable objective)
  • R: Relevant (i.e., confirm that achieving this goal actually makes an impact for your business)
  • T: Time-Bound (i.e., within Q1)

When you pull that all together, here’s an example of what a SMART goal related to a customer loyalty program could look like:

Launch a customer loyalty program to increase AOV by 20% within Q1.

Delta is an example of a program that was explicitly focused on increasing AOV. They changed the criteria of their own customer loyalty program to reward big spenders as opposed to frequent flyers. And a tactic like this has proven to be impactful. Research shows that many brands’ rewards program members spend 13.71% more in order value than non-program members.

Of course, higher AOV doesn’t need to be your goal (plenty of others are worthwhile). But it’s important to clearly outline what your own program should achieve. Starting with that in place gives you the context you need as you move through the rest of the steps.

2. Carefully Consider Your Timing

You’re sold on the benefits of a customer loyalty program. But that doesn’t mean your business should jump right in with creating one. You need to have any customers before you can focus on having loyal customers. If your business is still relatively new, you might want to lay the foundation first.

How can you tell if now is the time to get a customer loyalty program off the ground? Ask yourself the following questions:

  • Am I currently focused more on customer acquisition or retention?
  • Do my customer analytics show that I’m losing out on repeat business?
  • Do I have the time to invest in running a loyalty program right now, or am I still trying to get my new business going?

If you’re primarily focused on retention, you’ve noticed that your customers aren’t coming back, and you have the time to dedicate to a program—it could be a good time to invest in loyalty.

3. Understand Your Limitations

Before launching your customer loyalty program, think through the following considerations. The answers to the questions below will help you outline the structure of your program.

  • Is there a customer reward platform or app that your current POS or payment provider links with (for example, Bread integrates with numerous ecommerce platforms)?
  • How much time do you have to dedicate to running this program on a weekly basis?
  • How much budget do you have to invest in launching and marketing the program?
  • How will you train your employees on the ins and outs of your loyalty program?
  • Who will be your point person for the program (i.e., who will customers contact if they have questions)?

That’s a lot to think about. But having the necessary conversations with vendors and team members to answer these types of questions will help you lay the groundwork for your program in the next steps.

4. Determine Your Qualification Criteria

Your customer loyalty program exists to reward your customers. But which ones? It’s up to you to determine how customers will qualify for your program.

Qualification typically falls into three broad buckets:

Open Enrollment

With open enrollment, anyone can sign up to be part of your program for free. They’ll just need to register with whatever information you require (e.g., name, email address, mailing address, birthday, etc.).

Look to Uber Rewards as an example. Users simply need to log in to their Uber app, navigate to “Uber Rewards” in the menu, and then accept the terms and conditions. There are no other qualification criteria beyond signing up.

Paid Enrollment

You charge customers a fee to be a part of your loyalty program. Amazon Prime is a perfect example.

While you might think that a fee will only turn your customers off, this structure really does work for high-demand items and services. Amazon Prime members spend an average of $1,400 per year, a steep increase over the $600 per year that regular customers spend.

Purchase-Based Enrollment

The above two systems aren’t particularly selective. However, some loyalty programs are exclusively available to people who make a certain amount of purchases or spend a certain dollar amount.

While you can use purchase history as a qualifier for joining your loyalty program, most retailers choose to stick with paid or open enrollment and reserve this type of criteria for rewards and incentives.

All three criteria have their pros and cons, so it’s smart to return to the goals you set in the first step and determine which will push you in the right direction.

5. Choose a Model for Your Program

Once you’ve determined how shoppers will qualify to be part of your program, you need to figure out how they’ll do the most important thing: earn rewards. Below are some of the most common ways to structure your incentives for your customer loyalty program.

Based on frequency: Customers earn rewards when they make a certain amount of purchases in a set amount of time.

Example: Shell’s Fuel Rewards program grants instant Gold status (which includes all sorts of perks), but you must fill your gas tank six times over the course of three months in order to maintain that ranking.

Based on spend: Customers earn rewards when they spend a certain dollar amount.

Example: Apple’s “secret” loyalty program offers discounts to people who spend upwards of $5,000 on Apple products in a 12-month period.

Based on items purchased: Customers earn rewards by purchasing a specific item or category of item.

Example: Marriott rewards its customers based on dollars spent, but also offers “bonus” points for hosting qualified events like meetings, conferences, and weddings at Marriott properties.

While less common than the above models, retailers can also offer customers points and rewards for leaving positive reviews or referring other shoppers. Wayfair grants Rewards Dollars in exchange for those types of customer activities.

In addition to figuring out which actions will trigger rewards, you also need to establish a system for tracking them. The two most common are:

1. Point system: Customers are rewarded with points for every dollar spent, purchase completed, etc.

2. Tier system: Customers are rewarded by achieving different ranks, which unlock different rewards and incentives.

Regardless of which system you choose, how customers will earn rewards and how they convert (e.g., one rewards point equals one dollar) must be obvious and easily understood.

Structuring your program doesn’t need to be complicated. Again, look back at your goals to determine what makes the most sense for your business. For example, if your objective was to increase the number of orders placed in a month, then a frequency-based program makes the most sense.

6. Select Your Rewards and Incentives

Your customer loyalty program exists to keep your shoppers coming back, but that only works if they’re excited about what you’re offering. One of the most powerful ways to get them excited is through customer rewards.

You can incentivize customers using many tactics, but some popular ones include:

Discounts: Barnes and Noble offers 40% off the list price of hardcover bestsellers and 10% off everything else to its loyalty members.

Freebies: Starbucks’ loyal customers can trade in the stars they earn for free drinks or food items.

Exclusive Access: Nordstrom grants its program members early access to the retailer’s anticipated anniversary sale. You can also make access to alternative financing an option that’s only available to your loyalty program members—like Restoration Hardware does.

While your rewards need to be something that your shoppers are interested in and eager to earn, they also need to make sense for your business.

If your margins are already really thin, offering a hefty discount probably isn’t realistic (and is ultimately too risky). In that case, a free gift or early access is the most reasonable choice.

7. Personalize Your Promotions

Creating a customer loyalty program is only the first step. The next—and perhaps more challenging—step is to get customers to join it. Personalization can help you do that.

You probably have valuable customer data at your fingertips already, which means you shouldn’t be blanketing your entire audience with the same promotions and messages.

Find out more about personalization in the customer journey

Depending on the model you chose for your own loyalty program, start by marketing it to the shoppers who are already qualified or would benefit most from it—such as your frequent buyers or your biggest spenders.

You should also have a plan in place to personalize your rewards based on purchase history and shopping behavior.

If a customer previously purchased a new couch from you, it makes more sense to reward them for that large purchase with 20% off other housewares than it does to offer a discount on another sofa (which they aren’t likely to buy soon anyway). Many loyalty program apps and services can automate this personalization process for you.

Customization is something that customers truly appreciate. 85% of Americans use coupons, and 50% said they’d take advantage of personalized offers based on their purchase or browsing data.

8. Make Your Loyalty Program Accessible

Today’s shoppers want (and even demand) streamlined experiences. That means your loyalty program can’t add bloat or confusion to the shopping process. Customers should easily comprehend how and when they’ll earn rewards, as well as how they can monitor their progress through the program.

For maximum impact, this type of information should be presented to them at checkout with a message that says something like, “You just earned 50 more loyalty points! Click here to access your account.”

Your shoppers should also be able to access a portal or a dashboard where they can see their progress, read FAQs, see a conversion of points or tiers to rewards, and more.

This level of accessibility and convenience matters to your shoppers. More than 50% of loyalty program members agree that without easily accessible customer loyalty programs, rewards often go unused or expire because members aren’t aware they’ve accrued them.

Customer Loyalty Programs Engage Your Customers (as Long as They’re Done Right)

From higher AOV to improved retention, customer loyalty programs offer numerous benefits for retailers—even those who primarily sell higher-priced items.

Establishing one does require some work up front, but it doesn’t need to be overwhelming or complex. Follow these eight steps, and you’ll create a program that engages your customers and keeps them coming back for more.