The first thing to remember about loyalty programs is why they exist. The intent is to reward your biggest customers—the 20% that account for 80% of your sales. The goal is to keep your core customers coming back and adding to this coveted base of marketers used to call “heavy users.”
By design, loyalty programs provide rewards based on purchase quantities so they’re not going to please customers who don’t purchase in volume. Category managers need to understand some customers will be disappointed by the reward levels. That’s OK. The program won’t please everyone. It just needs to please your biggest customers. Some loyalty programs fail because they try to please everyone.
Some loyalty studies analyze and examine rational and emotional drivers, but these have more to do with brand loyalty, not loyalty programs. Your top customers buy your product or service because it satisfies their needs. The rewards program helps to keep them coming back. So when you create a loyalty program, consider what successful ones do.
Keep it Simple
Loyalty programs can get complicated in a hurry. Make it easy to understand and quick to join. Most importantly, it should be really simple to participate.
When Starbucks changed their reward program from a simple 12 Star program (buy any item 12 times and get one free) to the 125 Star program (earn 2 stars for each dollar spent), social media lit up with angry customers. It didn’t help that participants now had to spend more to earn the same reward.
Offer High Value Rewards
Many programs fail because they offer rewards with low value or require a level of purchasing beyond what even their top customers could easily reach. Striking the balance can be tricky. You must reward your biggest customers, but you need to minimize costs to meet profit goals.
For Xbox Live customers, Microsoft sent them a gift reward on their birthday. Good idea, but it was worth only 25 cents — causing more negative backlash than goodwill. Remember these are your core customers who represent the majority of your revenues. Reward them accordingly.
Innovate
Innovation drives growth. Whether it’s innovative new products, services or loyalty programs. For example, why not reward customers who have been loyal for 5, 10, or even 20 years? These customers like to be appreciated, but rarely are. They may not represent the top 20% of your sales, but consider how they’ve contributed over many years. E.G. a bank could offer rewards like free checking (without restrictions) or a free safety deposit box for customers reaching certain milestones. Budget issues? Recognition is free and always appreciated.
Expand your rewards
Keep it fresh. Think of new ways to reward your customers. Originally Amazon Prime offered just free shipping for $99 a year, but added other benefits such as live streaming music, movies and TV shows and more. Remember the CPG adage: If you don’t satisfy your customers (especially your best customers), someone else will.
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