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How to set up customer loyalty programmes

The ultimate guide to creating a rewards scheme that keeps your customers coming back.

The importance of customer loyalty can’t be underestimated. It is customer loyalty that drives repeat business and keeps acquisition costs low, and it can even increase average order value, with existing customers likely to spend 31 percent more than new ones.

And there are myriad ways to encourage repeat business; customer loyalty programs can range from the simple, such as classic coffee stamp cards, to the sophisticated, like exclusive VIP lists.

But not all loyalty programs are equal – and, if mismanaged, rewards programs can end up costing your business rather than growing it. 

What is a loyalty program (and why you need one) 

Customer loyalty is what motivates your customers to choose your brand over the competition – a customer loyalty program should incentivize that sense of loyalty by rewarding customers for shopping with you.

Why implement a customer loyalty program? Because it works. Studies show that loyalty programs increase spending, plus:

  • Loyalty programs decrease your cost of sale: Acquiring a new customer can cost five times more than retaining an existing customer.
  • Customer loyalty is infectious: Research shows that 70 percent of happy, satisfied customers who’ve had a positive experience will spread the word about your business by recommending you to others. Those people, in turn, are 83 percent more likely to listen to a referral than any other form of marketing. Reportedly, referrals generate two times the sales of paid advertising.
  • Loyalty programs double as marketing research: If designed and implemented correctly, customer loyalty programs can provide valuable insights into your customers. Thanks to increasingly sophisticated digital marketing software, businesses can now track and discover customer buying habits along with what incentivizes them most (and least). This data can be used to improve your customer loyalty program and inform your wider marketing strategy. 

How to create a customer loyalty program

1. Set your objective 

As with any successful strategy, it’s important to get clear on what you’re trying to achieve – and why – before investing time and resources toward implementing it.

Are you a new business trying to attract new customers? Your primary objective might be referrals.

Are you trying to increase overall spend? If so, your objective may be increased average order value (AOV).

Other objectives include increasing purchase frequency (to help reduce turnover) or increasing brand advocacy (to generate word-of-mouth marketing).

2. Understand your customers

To create a truly successful customer loyalty program, it’s important to understand who your customers are and what motivates them.

Examining data around what your customers buy, how much they spend, how satisfied they are with your company, how much profit you make from their purchases, and what other products or services they buy is an important place to start. If your business doesn’t have such data readily available, there are various ways to get to know your customers. These include:

  • Social media: Social media is an incredible resource for candid customer opinions and market research. Consider using surveys or polls on platforms such as LinkedIn, Facebook and Instagram to find out more about your customers and what motivates them. 
  • Tracking customer behavior: Customer relationship management software or even raw purchase data can help you understand your customers and which types of rewards might motivate them.
  • Email lists: Monitoring click-through rates and bounce rates will deliver insights into what interests your customers (and what turns them off).

3. Determine your loyalty collection approach

Customer loyalty programs come in all shapes and sizes, but studies show that 90 percent of brands fall into three categories.

These are: 

  • Points-based – where customers receive points for every dollar they spend.
  • Tiered – where shoppers are segmented into different tiers according to how much they spend.
  • Value – where shoppers can “earn” points and distribute them to a charity of their choice.

Find out more about types of loyalty programs here. 

Other customer loyalty program models include:

Mission-driven programs: Loyalty programs for organizations with a strong social mission, such as Ben & Jerry’s, which donates a percentage of profits to social causes.

Game-based programs: A strategy that involves gamifying the purchase of a product or service to encourage repeat spending, such as McDonald’s Monopoly game.[HMH1]

Subscription programs: Loyalty incentives that reward subscribed customers, like Amazon Prime’s First Reads program.

Referral programs: Growth-driven strategies that reward customers for attracting new buyers with referrals, such as HelloFresh.

Many brands utilize a combination of loyalty programs, but it’s important not to overcomplicate your strategy.

4. Decide how customers will collect rewards

Next, you need to identify the rewards offered to your customers. For example:

Product-based loyalty approach

Coffee stamp cards are an example of a product-based loyalty system, where customers receive a free item once they’ve bought a product a certain number of times. For example, customers might receive a free coffee once they’ve bought five coffees.

Points toward products

Under a points system, shoppers receive points in return for spending – these points can be used to redeem products.

Points toward cashback

Under this points system, shoppers receive points in return for spending, but the points provide a discount when they next spend.

5. Choose your loyalty program software

Once you’ve determined what your customer loyalty program is trying to achieve and which model you’ll use, it’s time to decide which software is best to bring it to life. There are a number of different platforms available, depending on your budget and objectives. They include, but aren’t limited to:

Yotpo

Built specifically for e-commerce businesses, Yotpo is a cloud-based customer loyalty platform that offers highly customizable loyalty programs. Whether you’re designing a referral, tier-based, points system or more, Yotpo offers multiple campaign choices and a variety of pricing options.

Best for: e-commerce businesses from start-up to enterprise

US Price: $15 to $149/month

AUS price: $20 to $201/month 

Smile.io

With customer loyalty programs designed to suit any business phase from start-ups right through to established businesses looking to scale, Smile.io is one of the most popular loyalty software platforms. It offers three rewards programs including points, referral and VIP, which can be run individually, in pairs or all together.

Best for: small businesses

US Price: $49, $199 or $599/month

AUS price: $66, $269 or $810/month

Referrizer

This software boosts retention by identifying your most loyal customers and using a points-based program to reward them for every repeat purchase. It also rewards customers every time they recommend your business to someone they know.

Best for: local businesses

US Price: Free option ranging to $299 or $399/month

AU price: Free option ranging to $404 or $539/month

Guusto

A favorite for small businesses on a budget, Guusto is a free rewards and incentives platform that provides solutions for both customers and employees.

Best for: small businesses

US Pricing: Free option ranging from $1.50/member to $2.50/member/month

AU Pricing: Free option ranging from $2/member to $3.40/member/month 

Candybar

A modern spin on the coffee stamp classic, Candybar has digitized the punch card customer loyalty program. The software allows customers to input their mobile number in order to receive a digital “stamp” each time they make a purchase. Business owners can also use the program to contact loyal customers.

Best for: a range of businesses

US Pricing: From $45 to $3,999/month

UK Pricing: From $61 to $5,408/month 

Physical loyalty cards vs. digital loyalty apps 

Brands are increasingly turning to digital loyalty apps instead of (or in addition to) physical loyalty cards. For consumers, this means having to carry around fewer loyalty cards and not worrying about forgetting their card if they indulge in some impulse shopping.

Popular digital loyalty apps include Stocard and Imfree. 

Tips for success

1. Do your research: A common mistake many marketers make is not doing enough customer research before implementing a loyalty program. It’s easy to underestimate the importance of this step, but if you don’t know what your business actually needs or what your customers want, your loyalty program will never fulfill its potential.

2. Make it personal: Personalization is an increasingly important part of every step of the customer journey, including customer loyalty. Making personalized recommendations for loyal customers and sending exclusive offers or birthday discounts all help to create an emotional connection and fortify brand loyalty. 

3. Keep it simple: While it may be tempting to add endless incentives and rewards to your customer loyalty program, the simplest strategies are often the most effective. Your customers don’t want to jump through hoops to be rewarded – confuse, and you’ll lose.

4. Test, test and test again: Before setting the go-live date, ensure you’ve allocated enough time to test the functionality of your program. Between different software programs and smartphone and desktop proficiency, there are plenty of opportunities for things to slip through the cracks, and mismanaging customer loyalty data can be extremely damaging. Once you’re up and running, it’s equally important to test if your program is working by assessing your purchase rate or even requesting a satisfaction survey.

5. Don’t forget omnichannel: If your business spans both in-store retail and e‑commerce, it’s worth ensuring that your loyalty program offers a “single view” of your customer, so that they can use the program and collect rewards both in-store and online.

Bondi Sands is experiencing rapid growth in the US market, and customer loyalty is a key factor in their expansion, explains global digital marketing manager Emma Quirk. 

The loyalty program: “Bondi Babe Rewards is a fully integrated loyalty program that runs on our e-commerce site and is connected to our CRM network, social channels and review platform.” 

The loyalty program: “Bondi Babe Rewards is a fully integrated loyalty program that runs on our e-commerce site and is connected to our CRM network, social channels and review platform.” 

Customers can then use points to redeem Bondi Sands vouchers ($10, $20, $30 and $40) or by “shopping” certain products available within Bondi Sands’ rewards product catalog.

“Our program aims to provide flexibility for customer reward behavior, giving options on how they would like to spend their points. Based on customers’ spend, Bondi Babe Rewards also offers tiered benefits, including birthday gifts and rewards, member-only sales, priority access to try new products before they hit the market and priority access to member-only events,” Quirk adds.

Why it works: The Bondi Sands team took a customer-first approach to their program and conducted substantial research. Quirk notes: “When planning Bondi Babe Rewards, having our customer at the forefront of our loyalty program was of the utmost importance to us. We surveyed a group of our VIP customers, asking questions about what type of loyalty programs they were currently using, what they liked, what they didn’t like and what they value most from [other] programs. This [information] became the bones of our program’s structure.

“Once we heard from our customers, we began to set our key objectives: the three R’s and three C’s,” which relate to retention, recruitment and rewards; conversation, capture (data) and community.

The brand chose to work with Yotpo, their ratings and reviews partner, for optimal integration.

What they learned: “It has never been more evident that personalization is key. That one-to-one relationship-building is so important to a growing business – and can help grow it further.

“I would advise other businesses looking to set up their own customer loyalty program to take their time, to understand their first-party data and their customers before jumping feet-first into loyalty. We spent quite a deal of time making sure that our objectives and KPIs were sound. We ran financial modeling to ensure our loyalty program would be profitable to run, and spent time making three-year projections to show the positive impact it will have on the business.”

All references to any registered trademarks are the property of their respective owners. Afterpay does not endorse or recommend any one particular supplier and the information provided is for educational purposes only.

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Written by
Lizzie Mulherin
Lizzie Mulherin is a content marketer and copywriter.
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