How to Build a Better Customer Loyalty Program: Our Top 5 Tips

Maybe you’ve heard it before: keeping existing customers is cheaper than obtaining new ones. But how much cheaper, exactly?

According to the Harvard Business Review, bringing in new customers can cost anywhere from 5 to 25 times as much as holding on to existing ones. That’s right: as much as 25x more expensive, depending on your industry and business model.

Those numbers are a big part of the logic behind this next statistic. According to a recent study, an increase in customer retention as small as 5% can lead to a 25% – 95% increase in profits. Read that again. Not sales: profits.

So, if you weren’t sold on the importance of customer retention when you started reading this article, you likely are now. And, indeed, a 5% increase in the number of customers who keep coming back to your company seems quite achievable. For every 20 customers, you just want 1 of them to commit themselves to repeat business with your company.

There are many different approaches to keeping those customers coming back for more. But one of the most effective (and most fun, both for you and for your customers) is a loyalty program.

If you already have some kind of customer loyalty rewards program set up, then you’re probably here because you want to improve upon it. Or, maybe you’re reading this article because you’re ready to ratchet up your retention rates, and want to give a program like this a try. Either way, there are some important do’s and don’ts when it comes to creating a loyalty system for consumers. Don’t make the mistake of setting up a program that costs you time and money, but fails to actually increase customer retention.

If you’re apprehensive, don’t be. With our top five tips, you’re sure to create a program that works for your company and helps you reach your business goals. Before we get into those tips, though, let’s take a look at something equally important: how to measure whether your program is effective or not.

How can I tell if my program’s working?customer loyalty

Before we delve into our tips for how to effectively build customer loyalty, it’s important to understand how to measure whether your existing loyalty program (or any program you implement now or in the future) is actually working. But, how do you do that?

A recent Hubspot article has some authoritative suggestions. It makes sense that you’d be able to come up with retention-based metrics: you could measure increases in Customer Lifetime Value (CLV), or the time between first and subsequent purchases, and so on. But, measuring “customer happiness” is actually possible, too.

When it comes to measuring retention, A/B testing is your friend. Compare participants of your loyalty program to non-participants, and see if there’s a marked increase in retention amongst the rewards members. Even a small increase in retention can dramatically increase your business’s bottom line.

If you want to measure customer “happiness,” as it were, one effective way to do this is with something called your Net Promoter Score, or NPS. This is a measurement of how likely your customers are to recommend you to others. A simple email survey can divide customers into categories (those who’d recommend you to a friend versus those who wouldn’t). NPS is easy to calculate: subtract detractors from promoters, and you’ll end up with an idea of what portion of your customers are happy enough with your company to recommend you to a friend. You can then examine what portion of your loyalty members fit the bill versus non-program customers, and set goals according for increasing your NPS.

Maybe you already have some of these metrics on hand, particularly if you have an existing customer retention program in place. Or, maybe you’re just getting started on the road to retention. Either way, keep these measurements in mind as you make changes to your existing program, or implement a new one.

Now that you have an idea of how to measure success, let’s take a look at what you can do to either improve your current rewards program, or build the best possible one from scratch.

Consistency and commitment

customer loyalty

One of the most important components of any successful rewards system is relatively straightforward, but easily and frequently overlooked by companies. In order for it to be effective, you’ll need to be consistent with your offerings, which means fully committing to the program from beginning to end.

In order to reach your goals, you’ll need to understand in advance that a new customer retention program is a long-term, full-time commitment. Once you start, you won’t be able to reverse course later without it having a dramatically negative impact on your initial goal (that is, customer retention). Imagine getting an email from a company you’ve been shopping with for the past year or so, saying that they’re discontinuing your rewards program, and the points you’ve earned are no longer eligible. Talk about a way to drive away customers!

One of the biggest payoffs that will follow from your commitment isn’t just the avoidance of the kind of disaster outlined above. On the positive side of things, committing fully to your customers will significantly increase their confidence in your company. At the end of the day, one of the biggest factors when it comes to repeat business is whether or not a consumer has confidence in your company. If they know that you stand behind your promises and follow through with what you’ve outlined, they’re much more likely to keep coming back.

Consistency and commitment are intertwined, but not identical. When we say consistency, we’re not just talking about following through with your promises: we’re also referring to visual and aesthetic consistency. If you launch a program with a particular layout, site design, user interface, and so on, you’ll want to stick with that layout for some time. Don’t make the mistake of getting something off the ground that has to be changed and tweaked a dozen times over the course of months. The lack of consistency will confuse customers, and turn them off: no one wants to constantly re-learn an interface.

If you’re both consistent in your delivery and committed in your follow through, you’ll be well on your way to hitting your goals.

Make it exclusive

customer loyaltyOne of the keys to any effective customer loyalty program isn’t just what you’re offering: it’s how you’re offering it. Yes, on the one hand, it’s important to make sure that the rewards are big enough to actually be enticing. If what you’re offering to your customers seems frivolous, or if it’s not relevant to their demographic, then there won’t be any incentive for them to participate. Ensuring that you’re actually offering them something that they want, and then making the reward something that feels significant enough for them to actually follow through with obtaining it (and feel gratitude towards your company afterwards) is obviously important.

But, here’s a little secret: offering your customers slightly less of a reward, but in more exclusive packaging, can have the same or better results as a big reward that costs your company a ton of resources. People love to feel like they’re “in on” something that others don’t have access to. This is linked to the phenomenon of Fear of Missing Out (FOMO), and is an important thing to factor into your approach to retention. What are some examples of how you can create exclusivity?

Membership card

A membership card can be branded, which puts your company logo in front of your customers over and over.

Custom, prepaid debit card

In terms of rewards, a prepaid, branded debit card is a great way to create exclusivity. On top of this, your customers will see your logo on a regular basis, as will shop assistants and other customers in line wherever the card is used.

Web portal

Creating an exclusive web portal for customers can reinforce the idea that they belong to a “special club,” and have an exclusive relationship with your company.

Simplify, simplify, simplify

When creating a rewards system, you might be tempted to really go whole hog: lots of tiers, tons of options, and the ability to tailor the program to each customer. Generally speaking, though, this is exactly the opposite of what you ought to do.customer loyalty

Your customers are busy people, and they shop with hundreds of other businesses. They likely already belong to other rewards programs, all of which operate in different ways and at different levels of complexity. Simply put, they won’t want to participate in something new unless it’s both simple to understand and easy to use. The simpler your system is, the more your customers will actually use it; and, the more they use it, the greater retention you’ll achieve across the board.

What are some examples of ways you can keep your system as easy as possible?

Earning rules

Make sure that your customers clearly understand how they earn their rewards. On the surface, this really shouldn’t be complicated. Take for example a points-based system: a consumer spends money, which equals a certain number of points. This should be straightforward, but oftentimes it isn’t. Have you ever signed up for a frequent flyer program where you’re not even clear how many points you’re earning per flight? You want your customers to feel good about the fact that they’re earning a reward when they spend money with you. The only way that can happen is if they’re clear on what and how much they’re earning in the first place.

Spending rules

Continuing with our points-based example, it’s just as important to simplify spending rules as it is to clarify things on the earnings side. Even if your customers understand how to earn points, it doesn’t amount to much if they’re unclear on how to redeem them. So, for example, if a consumer knows that they’ll earn X number of points for every $100 they spend, but can’t figure out when or how to spend those points on something (or what they can even spend the points on), then there’s no incentive for them to participate in your program in the first place. Make the relationship between earning and spending crystal clear to your customers, and ensure that they can easily understand how the process works from beginning to end.

Easy to join

If you’ve ever been presented with an online signup form with 20 or more fields, you know what we’re talking about here. Don’t make your customers do a backflip and jump through a hoop in order to sign up for your rewards program. If joining isn’t easy, the vast majority of people simply won’t join. Conversely, the easier it is to sign up for your program, the greater the percentage of customers that will sign up. A simple, to the point online form is a great option.

Minimal options

We’re accustomed in this day and age to being able to choose between a thousand options, and customize just about everything in our experience. When it comes to a loyalty program, though, sometimes less is more.

If you offer your customers too many options, they may simply throw up their hands and fail to participate. Keeping things simple will encourage greater participation, and remove any ambiguity around what the rewards are and how they can be redeemed.

Give your customers a leg up

A recent study into consumer behavior has produced an interesting finding: consumers are more likely to continue with something if you give them the illusion of a head start. What does this mean, exactly? Take for example a punch card system. Imagine giving two groups of customers two different punch cards. One card already has some holes punched on it; the other is completely unaltered. Both cards have the same number of blank spots on them that need punched before a reward can be redeemed. However, the study shows that the customers receiving the card with a couple of existing punches are far more likely to follow through with the rewards system.

What does this mean for you? If possible, consider giving your customers a leg up when they first sign up. For example, if your reward system is point based, give them a fixed number of bonus points at the time of enrollment. Not only does this set them on the path to actually completing the reward cycle, it also increases enrollment by incentivizing them to sign up now. This ties into the Fear of Missing Out (FOMO) concept mentioned above as well; give your customers a reason to sign up today, rather than allowing them to tell themselves that they’ll do it at a later date.

Find the right partner

So, you’ve got some ideas in mind for how to launch your customer rewards program. You’re ready to commit. You’re prepared to be consistent. You’ve got some ideas for how to make it exclusive, and you want the whole program to be as easy and simple as possible. And, you’re brainstorming ways that you can give your customers a head start when they enroll. So, what’s left to do?

Well, you’ve got to actually launch and run the program itself. This is the hardest part of all, and is much easier said than done. Getting started with customer rewards is difficult. You’ll need a partner company that understands the various accounting and tax implications involved, and who has a proven track record of success with other clients. This isn’t something you’ll want to try to do on your own: you’ll want to trust the task to expert professionals.

Level 6 Incentives

Level 6 Incentives™ has the knowledge and experience you’re looking for. We work with companies all around the country to implement phenomenal and effective customer loyalty programs that increase retention and boost profits. What makes us the right choice for you?

Experience

As one of the best turn-key rewards program providers in the country, we have the experience you need. We’ve been in this business for over a decade, and we’re prepared to give you the results you’re looking for.

Custom Software

Without the right software, your customer rewards program will be shaky at best; at worst, it’ll be an outright flop. Level 6 has crafted its own customized in-house software, designed to provide you and your customers with the best experience possible.

Turn-Key

When we say turn-key, we mean it. We have loyalty programs ready to launch, and we can customize them depending on your needs.

Value

Being the best in our industry is important to us. But, offering our clients an affordable product is just as important. We offer some of the best value in the industry, and even have a custom calculator that you can use to determine your costs in advance.

Are your ready to take the next step with your customer loyalty program? Contact us today for a free consultation.