What is a customer loyalty program?

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Wikipedia’s definition of a loyalty program is:

‘Loyalty programs are structured marketing strategies designed by merchants to encourage customers to continue to shop at or use the services of businesses associated with each program.’

If you were a customer about to sign your details up to a program, and read this definition first – would you hand over your details?……….we thought not.

In our view, a loyalty program should be described as a structured customer strategy to help build a stronger relationship between the customer and the brand. Providing a value exchange between the brand and customer, beyond the product and services paid for.

Customer loyalty programs – the good, the bad, the ugly



In previous articles, we have shared powerful statistics on the cost of customer acquisition vs. customer retention. According to Gartner 80% of your future profits will come from 20% of your existing customer base. In other words – you need to look after your existing customers.

Brands are investing in loyalty programs to help increase customer retention, generate loyalty, provide a point of competitive differentiation, and ultimately get customers back in to store. Many, however, miss the mark when it comes to looking after their existing customers. Some brands offer loyalty programs which do not actually benefit the customer or are difficult to use, others offer loyalty programs purely as a marketing ploy.

Many loyalty programs actually have a bad reputation. The customer thinks they will be spammed with offers, the business carries the points risk and staff are reluctant to ‘sell’ the program to customers.

If implemented and managed properly, loyalty programs have so much potential. They enable brands to get to know their customers better – the more the customer shops with them, the more they reveal about themselves, making it easier for the brand to continue the conversation with the customer.

What does genuine loyalty look like?

It’s important to establish what genuine loyalty looks like. Customology defines loyalty as “where a customer would still choose your brand over others when given the choice (and incentives).” It’s a two-way relationship between the brand and the customer.

There is a clear difference between behavioural loyalty and attitudinal loyalty. A customer who shops regularly at the same place may be classed as behaviourally loyal, whilst a customer who tells their friends how fantastic a brand/product is would be referred to as attitudinally loyal. The two are not mutually exclusive – it’s possible to have a customer with both traits. They are your best type of customer (or should we say advocate).

Advocates are guaranteed to be back, and they will bring their friends with them. They’ll promote the brand any which way they can – including social media and online reviews sites. More and more customers are referring to customer reviews first when researching a new product or service, so you need to look after this elite customer group.

When determining customer loyalty, ask yourself the following question: Will the customer still choose you if other things are equal – price, value adds, if something goes wrong? If the answer is yes – then you have a very loyal customer – hold onto them.

Don’t mistake convenience for loyalty

Today’s customers are time poor, they want an easy life, so more often than not, don’t spend time shopping around for better deals or benefits. This does not make them loyal to a brand. Don’t mistake habit for loyalty.

It’s important brands monitor repeat transactions and identify habitual behaviour. This will enable you to be more effective in your marketing communications.

Best practice loyalty programs

There are many different types of loyalty programs. Some offer rewards, others offer incentives, some you pay for. We have identified what we believe to be three of the best global loyalty programs:



Vitality Rewards¹

As stated on their website, “we encourage you to lead a healthier life and reward you for doing so.” As health insurance providers, Vitality reward their active members with incentives. On joining, each member (customer) undertakes an online health review, setting goals for themselves. Vitality suggest ways and means to help the members meet these goals. In addition, they encourage members to track daily activity (and offer discounted activity trackers such as Fitbits) for walking, running, cycling, swimming or going to the gym. Members who earn enough points can be rewarded with a Starbucks coffee or cinema tickets. This is a very clever way of ensuring their members stay healthy and engaged with the brand. Typically, when you buy health insurance, the policy just sits in your inbox.

Toms Passport Rewards²

TOMS shoes are recognised worldwide. They offer two levels of reward programs; explorer, and trailblazer, offering a number of incentives including: member discounts, sweepstakes, exclusive sales, early access to new products and an anniversary gift. Members collect points on each purchase. When you reach a certain amount of points, you instantly move into the trailblazer program, and receive additional benefits such as free shipping and TOMS freebies.

What some people may not know about the TOMS brand, was why the brand launched in the first place, what their original purpose was. Founder Blake Mycoskie was travelling in Argentina back in 2006 when he recognised the hardship of local children who did not own a pair of shoes. TOMS introduced their ‘one for one’ program. For every pair of shoes purchased, TOMS donated a pair of shoes to a child in need. Today, TOMS have delivered over 60 million pairs of shoes to children in need around the world. TOMS have also expanded the way in which they support global societal and ethical issues, investing in providing clean water to those in need, campaigning to end gun violence, fighting homelessness, supporting mental health and working towards equality and women’s rights. TOMS announced recently that customers can pick which cause they would like to support when they make a purchase.

There is certainly a feel good association with the brand, in the sense that whilst you may be purchasing a nice new pair of shoes or glasses, but that thanks to you someone else will be benefiting too.

Amazon Prime³

We certainly couldn’t forget Amazon Prime. It was recently reported that US retailers are investing millions of dollars into revamping their loyalty programs in an attempt to compete with Amazon Prime.

Whilst the full list of benefits changes slightly for each country, Amazon Prime is a paid for loyalty membership. In Australia, Amazon Prime costs $6.99 per month (or $54.00 a year). This cost includes; free two-day domestic delivery, free standard international delivery on eligible orders over $49, Amazon Prime Video, Prime Reading and Twitch Prime.

For the online shoppers out there, unlimited free delivery for $6.99 a month is an absolute bargain. Amazon continue to find ways to innovate and differentiate. I’m sure the list of Australian benefits will have doubled by this time next year.

Summary

Whilst these are great examples of loyalty programs, it’s not mandatory to have a loyalty program to drive customer loyalty. Think of brands such as Apple and Disney – they don’t have loyalty programs, and instead are more focused on the customer experience. There are other ways to recognise and reward customer loyalty.

Before you invest in a customer or loyalty program, determine your objectives and ask yourself:

Will it benefit the customer?
Will it enhance/strengthen your customer relationships?
Will it enable you to understand the customer better?
Will your customer talk about it with their friends?
Can it be easily managed and maintained?
Will it be worth the time and investment?
Will it provide an opportunity for you to keep the customer conversation going?



Loyal customers visit more often, spend more and bring their friends. So remember, no matter what your solution, always bring it back to the customer.

Sources:

¹ https://www.vitality.co.uk/rewards/
² https://www.toms.com/passport
³ https://www.amazon.com/amazonprime?_encoding=UTF8&%2AVersion%2A=1&%2Aentries%2A=0

1 COMMENT

  1. thanks for this article Michael. There are still too many companies around that confuse membership programs with loyalty programs. One key differentiator is outside-in thinking, answering questions like: What is the real benefit for my customer? How can I make customers genuinely want to make business with me?

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