Building a Better Loyalty Program (and the Reward for Getting It Right)

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Check your wallet (digital and/or physical) – do you have loyalty cards for your favorite retail outlets? Gas, grocery, fashion, technology… and probably more. Salesforce research says consumers like us belong to 4.3 loyalty programs on average.

And you’re probably spending a decent amount of money at those places. If, for example, you’re a member of Nordstrom’s loyalty program, Nordy Club, you’re among a group of customers who are likely to spend three to five times more than non-members, and are consequently driving two-thirds of Nordstrom’s sales.

Ulta tells a similar story—95% of their revenue comes from their loyalty program members. In fact, 56% of customers are more likely to buy from a brand if they belong to their loyalty program. Furthermore, a McKinsey report revealed that brands with top-performing loyalty programs earn a 15 to 25 percent bump in revenue thanks to their loyal customers, who are either buying more or buying more often (or both).

The data is clear—loyalty pays… but it is often harder to achieve than it looks.

The Downlow on Loyalty: Reciprocity is Key

On the surface, loyalty programs appear to be a simple enough concept. But McKinsey reports that approximately two-thirds of programs are not succeeding in delivering real value.

According to Bond Brand Loyalty’s 2022 Loyalty Report, a new variable has entered the game that changes how customers view loyalty—that the “brand is loyal to me.” Customers now expect reciprocity in the loyalty relationship. According to Bond’s survey, only 35% feel strongly that the brand is loyal to them.

That’s a hard statistic to swallow, but it’s essential to understand why this is the case. According to Bond, “the power of loyalty programs often trains an organization to optimize the program instead of optimizing loyalty.” Part of the issue lies in the CRM and communications strategies–they simply aren’t always aligned, which allows inconsistent messaging to customers. Your customers don’t view your CRM and marketing separately–they view all your communication as your brand, so it is imperative that your CRM and loyalty program are cohesive and send the same message. And it pays–according to Bond, “Brands showing reciprocity saw a lift in monthly brand spend ($26 lift among loyalty program members) and credit card spend ($50 lift among cardholders).”

According to Salesforce, almost three-quarters of consumers have chosen to switch brands at least once in the last 12 months, even when they belong to a loyalty program—and they’re doing it for access to better deals, better quality, or better customer service.

But it’s more than that. At the heart of the matter, many brands simply aren’t tapping into their unique audiences. Salesforce reports that 55% of members would use their loyalty programs more if the rewards were personalized to reflect their unique needs.

McKinsey agrees, saying that “earn and burn” transactional rewards programs aren’t enough to retain loyal members. People are craving experiences or services through programs that actually make a difference. Returning to the example of Nordstrom’s Nordy Club, rewards include free alterations, lifestyle workshops, style events, and more—great examples of how a brand is going deeper to offer more than just points-based discounts.

Furthermore, this personalization should be happening at every member touchpoint—but that’s not often the case. Forrester points out that many brands send the same promotional emails to members and nonmembers alike, instead of engaging their loyalty members with relevant content that informs them about rewards opportunities and progress.

All in all, loyalty programs have the power to significantly impact a company’s bottom line—but getting there is harder than it looks.

Building a Better Loyalty Program

If you only take one thing away from this article, let it be this: At the core of this topic is the profound understanding that loyalty programs alone do not inspire loyalty.

KPMG Global Sector Leader, René Vader, says, “If you’re trying to build brand loyalty today, an emotional connection is no longer a nice-to-have, it’s a need-to-have.” Of course, what that emotional connection looks like is highly dependent on your target audience, but there are some common factors that build the foundation of loyalty.

In particular, transparency is critical. Customers need to trust a brand in order to stick with it. That means communicating with integrity, openness, and honesty. It means being accountable, responsive, and aware (and remember what we said earlier about cohesive messaging). They are also more swayed by reviews and influencer recommendations than ever before.

When a brand delivers at this level, the groundwork is laid for a successful loyalty program. Only then does it make sense to strategize around ease of use, personalization, rewards systems, and redemption processes. Leaning away from monetary benefits, generic customer messaging, and complicated terms and conditions are just a few ways you can set your loyalty program apart from the rest.

Finally, there’s a growing trend in loyalty program ecosystems. There are a couple of different models behind the ecosystem concept. There is, of course, the “coalition” loyalty program; a collection of unrelated brands working with a third party to leverage reward systems without a placing a burden on their own teams to build them from scratch.

Alternatively, think of Amazon and their sprawling presence across both retail and media. Prime rewards are applicable across each sub-brand, creating a highly connected loyalty program.

But the scale of Prime is virtually inimitable. That’s why a more scalable and attractive model of the loyalty ecosystem is partnerships with indirect competitors. You’ve probably seen this more often than you realize. In early 2022, for example, Target announced its partnership with Ulta Beauty, in which the two brands’ rewards programs are now linked. Other examples are the collaborations between Hilton and Lyft, Shell and Dunkin’, Macy’s and Dick’s Sporting Goods, and then there is Scene+ in Canada who’s loyalty program brings together company brands offering movies, travel, shopping, dining, groceries and more all under one consolidated program.  These brands understand they have a shared consumer and can offer a greater diversity of products and services through strategic partnership.

The ultimate lesson is that successful loyalty programs require a deeper understanding of what consumers want from the brands they love. But it doesn’t end there.

Customer Service Is the Cherry on Top

No matter how exceptional your loyalty program, your customers will have questions. They will call, email, text, live chat, and tweet their questions and concerns related to their account, transactions, rewards, promotions, policy changes, data privacy, and things you and your team haven’t even thought of. And if your member experience isn’t frictionless, loyalty is compromised. These are your top tier customers, and they know it. They expect a differentiated experience that reflects their value to your organization.

94% of customers are more likely to buy from a brand repeatedly when they have a positive customer experience. They’ll also recommend a company, forgive a company’s mistake, and make future purchasing decisions based on that experience.

In other words, a loyalty program (and loyalty in general) is inextricably tied to your customer experience and, therefore, to your customer care program. Anticipating member requirements with a high degree of accuracy and operating from a position of continual improvement are critical success elements.

That said, when issues arise, loyalty members seeking support don’t always turn to the contact center team first. Today’s consumers want self-serve options. FAQs and IVRs that are easy to find, navigate, and understand are a critical first step in meeting your members’ expectations. Members want information pushed to them, in easy to use, intuitive, transparent formats. When volumes spike outside of forecast, dig quickly into the data and understand what issues you can integrate into self-serve programs or address through more strategic omnichannel support. Your members will thank you—and so will your agents.

When your loyalty program members do reach for the phone/email/chat tool/social media to get help, it is critical to shift away from a transactional mindset. These are the customers who are doing the most buying, referring, and evangelizing—they deserve support from an agent who’s engaged, empowered, invested, and adding value. This is true whether you choose to keep your contact center in-house or outsource to a partner. The critical elements in building a successful loyalty support model (whether in-house or outsourced) include:

  • Hiring for discernment. Loyalty agents have to make judgment calls all day long. Yes, process is important, but a top tier agent will be able to assess when a member is at risk for churn, when there is a social media or PR risk and act with urgency–not get bogged down in process. Risk averse candidates who prefer clear, consistent process and are reluctant to make judgment calls may not be the best fit.
  • Hiring for empathy and passion. Agents who able to put themselves in the shoes of the loyalty members will be your best brand advocates. They will connect with your members on the same level–they will understand both the thrill of redemption/reward processes and the frustration when your favorite brand lets you down. And they’ll work to make it right.
  • Training for loyalty-specific outcomes. Retention of loyal members is just table stakes. Your agents can drive activity as well as excitement about new promotions and campaigns. A well-trained loyalty support team can positively impact activity/program use outcomes.
  • Testing for risk mitigation: your agents need to be able to pick up on subtle cues and be proactive. The most effective training programs will include scenario-based testing and role play that lets you assess an agent’s ability to mitigate churn risk and/or social media and PR risks.
  • Testing for activity, promotions ambassadorship. A team of passionate, empowered agents can affect your loyalty program’s ROI. Empowerment begins with excellence in training and assurance comes from building training assessments that reflect your top KPIs. If agents can impact a member’s activity frequency, you want to be sure they are hitting the production floor confident and capable of influencing your members positively.

If do you decide to outsource, invest in a procurement process that gets you a strategic partner, not just a vendor. A true partner will feel like an extension of your own organization. As we’ve said in this piece already, the member support team can and should add value, reduce churn, and drive member activity. Look for a partner who is culturally aligned with your company’s values, a partner who is genuinely excited about your success and who will be thrilled to have your program on their client roster.

Often, this is means finding a partner who will value your business–if you have a small to mid-size program (say in the range of 20-250 seats), is a huge multi-national going to be invested in true strategic partnership? Will you have senior leadership involved in your account? Can they provide insight and thought leadership on the operations and tech fronts to help you make decisions that will impact your members? Will they work with you to drive costs out, contact volumes down, and value up? How do they engage with their agents and tap into frontline insight that can build a business case for change? And, finally, how will the quality of their employee experience fuel the quality of your member experience?

At the end of the day, great customer service has a reciprocal relationship with your loyalty program—KPMG’s UK Head of Retail, Paul Martin, says “an effective [loyalty] program can amplify the impact of a good customer experience, but it won’t make up for a bad one.”

The Last Word

Perhaps you don’t own any shiny plastic loyalty cards at all. Instead, your iPhone’s home screen puts you one tap away from Starbucks Rewards, Target Circle, Sephora’s Beauty Insider, myWalgreens, or your XPLR Pass from The North Face. And it’s probably not hard to articulate why they’re your favorite brands—they’re making it easy, convenient, valuable, and personal to you.

With loyalty programs growing at a rate of 9% per year, the opportunity if you get it right has never been higher. Understanding the nuances of your target customers, committing to transparency and innovation, and investing in your customer experience are non-negotiables. (That last one is one we can help with!)

These are the types of topics we love talking about. Tune in to our Deep CX Podcast to join the conversation.

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