Customer Loyalty Programs Are Not Just About Rewards


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Many retailers make the mistake of focusing on transactions over interactions. They get so caught up on getting customers to walk in the door one more time and make another purchase that they don’t think about how to optimize their rewards program. This results in a number of missed opportunities as shown below.

An effective loyalty program locates your best customers so you can cater to their specific needs.

Typically a small portion of your customer base is responsible for the majority of your revenue stream. If these customers aren’t happy, they aren’t going to stick around for long, which can make or break your business. It may seem like a waste of time to focus on such a small segment of your customer base.

In reality, you’re wasting your time if you’re trying to keep everyone happy. Loyalty programs should allow your store to grow, not keep you teetering on the brink of bankruptcy. Most companies don’t think anything of offering a five percent loyalty discount. It seems innocent enough. However, on a $100 sales transaction that only nets $10 profit, this discount slashes the profit in half. This type of reward results in you paying customers to shop with you, cutting into your margins significantly. You want to provide loyalty discounts and rewards to those who will bring the additional profits to make up for what you’re discounting.

An effective loyalty program allows you to hyper-personalize loyalty offers.

Many retailers send the same discount to all of their customers and don’t think twice. No one wants spam. When customers are unhappy with a brand, 70 percent will unfollow them on social media, 60 percent will delete an app, and 70 percent will close an account or stop shopping with a brand completely.

Don’t get hung up on collecting a vast amount of data. Use an app, such as Collect, to measure at least 50 percent of your transactions to get solid insight about your customers. Once you have collected this basic data about the trends of your core customer base, you can hyper-personalize their loyalty offers.

An effective loyalty program gives your customers what they really want.

While everyone loves a good deal, most customers are looking for more than ways to save money with their favorite brands. Think about what will be really meaningful for the top customers at your store.

After you have established a customized loyalty program that offers non-monetary incentives to your customers, you can build your program with product clusters.

An effective loyalty program helps you locate your 2nd best customers and turn them into the best customers.

You’ve identified your best customer, which is critical for retention rates. Now you can focus on your second best customer tier so that you can grow it to increase your top tier. Determine what your best customer is doing that your second best customer isn’t. You need to reach out to customers who aren’t taking advantage of your profitable offerings to grow their engagement with your store.

Starbucks does this amazingly well. They track the full purchase cycle of all their customers, such as what they’ve bought, when they’ll buy again and then target people based on this information.

Creating and maintaining a loyalty program is an ongoing process. As the business evolves, the needs and preferences of your customers may change, which can alter the type of reward program that is most beneficial for them. Reevaluate your program on a regular basis, and make changes as needed.

As you can see, your loyalty program should not be all about the rewards. It’s about really understanding your top customers and providing them with reasons to stay loyal to your store or restaurant.

Maggie Dodson
Maggie Dodson, POS Customer Experience Expert loves putting the streamlined systems in place that contributes to longer-term growth for retailers (especially those in the Michigan area!) Inside her LinkedIn community, Customer-Centric POS Strategies, Maggie is exchanging best practices and discussing emerging POS trends, rising technologies and new approaches for making the sales process more efficient. Join her LinkedIn group at:


  1. Last year, from a blog of mine reviewing a McKinsey report which offered insights about loyalty program effectiveness, the following:

    McKinsey has noted that, “Despite relative underperformance in terms of revenue growth and profitability, over the past five years, market capitalization for companies that greatly emphasize loyalty programs has outpaced that of companies that don’t.” This, as they see it, may be indicative of hope among companies with programs that long-term customer value can be generated.

    Within the McKinsey report, several strategies were offered for helping businesses overcome the negatives often associated with loyalty programs. They put more emphasis on data generated from loyalty programs than your blog would suggest.

    Data, per McKinsey, may be the most important opportunity represented by loyalty programs. I’m in agreement with this. insights from information collected through the programs can offer competitive opportunities. Tesco, the largest supermarket chain on the planet, has been doing loyalty program member number-crunching for years through DunnHumby. Similarly, Caesars Entertainment has rich databases on its high-rolling program members. One retailer has combined its loyalty program with a 5% point of sale discount, building volume from its highest value customers. In another well-documented example, a retailer has used its loyalty program data to identify future mothers before other chains, thus targeting an attractive segment of buyers..

    I’d earlier written a blog entitled “Loyalty Programs? We Don’t Need No Stinkin’ Loyalty Programs”, featuring major supermarket chains in the U.S. and U.K. which have completely eliminated their loyalty programs – because they weren’t making effective use of the data from them.


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