3 Ways to Optimize Your Customer Loyalty Program

As we enter a post-holiday lull, savvy marketers will use this opportunity to re-engage first-time customers from the busy season. A great tactic to do this is by leveraging a strong loyalty program. Having a strong loyalty program is key to creating memorable experiences for shoppers in order to foster loyalty long term.

Enrolling new members is only the first step, and brands can easily fumble when it comes to creating an engaging loyalty experience. That’s often because they focus on only one tool in the marketing toolkit: savings incentives.

Yes, discounts are a staple component of rewards programs, and no customer will turn down a reduced price in the checkout line. However, discounts are so common that they're easily forgotten or expected. Worst of all, they're easily matched by competition, so there's nothing differentiating about your reward.

What matters more is the experience. The best loyalty programs make it easier to do business with a company and more exciting for customers, beyond a few dollars saved. Here’s how to ensure customers will get the most out of a loyalty program:

1. Simplify and focus the value proposition after enrollment.

After the holidays, many retailers find that they exceeded all their enrollment goals, but that they now have a database full of that dreaded customer segment: the “one and done” member. Often the problem has to do with “one and done” marketing of the program. Reinforce what customers get from the program early and often. What exclusive benefits exist just for joining? What do they need to do to get their first reward? Avoid the temptation to talk about all the tier benefits unless someone is close to a tier. Fit the message to where they are in their life cycle with the program. Customers want to feel that the next benefit is near and achievable.

2. Personalize every contact.

Loyalty programs are especially effective because they not only encourage repeat purchases, but also provide insight into a brand or retailer’s most valuable customers. Customers self-identify where they are, what they're buying, and how they're paying for their purchases in order to earn points or status in a loyalty program. They’ll also complete profiles, write product reviews or answer surveys to earn more points. With data about buying behaviors and preferences, marketers can not only improve the experience of the loyalty program itself, but also the overall relationship of the customer to the brand.

The challenge is to use the information. Most retailers feel pressure to send every message to every customer on the assumption that even low response from a larger audience will still provide more traffic than high response from a more targeted audience. This is how cat owners receive offers for dog food and vegetarians receive special member pricing on sliced sandwich meat.

For example, Starbucks used to send coffee offers to tea drinkers. Now it sends coffee offers to coffee drinkers and tea offers to tea drinkers, with cross-sell incentives for bakery goods or sandwiches. Starbucks is still contacting its entire database at least once a week, but the messages are controlled and relevant to the member. This approach has paid off for the coffee giant. Even with traffic declines overall and market saturation, member spend is up 20 percent.

3. Give the customer a sense of control over their rewards.

One of the trends in loyalty programs outside of brick-and-mortar retail has been to give customers more choice and control over what they want to redeem and when. Hotels have “money + points” sliders that enable customers to feel they're getting value from a program even when they don’t have enough points for a completely free night. They can redeem the points they do have to get a discount off of a room night. Coffee chains as diverse as Starbucks, Panera, Dunkin Donuts and 7-Eleven all let members choose a free item as a reward. Credit card programs such as American Express Membership Rewards are partnering with Amazon.com so that members can choose to redeem their credit card points for a discount with the online retailer as they check out. Members can choose to redeem all or any portion of their points in real time.

By comparison, most retail programs auto-issue dollars-off reward certificates that are “use it or lose it” within 30 days to 90 days, with a few higher-end retailers offering six months to 12 months for reward redemption. The member has to worry about both how long they have before their points expire and then how long they have before their reward expires. The reward almost becomes another promotional offer rather than something special that they’ve earned. The free item feels more like a gift — when you wear it, you remember how you received it.

That's not to say that there isn’t a time and place for dollars-off rewards. Customers are over twice as likely to redeem a $5 off reward they earned with points than to redeem a $5 off coupon that was sent to them as a promotion. The point is to recognize that the $5 or even $10 reward will not be as differentiating from the competition or as memorable as a free item or a special experience.

If executed correctly, a loyalty program is an asset to brands year-round, and can radically enhance the customer experience for new and returning customers alike. Programs that provide easy-to-understand, memorable and personalized experiences will strengthen customer connections and reap the rewards.

Kate Hogenson is senior loyalty consultant at Kobie Marketing, a provider of customer reward programs and loyalty marketing solutions.