How to Design an Effective Loyalty Program for the Digital Age

Loyalty programs have been table stakes in retail marketing for many years, and it’s easy to understand why. Rewarding customers for shopping with the brands they love is a win-win scenario.

However, through all the seismic changes in retail and e-commerce in recent years, the playing field looks very different from even a few short years ago. The digital age has increased customer expectations, with shoppers looking for more personalization, faster delivery, and smoother customer service experiences than ever before. Furthermore, the pandemic has forced retailers to adapt to heightened demand for seamless omnichannel shopping experiences.

Let’s face it: The way in which loyalty programs fit into that omnichannel experience is different now, and retailers should adjust accordingly. The time has come to evolve, enhance and optimize loyalty programs by making them as worthwhile and accessible as possible. It’s time for loyalty 2.0. In order to create an effective program that engenders loyalty and drives value in the digital age, retailers should follow these four steps:

• Measure: Before implementing a loyalty program, the first step is to determine how you’ll measure success. Membership growth, increase in incremental spend, and redemption rate are among the key factors to consider. Redemption rate is a particularly valuable metric because it corresponds with what we call “redemption clarity,” a state in which consumers use their rewards at a steady clip and there's a clear understanding of why those rewards appeal to them. There are brands that send rewards to over a million customers per year, yet the redemption rate is only 5 percent. That’s not good value.
• Design: Designing the optimal rewards structure for your business is key. Remember that your customers won’t participate if the process is complicated or the benefits are unclear. Keep point structures simple and make sure there's a clear connection between the ease of accumulating points and the value in redeeming them. Additionally, be sure there are no unnecessary barriers between your customers and their rewards, like quickly disappearing points.
• Incentivize: Go beyond old-school, points-per-purchase-style loyalty programs. Instead, consider rewarding the customer behavior you want to encourage, such as commenting on blog posts, reviewing products, and taking surveys. Adding “accelerators” to the mix — like a weekend when points double — can make the program seem more generous while increasing revenue.
• Promote: Retailers must meet customers where they are in order to maximize the value of a rewards program, promoting both sign-ups and utilization. However, in today’s fragmented landscape, consumers aren’t all in one place. They may prefer email, SMS or social media. An omnichannel approach to all loyalty efforts is critical, and it’s important to know the strength of each channel. For example, mobile customers are typically more engaged, so retailers can incentivize posting on social media, which can both drive purchasing and increase awareness of the loyalty program. It’s also not just about attracting new members; don’t forget to communicate with your existing loyalty program members.

Building loyalty has never been easy, and the rise of e-commerce platforms and the digitization of retail have complicated things even further. Retaining consumer attention is a challenge, and the old ways of running a loyalty program just aren’t cutting it anymore. However, a carefully built program, backed by data-driven insights and a keen understanding of your customer base, can create significant value for your company.

Melissa Tatoris is the chief innovation catalyst at Acoustic, the largest independent marketing cloud with a total focus on the marketer.