Building a customer loyalty program: Your end to end guide

Last updated
Feb 7, 2024
Just starting out exploring a loyalty program for your customers? Start small and keep it simple.

Crafting a loyalty program that resonates with your customer base requires careful planning, strategic structuring, and ongoing management. Let's go over key initial considerations, tips on execution and more.

Four keys to a successful loyalty program

Paul Martin, Head of Retail for KPMG, says there are 4 pillars to get right, and we'll dive into all of them: 

  1. Ease of use
  2. Clarity of purpose
  3. Raise awareness
  4. Freshen them up

Keep it simple

Customers want rewards, and they want them to be easy. It's clear that rewards are attractive: 

  1. 78% would switch to a company that offered a better loyalty program.
  2. 96% of millennial customers say companies should find new ways to reward them for their loyalty (KPMG).

But the more complicated your loyalty program, the less traction and more frustration you'll get, turning points into an expensive liability on your books: 

  1. They don't need to be complicated - 57% of people who belong to a loyalty program often abandon them because it's too hard to earn and redeem points. (Colloquy Loyalty Census).
  2. 61% of consumers agree that programs are too difficult to join or earn rewards (KMPG).
Source: KPMG Truth about Customer Loyalty

Understand your audience

Before diving into the mechanics of your loyalty program, take a step back to understand who your customers are and how they prioritize purchases. Analyze your customer data to identify behaviors, preferences, and what they value most in your products or services. This foundational step ensures that the loyalty program you design is relevant and appealing to your target audience – and how your audience's needs are changing over time.

Paul Martin, Head of Retail for KMPG, expounds on this evolution in KPMG's Truth About Customer Loyalty report (2019):

“In an age of instant gratification, the competitive dynamic can change very quickly. Traditionally, the key drivers of consumer behavior have been value, convenience and experience. Looking ahead, brands and retailers need to also consider choice, purpose and privacy if they are to earn and maintain their customers’ loyalty.

Define your objectives

What do you aim to achieve with your loyalty program? Whether it's increasing purchase frequency, enhancing customer lifetime value, or boosting customer retention, having clear objectives will guide your program's structure. Ensure these goals are specific, measurable, attainable, relevant, and time-bound (SMART).

The right program for your brand depends on your goals

Loyalty programs can take various forms, each with its unique appeal. We've covered the differences between using perks, discounts, rebates and promotions as pricing levers to position your product.

When it comes to customer loyalty, there are a few main types that complement different types of spenders and products: 

  • Points-based systems allow customers to earn points for purchases that can be redeemed for discounts, gifts, or other perks.
  • Tiered programs reward initial loyalty and encourage more purchases by offering greater rewards as customers move up the loyalty ladder.
  • Privilege (VIP) memberships provide exclusive benefits with personalized offers, for top customers or for a membership fee.
  • Value-based programs align with your company's ethos, offering rewards that resonate with your customers' values, such as sustainability efforts.

Deciding on the right structure involves balancing what your audience will find valuable with what aligns with your business objectives.

We've covered loyalty program examples that utilize points, but points are not always the best way to go for every company.

Offer meaningful rewards and perks

The main benefit of using perks instead of points is that the customer does not have to opt in to earn rewards. At your discretion, you can use platforms like Paylode's to infuse rewards into all phases of the customer journey.

For instance, thank your loyal purchasers, send a birthday email to your customers, and even build them into your app. No points signup, earning or redemption issues when perks are freely available and inserted into targeted communications with your customers.

The success of your loyalty program hinges on the appeal of its rewards. These can range from discounts and special offers to exclusive access or experiential rewards. Consider what your data says about your customers' preferences and design rewards that not only encourage repeat business but also deepen their emotional connection with your brand.

Leverage tech to help you

Your digital customer engagement is only as successful as the tools you use. Rather than build it yourself, leverage a user-friendly perks platform like Paylode's that requiires no code and includes an analytics backend for you to monitor program performance. Choose technology that integrates well with your existing systems, such as POS and CRM software, to provide a cohesive customer experience.

Launch: communicate clearly and effectively

Effective communication is key to the success of your loyalty program. From the outset, ensure your customers understand how the program works, the benefits of joining, and how they can earn and redeem rewards. Use a mix of channels to communicate, including email, social media, and in-store signage, to reach your audience effectively.

Example promo of a loyalty program by Zappos. It says "join Zappos VIP - Members enjoy free expedited shipping, 1 point for every $1 spent, and so much more"
Example highlight within a Zappos customer email

Monitor, measure, and adapt

Launching your loyalty program is just the beginning. It's essential to continuously monitor its performance against your objectives, measure customer engagement and satisfaction, and adapt based on feedback and data analysis. Just like the lean business model, use an iterative approach to help you refine the program, personalizing it more and more as your systems are built.

Foster emotional connections

Beyond transactions, strive to build emotional connections with your loyalty program members. Personalize their experiences, celebrate milestones such as annual stats or membership anniversaries, and show appreciation for their loyalty with plentiful perks. These efforts can transform satisfied customers into brand advocates.

Legal and ethical considerations

Ensure your loyalty program complies with all relevant laws and regulations, including data protection and privacy. Be transparent with your customers about how their data is used and stored, maintaining their trust and confidence in your brand. As people try to manage the explosion in how their personal data is used, expect that you'll need to balance privacy with the extent of your personalization.

  • EG: it's hard to send a birthday email without a birthday, for example. But you'll know their signup date, so you can send an anniversary email instead. There are ways to still personalize the experience without knowing their mother's maiden name or income (looking at you, Chase - stop sending me emails asking me for my income).

‍

With careful planning and keeping it simple, you can create a loyalty program that not only retains customers but also turns them into advocates for your brand.

Remember, the most successful loyalty programs are those that evolve based on customer feedback and changing market dynamics, ensuring they remain relevant and valuable over time.

Ready to build one or augment yours? Schedule a free audit and opportunity sizing call with our customer engagment experts.

About the author
Adrienne Kmetz
Adrienne is a marketing expert with a career history of working in startups of all sizes, from early stage to series A. She has 17+ years of experience writing about business, finance, and entrepreneurship. She went to Colorado College where she majored in skiing.
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