What are Loyalty & Rewards Programs and how to use them to Drive Sales in your Business?
There’s plenty of evidence that customer loyalty and reward programs drive sales for businesses of all sizes. 72% of all adults in the US belong to at least one loyalty program, and 87% are willing to have their consumer activity tracked if they get something in exchange.
I’ve written about the importance of loyalty and reward programs before, but it’s time for an update. Technological advances have made loyalty programs more effective than ever.
The Qualities of an Effective Loyalty Program
There’s no question that consumers love loyalty programs, but what are the qualities that make a loyalty program desirable? Here are the boxes your program must tick:
- A memorable name – after all, you want people to talk about and remember your program. Some good examples are Sephora’s Beauty INSIDER program and AMC’s Stubs program.
- Multiple rewards – the best programs offer a variety of rewards. For example, you might offer free products combined with discounts and admission to members-only events.
- A deeper meaning – your loyalty program will work best if it’s tied to your company’s values. A Good example is TOMS One-for-One program, which pays the reward forward by donating a pair of shoes for each pair that customers buy.
- Points with real value – the points your customers earn should have a clear value, which is the way cash back credit card programs are structured.
Within this framework, there’s still plenty of room for innovation.
The Best Rewards Programs
Now, let’s talk about how to build your rewards program. We’ll take these options in order from low-tech to high-tech.
A punch card is the least expensive option to put in place and arguably, the least effective. While punch cards are cheap to produce, they are also disposable and don’t link to your point of sale or to a customer email. That means the customer must have physical possession of the card to benefit from it. It also means you can’t communicate with the customer about their rewards.
If you’ve got a restaurant or service-based business like a salon or spa punch cards are an effective tool to earn repeat business – and a punch card reward program is better than no loyalty program at all, but it won’t get you much beyond surface loyalty. It’s all about the data.
If your company’s ethics are part of your brand, then you may want to consider a charity program. I already mentioned TOMS loyalty program, which donates shoes to people in need. Another example is The Body Shop’s Love Your Body program, which allows members to donate the vouchers they earn.
There’s plenty of research to show that younger consumers want to support brands that support charitable causes. Teaming up with a local or national charity could be a good way to encourage them to buy from you.
Points programs are usually linked to a customer via their email or mobile number. They enable customers to earn points each time they buy a product and redeem them against future purchases.
The key to creating a successful point program is to have a clear value assigned to the points you reward and communicate it to your customers. For example. North Face’s VIPeak rewards program allows customers to earn 10 points for each dollar spent in stores or online and five points for purchases at their outlet stores. Smile.io logo sells software you can use to manage your points program.
Do you want a way to reward new customers and your most loyal, highest-spending customers according to what they spend? If so, then a tiered program might be right for you.
There are lots of examples of effective tiered programs. I already mentioned beauty retailer Sephora. Their Beauty INSIDER program is the first tier of their rewards program. Members get one point for every $1 they spend. Once they spend more than $250 in a year, they advance to the VIB (Very Important Beauty) tier, where their rewards increase to 1.25 points for each dollar spent, and then to the Rouge tier, where they get 1.5 points. Members of the higher tiers get additional rewards and access to special events, as well.
While tiered programs require a bit more work than regular points programs, they also add levels to incentivize customers to spend more.
Paid programs don’t require any more technology than tiered programs, but they are more work because you must convince customers to buy a membership. The most successful example of a paid program is Amazon Prime, which charges an annual fee but offers customers a host of quantifiable rewards, including free two-day shipping and free streaming of Amazon Prime videos.
If you decide to try a paid program, you must make it clear that the benefits of joining outweigh the price. A clearly stated value proposition will ensure that your customers understand what they’re getting if they join – and why it’s a good idea.
It might surprise you to learn that 56% of all loyalty programs employ game mechanics to encourage members to spend more. Of course, gamified programs involve more technology than other rewards programs and cost more money to implement.
The great thing about gamifying your rewards program is that it encourages customers to buy from you and sing the praises of your brand. The best game-based programs reward a variety of behaviors, including:
- In-store purchases
- Online purchases
- Social media mentions
- Customer reviews
- Social sharing
The downside of gamification for some small businesses is that to do it effectively, you need to invest in the technology that allows people to participate. That may mean building an app or partnering with a company such as Antavo, which designs gamified rewards programs for clients.
There are plenty of companies that gamify their rewards programs. NIKE is a good example. Their program offers rewards for purchase as well as for meeting fitness goals. The program ties in nicely with their “Just Do It” slogan and their brand.
If you don’t already have a loyalty program, now is the time to create one. It may cost you a bit of money to link the program to your point of sale, but the benefits are huge in terms of customer retention and increased profit.
I hope that helps, let me know in the comments if you need any help with this and I will be glad to help.