Successful customer loyalty programs have the power to convert one-time buyers into valuable repeat customers. By accelerating re-purchase cycles and average order values, they play a significant role in building strong customer lifetime values.
But, when done poorly, they have the potential to confuse customers, encourage discounting, or even alienate specific customer groups.
This is why it’s so key to first determine the unique features and elements of your loyalty program. By studying how impactful program components are to customers, and especially high-value customers, businesses have a clear direction for how to best design their loyalty programs.
Examples of Successful Loyalty Program
Successful programs do more than just offer simple product discounts. They get to the heart of what customers love about a certain set of products or services in the first place, and then offer benefits that align with that.
One example of a great-performing loyalty program is the Beauty Insider Program offered by beauty retailer Sephora. In addition to discounts and free shipping, Beauty Insiders can earn “trial sized” products and also gain access to unique experiences like beauty makeovers. And, by tiering access to perks based on a points system, Sephora encourages re-purchase to improve one’s tier. Additionally, the program lets Insiders share pictures, beauty ideas, and great new finds. In an industry where customers like experimenting and trying new things, not to mention sharing favorite items and recommendations, this program’s perks hit the mark.
Another successful program is operated by REI, an American outdoor recreation retailer. Via participation in REI’s Co-op Membership Program, participants get the typical perks of product discounts and free deliveries. But, on top of this, they enjoy cash back on purchases based on business profits, an opportunity to elect candidates to the REI board, and discounts on outdoor experiences. The breadth of these benefits moves REI’s program from something strictly transactional to something that creates a broader connection to the organization and the outdoor hobbies it supports.
Sure, these programs both offer discounts. But, they reflect a more profound understanding that makes them successful: customers are looking to fulfill intrinsic needs and engage with broader communities, not just buy products. And, they indicate that organizations like Sephora and REI took time to provide loyalty program components that appeal to these intrinsic needs.
Components That Go Into Designing A Customer Loyalty Program
For a good loyalty program to appeal to intrinsic needs and drivers, it must include elements that directly address these things.
Let’s look at Sephora’s program to better understand the breadth of components that could fit into a program. As we see in the image to the right, Sephora segments their program into three parts: Savings, Samples, and Experiences. And, each segment has unique components that vary based on an individuals Beauty Insider status.
By creating these segments, Sephora understands that simple discounts and price-based offers are the bare minimum when it comes to engaging and retaining customers. The Samples category reflects their customers’ desire to test new beauty products while the Experiences category reflects customer desires to have access to exclusive events or be the first to know about new things.
Additionally, by outlining how individuals move from Insider to VIB to Rouge levels, they give customers a clear path for gaining access to these program benefits.
In essence, Sephora provides loyalty program benefits their customers want and communicates them in a way that makes sense.
Of course, this exact set of loyalty program benefits won’t work for every organization. For instance, customers of Chewy, a digital-only e-commerce pet supplies company, will likely not be as intrigued by in-person events. Instead, Chewy would know that its customers likely have a soft spot for pet health and wellness, and may instead orient its benefits in that direction.
Good loyalty programs start with understanding who a customer is, and then isolates potential components that will appeal to them.
Determining Which Loyalty Program Elements Customers Care About
This all begs the question: How do you isolate the components that customers will care about? We suggest using a conjoint analysis, a survey-based technique that measures how much customers value different features of a product or service. When applied to the context of a loyalty program, it lets businesses see how much customers want (or don’t want) certain categories or features within the program.
Designing The Survey For Your Loyalty Program Analysis
A survey built with a conjoint analysis in mind shows multiple “bundles” that represent potential ways the product or service could be structured. Respondents typically see 3 or 4 bundles, and then select their preferred choice. The screen refreshes, and they then select their preferred choice from this newest batch of bundles. This process repeats several times for each respondent, and then across all respondents.
Analyze Which Components Impact Preference
With the data collected, it’s time to understand how different program components impact loyalty program participation interest. For this, we look at two key data points: Feature Importance and Relative Utility.
Feature importance measures how much influence a specific feature has on respondents choosing their preferred bundle. The higher the score, the more weight it carries in the decision-making process.
In our example here, Discounts and Free Shipping are the features with the highest impact on bundle preference. Meanwhile Birthday Gift Options & Exclusive Events have the least influence on bundle selection.
Once we know how important any given feature or component is, we can dive into something called the relative utility measure. This additional set of data points tells us how different levels within a feature impact program interest. The greater the relative utility, the more it impacts a selection. And, the lower the relative utility the more it does not impact the decision. Each feature has its own set of levels and therefore its own set of relative utility values.
In our example to the right, we see that moving the discount from 15% to 20% has a major impact on bundle selection because the utility value jumps significantly. But, while moving the discount amount from 20% to 25% also improves preference, it does so at a very small incremental utility amount. Meanwhile, not offering free shipping has a negative relative utility. This means that the lack of shipping has a negative impact on selecting any given bundle.
Look At Behavior Patterns By Unique Segments
Because loyalty programs are about moving customers from low-value, single-time customers to high-value, high-frequency customers, it’s important to look at these key data points by unique segments. This additional layer allows businesses to see if certain program components may actually have a stronger impact on particularly desirable customer groups.
In our example below, we break out the Feature Importance analysis to see if High Average Purchase Value Customers are especially taken with certain program dimensions. Sure enough, Access To Exclusive Events and First Access To Products really impacts bundle preference for this segment. And, Free Shipping has far lower Feature Importance.
As a result of this additional analysis layer, we see that an ideal loyalty program should include these product and event access elements to help strengthen resonance with a key customer segment.
Bringing Your Loyalty Program To Market
It (hopefully) goes without saying that it is not enough to build the right loyalty program structure. You also need to communicate it in a way that makes sense and is compelling to customers.
This is why we suggest a follow-up layer of usage and perception testing to ensure that your program’s go-to-market is successful.
Usually done via one-to-one interviews, this incremental research stage lets businesses understand how customers evaluate the program structure and components. And, in doing so, it ensures that customers are interpreting the programs as intended. Perception testing also serves as a last line of defense to catch any potential issues or program pitfalls. By identifying alienating program aspects before launch, business can get ahed of issues before they become customer satisfaction nightmares.
