Building a Customer Loyalty Program for Continuous Engagement

If you’ve ever felt like customers can be flighty, you aren’t alone.

Consumers have more options than ever before. They can purchase products from across the globe, access online banking, and even use telehealth appointments to see a doctor. No longer restricted by geography or lack of information, customers also have higher expectations from brands, and this is impacting brand loyalty.

A recent study showed that customer loyalty decreased by 14% year-over-year from 2022 to 2023. Companies have been left wondering how to increase customer retention, and customer loyalty programs are an important part of the solution.

What Are Customer Loyalty Programs Today?

Historically, customer loyalty programs centered around rewards programs that offered incentives like early access to sales, discounts on next purchases, and freebies. Most programs focused on customer spending, granting loyalty statuses or rewards after customers spent a certain amount.

While some of those principles still hold true today, customer loyalty programs look very different than they did in years past. Today’s programs go beyond traditional reward systems by integrating advanced data analytics, personalization, and omnichannel experiences. These systems seek to offer customers more individualized and relevant rewards.

The goal is to engage customers, retain them, and grow with them by adapting to their always-evolving preferences through real-time data insights. Fortunately, there are advanced customer loyalty programs and tools that can help you do this.

Different Types of Loyalty Programs

There are plenty of different basic program structures businesses use to build customer loyalty and incentivize repeat purchases and word-of-mouth marketing.

To give you some inspiration for how these systems may work, here are a few examples of loyalty programs:

• Membership programs charge an upfront one-off fee but grant rewards like gifts, exclusive discounts, or free shipping. Grove Collaborative’s VIP program is a good example.
• Transactional points-based loyalty programs allow customers to earn points based on the amount they spend. These points can then be used to obtain gifts or discounts. You see this with e-commerce brands like Enviroscent and with credit card companies offering cash-back bonuses.
• Referral programs are technically separate but may be included in loyalty systems. These allow customers to receive discounts or perks when they refer new customers who convert. Check out Bloomscape’s referral program.
• Spend-based VIP programs allow repeat customers to earn “ranked” status based on their annual spending. These are often tiered loyalty programs. Sephora’s Beauty Insider program offers rewards or incentives like free shipping when customers reach certain annual spending thresholds.
• Traditional punch-card systems “punch” a slot in a card for every qualifying purchase and reward you after all the slots are completed. This system is commonly used by small, local restaurants.

Benefits for Businesses

Implementing loyalty rewards programs can offer your business exceptional benefits, ranging from improved insights to increased customer retention and value.

1. Enhanced customer retention

By understanding user behavior through data and offering incentives like special offers to improve customer relationships, loyalty programs increase the likelihood of repeat purchases. As a result, loyalty strategies are often directly related to customer retention strategies.

2. Increased customer lifetime value

Personalized experiences and customer rewards can significantly increase the average amount your best customers spend over time. These programs can directly increase the average order value for e-commerce brands and retailers, especially with pop-up notifications that remind customers they can achieve their next reward or status level by spending just another $20.

As you retain your customers longer, and they spend more on their average order value, their customer lifetime value increases, too.

3. Data-driven insights

Advanced loyalty programs collect valuable data that you can use to inform product development, marketing strategies, and even operational improvements. For example, you can discover which rewards entice customers and even offer customer rewards in exchange for feedback.

4. Competitive advantage

Well-implemented loyalty programs can differentiate a brand in a crowded market. By using them, you can attract good customers who like to find a brand and stick to it, using the programs as a competitive differentiator when consumers are weighing their options.

5. Marketing efficiency

Create targeted marketing campaigns that are personalized for different segments of your customer base. You can use loyalty data to reduce marketing costs by focusing on high-value segments of clients that are likely to convert again and at a higher value.

You can also use this data to target relevant audience segments with cold marketing campaigns that will attract new customers similar to your most high-value users.

Finally, you can create customer experience (CX) marketing campaigns, which prioritize the customer experience across all channels and can lead to increased customer satisfaction metrics.

What Are the Trade-Offs?

While formal loyalty programs do offer exceptional benefits, it’s important to consider the potential downsides, too.

These include the following:

• Cost of implementation: Developing and maintaining a sophisticated loyalty program requires investment in technology, rewards, and, potentially, personnel.
• Privacy concerns: Collecting more data could lead to potential privacy issues if this is not handled transparently and ethically, though a clear privacy and terms-of-use statement can help.
• Complexity in management: Managing personalized rewards across multiple channels can become operationally complex.
• Inflation of consumer expectations: Setting high expectations with rewards programs can make it challenging to meet or exceed customer satisfaction continuously.

Utilizing Recency, Frequency, and Monetary Analysis for Improved Loyalty

Programs that focus on personalized, omnichannel loyalty experiences often utilize recency, frequency, and monetary (RFM) analysis. This helps brands segment customers based on how recently they purchased, how often they buy, and how much they spend. This is crucial for identifying which customers to target with loyalty initiatives and determining which rewards or programs would be most incentivizing to each segment.

It’s important to consider where users are in their digital customer journey. Brand-new customers typically want to find out if they even like the product or service, while long-term customers are more likely to increase spending to reach access rewards like exclusive perks and free products.

By using RFM, businesses can design loyalty tiers or offer specific rewards that match customer behavior, encouraging more frequent purchases, higher-value purchases, and improved customer retention.

Practical Steps for Building a Viable Customer Loyalty Program

When you’re ready to build a successful customer loyalty program, these are the seven steps you’ll want to follow.

1. Define program objectives

The first step is aligning your loyalty program with your business growth goals. This may center around increasing purchase frequency or order value, but it could also involve enhancing customer engagement or expanding your market share.

2. Collect data

Establish a robust system for collecting and analyzing customer data to allow you to successfully market the program to the right customers. For example, you can use customer behavior to create autoresponder campaigns that invite users to join a loyalty program after a qualifying event.

While data collection is important, ensure that you comply with data protection and commercial communication laws. These include the GDPR, CAN-SPAM, and CCPA regulations. Review these regulations as well as any local or industry laws that may impact your business.

As an added layer of protection, your site should have a clear privacy policy and terms of service that users agree to when opting in to email communications. You can also ask for consent before tracking user activity with cookies on your site. This can build trust with customers and keep you compliant.

3. Define customer segments

Use RFM analysis to create distinct customer segments. Doing so can help you identify high-value audiences, and it also facilitates the creation of targeted rewards that resonate with different customer behaviors.

For example, customers of name-brand luxury products — who may have high disposable incomes — might not be incentivized by discounts. These same customers, however, might bend over backward to receive exclusive access to new products or shopping experiences.

4. Establish reward structure

Create diverse rewards to engage your audiences. Consider going beyond discounts but also including experiential rewards, gamification systems, or exclusive access to new products or sales. You should align both your rewards structure and the exact rewards offered with what your customers value.

Some customers, for example, will be thrilled to pay a one-off $50 fee in exchange for occasional gifts and always-free shipping. Others, however, won’t want to pay flat fees but will instinctively add additional products to their cart to get a free reward or new loyalty perks. The gamification aspect can be incentivizing, even if the additional purchase ultimately costs them more than the flat fee would have.

5. Integrate omnichannel

If you want your loyalty program to increase customer satisfaction, it needs to work seamlessly across all customer touchpoints, including online, in-store, and through mobile apps.

Imagine you’re a customer who spends hundreds of dollars a year with a brand. You’d be frustrated if you found out that half of your purchases didn’t get you any points because they were made in-store or on a mobile app instead of through the brand’s website.

An omnichannel experience can enhance CX across the customer journey while failing to do so can cause frustration.

6. Build hype and launch

Create a big launch to build interest and excitement. Consider including contests, sweepstakes, and bonus registration points as key campaign points.

Let customers know that the program is coming by using targeted ad campaigns to reach existing customers on platforms like Meta Ads. Also, have a dedicated landing page on your site, use pop-ups, and send marketing emails to engaged customers. For in-store businesses, ensure that your staff drives adoption by educating customers during a sale.

Customers should be able to join waitlists and easily register for the program. Make sure you explain what’s involved, including how it works and what rewards customers can earn.

Finally, ensure customers can easily track their progress and redeem rewards once the program launches.

7. Plan for continuous improvement

Nothing is ever static in business, and that goes for your loyalty program, too.

Develop a strategy for reviewing and improving your system. Make sure you track key metrics like sign-ups and engagement to ensure your customers are motivated by the benefits.

Collect and consider customer feedback to assess how they feel about your program. Ask questions to discover the following:

• Do they like the program’s structure?
• Do they wish they could earn points for actions like connecting on social media or referring a new customer?
• Are they happy with the types of rewards offered?
• Is the program’s interface easy to navigate?

Future Growth Planning

Your loyalty program can play an essential role in customer lifecycle management, so it’s important to find ways to continue developing it as you move forward. You want to keep these three considerations in mind:

• Scalability: Design the program to scale with business growth, ensuring it can handle increased customer volume and data without compromising performance.
• Innovation in rewards: Keep innovating your reward system to stay ahead of customer expectations, possibly integrating emerging technologies like AI for deeper personalization.
• Product development through data leveraging: Use insights from your loyalty program to inform new product lines, service enhancements, or reward options.

Start Building Loyalty With Nextiva’s Powerful Platform

Establishing robust and personalized loyalty programs isn’t just good for CX; it’s also a surefire way to make more data-driven business decisions.

Nextiva’s unified CX platform facilitates all customer communications across diverse channels, including phone, SMS messaging, email, video calls, and even social media. You can collect customer data, conduct sentiment analysis on client communication, and identify how customers feel about your products, services, and brand.

Whether you’re in the early stages and laying the foundation for your loyalty program or you’re looking to improve it, Nextiva can help.

Learn more about our CX platform to get started. 👇