How Do You Define Customer Loyalty?

Customer loyalty is a behavioral characteristic related to the brand preference of a shopper. When a customer repeatedly purchases from your brand despite having an option to opt for products from your competitors, they are said to exhibit customer loyalty. You build this loyalty over a period on the foundation of positive, memorable experiences that the customer shares with your brand. The more delightful the customer’s experience with your brand, the more they are likely to continue purchasing from your brand.

Customer loyalty programs are customer marketing strategies that focus on influencing the loyalty of existing customers. Such programs typically reward customers for specific, explicit behavior such as making a purchase or engaging with the brand consistently and positively. The rewards offered as part of loyalty programs are usually in the form of discounts on subsequent purchases, giveaways or complimentary products, or special privileges such as exclusive access to newly launched variants or limited-edition products. 

As consumer purchase journeys became increasingly complex and non-linear,  brands are increasingly leveraging loyalty programs as a linchpin to orchestrate and create memorable brand experiences for every touchpoint.

For instance, Tata Group, a global conglomerate with a diverse product portfolio spread across FMCG, Fashion Retail, Hospitality, Consumer Durables, Automotive, etc.  is designing a super app-centered, lifecycle-based loyalty program to offer a connected and unified customer experience for every stage in the customer purchase journey.  

The Changing Loyalty Marketing Landscape

 

Over the last few decades, loyalty marketing practices have evolved to remain relevant to the changing customer behavior, time spent on digital platforms, and the 21st-century lifestyle. These changes led to : 

  1. Rapidly declining customer attention span due to the surge in digital platforms and content overload
  2. Customers expecting the same benchmark for easy experiences set by tech-driven consumer companies like Amazon, Uber, Apple, etc.

The COVID-19 triggered lockdowns, and the subsequent market conditions further disrupted the consumer landscape,  by forcing people to stick to the familiar and the readily available options for their survival needs. Not surprisingly, walking in step with these tendencies, about 30% of the marketers have reallocated their budgets from acquisition to retention efforts.


Thus, we see a shift from transactional loyalty programs towards engagement-based and
emotional loyalty programs. We also see gamification, omnichannel approaches, and the use of Artificial Intelligence and Big Data.

Loyalty Landscape

Let us look at some of these trends.

  • Engagement-based and Emotional Loyalty

As consumers become more aware and participative in the categories they shop, brands need to go beyond the spend-to-get rewards model and allow for experiential and emotional engagements with shoppers. So, the idea is to let them ‘do things’ with you, ‘be a part of some cause’ with you, ‘guide and be useful to another shopper,’ ‘co-create branded content,’ ‘voice their product experiences publicly,’ and so on. These are great ways to make your customers feel cared for, worthy, and not merely someone with a wallet. These are also great ways to enhance customer loyalty and to keep your customers engaged between purchases.

A great implementation of emotional and engagement-based loyalty is by Health Promotion Board (HPB)* of Singapore’s flagship program – Health Insights Singapore (hiSG). 

HISG

The objective of the program is to understand the behaviors and lifestyles of Singaporeans and use the insights to encourage a healthy lifestyle. Participants are offered a free Fitbit Ionic smartwatch that collects lifestyle and behavioral data across various health topics such as physical activity, nutrition, and mental wellbeing.

HISG2

Members can download the Healthy 365 mobile app and earn HPB Healthpoints for various challenges and tasks like National Steps Challenge, Eat/Drink/Shop Healthy, Healthy Challenge, etc. Participants can redeem the points for shopping and dining vouchers, as well for EZ-link top-ups.

Another good example of emotional loyalty use-case is Sephora. The brand complements their member discounts with offers like ‘facials from skin-care-gurus,’ behind-the-scenes access to their product formulations, and point multiplier events. They are also enabling their customers to use points to donate to charities like National Black Justice Coalition (involved with the Black LGBTQ+ community) and Project Glimmer (working for at-risk girls). 

Sephora

Similarly, the folks at 100% Pure, as part of their loyalty program, Purist Perks, offer their customers loyalty points every time they donate a hand-sanitizer. It leaves their customers with a favorable perception of the brand and makes them more likely to shop from 100% Pure over time because they care for a meaningful cause and do their bit for it. In a nutshell, “members are craving value more than ever.”

*Capillary is proud to support HPB for this initiative.

  • Gamification of Loyalty Programs

We live in the age of distractions and an insane number of choices. This means loyalty programs have to encourage engagement and ‘stickiness’ to stay relevant. By stickiness, we mean the ability to hold your customers’ attention and interest long enough for it to be valuable to you and them! That’s why Gamification is increasingly being layered within loyalty programs. The idea is to make it addictive to customers and to keep them engaged with the program. 

Today, more than two-thirds of the world’s top 2,000 companies have embraced gamification in some way or the other. And research tells us that gamification of customer engagement programs leads to a 20% rise in brand loyalty.

Let’s quickly look at the five essential ingredients of a well-gamified loyalty program. First comes the alignment of the gamified design with the exact behavior the brand is aiming to inspire. Say it is ‘referrals,’ then they would be winning something every time they bring a new customer to you. Second is the program’s simplicity – it should be easy to understand and play at every subsequent step! The third is measurability – ensure that your customers can check how far they stand from the end goal and what they need to do to get there (think progress bars). Fourthly, the joy of participating in your loyalty program must be shareable with peers through fun posts or tweets. Lastly, it should be mobile-first and should allow customers to engage with it on-the-go.

For instance, Bakmi GM*, a famed noodle restaurant chain in Indonesia leverages gamification-based loyalty initiatives like Spin and Win, Pick and Win to improve customer engagement and time spent on its mobile app.  

Bakmi

Starbucks is another brand that has managed to blend several gamification aspects into a loyalty app. For instance, customers can earn Bonus Stars for 4,5 and 6 consecutive store visits within a specific time period.

Starbucks

The brand also sends push notifications to keep customers informed of their program status, tells them exactly what to do and how to redeem the rewards.

*Capillary is proud to partner with Bakmi GM for this initiative

  • Omnichannel Loyalty Programs

Today, customers don’t pay heed to the channel they use to engage with your brand. And they expect the flow of customer data to be seamless across different modes of shopping and engaging with your brand. These could be website eCommerce, mobile app, brick-and-mortar stores, Instagram, or Facebook. Your loyalty program’s effectiveness hugely depends on the comprehensiveness of the customer profile, purchase patterns, and accrued rewards that were stitched together from multiple channels and brand interactions.  You may have gathered these data from multiple channels and will continue to do so. But it’s important to connect the dots in real-time, build a Single View of the Customer,  and personalize your shoppers’ experience at every touchpoint they use to interact with you.

Dyson* leverages the massive reach of WeChat to create a seamless omnichannel journey for its Chinese customers. It works like this: the consumer sees Dyson’s ad in the offline world, scans the QR code, and starts following the brand’s WeChat account.

Dyson

He/she receives Welcome Bonus points for following the brand’s WeChat account. Based on the user’s demographic & location, the brand sends a personalized promotion to the customer. Once a consumer makes a purchase, they can scan the product code to earn additional points and rewards which can be redeemed for online transactions and in-store transactions.  

Malaysia’s leading pharmacy chain, CARiNG* offers a fully omnichannel, app-based loyalty program that offers the latest news updates, health screening packages, free checkups, workshop invites, shopping, and management of vouchers all in one place. Members can use the app virtually as well as in-store – for instance, redeem digital vouchers in the store through barcode scanning, etc.

Caring Pharmacy

Bata* is another brand that has unified different sources of customer information into a unified whole. The brand achieved 57X ROI through precision targeting, by connecting CRM and Loyalty insights with its Facebook marketing efforts.  The brand wanted to reach their customers across all channels. And that naturally included social media, where customers today spend the bulk of their time.

The strategy helped them glean vital social media insights about customers which were used to further enhance their personalization efforts. Such dynamic and cross-channel data brings you information that lives and breathes every moment — not merely when the customer exhibits an actual purchase activity.

The 7-Eleven chain in Thailand, comprising of 11,000+ stores (managed by CP Group*) consolidated siloed data of its customers and launched a personalized marketing automation solution across traditional channels and the LINE messenger using the LINE MINI App. The program is currently integrated across the brand’s POS terminals and allows the brand to personalize its customer engagement at scale to improve repeat sales, conversions, and store visits.

*Capillary is proud to partner with Dyson, Bata, CP Group & CARiNG Pharmacy for these initiatives

  • Use of Artificial Intelligence (AI) and Big Data in Loyalty Programs

The ubiquitous nature of Artificial Intelligence has made it a necessity in your customer marketing and loyalty programs if you want to stay ahead of the curve.  After all, it makes life simpler for both the brands and their customers. AI helps brands to analyze large volumes of data points from different sources, track customer purchase and behavioral trends, and uncover profitable co-relations to accurately predict the right product and promotions to showcase to a customer segment, at the right time, and through the right channel.

Apart from personalization, another key use-case for AI in loyalty programs in Churn Forecasting – the system can essentially predict the likelihood of a customer switching to a competitor by analyzing several factors like NPS scores, purchase patterns, latency, and transaction values.
 Brands can leverage these insights to create a re-engagement communications plan that remains personally relevant to each customer’s purchase journey and genuinely customized to their needs and preferences.

  • B2B Loyalty & Influencer Loyalty 

Loyalty programs have been the staple of B2C marketing, however, of late it has become a critical channel marketing and relationship management engine for certain sectors like construction, automotive service, pharmaceuticals, manufacturing, etc. where the end-customer is not the primary decision-maker. Manufacturers are increasingly using app-based loyalty programs to identify key influencers like carpenters, painters, electricians, mechanics, etc., communicate product launches/new promotions, and reward the best performing ones.

For instance, Jotun Paints*, a Norwegian chemical company dealing mainly in decorative paints and performance coatings runs a painter influencer loyalty program across 16 countries across Asia and the Middle East. The program is designed around a mobile loyalty app with a QR scanning module. After the painter purchases paint from a dealer, an invoice is generated. The painter opens the app, inputs the dealer name, transaction amount, and scans the QR code on the paint tub.

Both the painter and dealer are offered points for the transaction. This dual-incentivization resulted in a higher repeat purchase rate for Jotun Paints.

*Capillary is proud to partner with Jotun Paints for this initiative

  • Unified and Coalition Loyalty Programs 

Also known as a ‘group loyalty program’, coalition loyalty is a type of “unified loyalty program” where a group of unrelated brands bands together to offer a joint loyalty program. They are becoming increasingly popular amongst customers since it offers them greater flexibility and choice in earning and redeeming points.

For instance, the multi-brand loyalty program TAPTAP by VIG Group* connects more than 32 F&B and Entertainment brands like Jump Arena, Otoke Chicken, Chewy Chewy, The Pizza Company, etc and reaches 30% of Vietnamese customers. 

TAPTAP

The mobile-based group loyalty program unifies 600+ stores and ecommerce sites to offer a fully omnichannel loyalty experience for its customers.  

From a brand’s perspective, the coalition loyalty program increases brand reach by giving them access to a wider customer pool and also unify customer data to build 360-degree views (shopping preferences across different categories, product preferences within each category, overall purchase lifecycle, etc.). This makes business sense for large conglomerates that handle multiple brand portfolios. 

However, retailers intending to join or create a group loyalty program need to be aware of a few key pointers. First, the rewards structure should be such that it incentives customers to shop broadly across multiple partners or brands within the group rather than focus on a single brand. Second, the program manager must be able to take into account the prices of individual firms when setting the value of rewards. And finally, the brands joining a coalition must be able to negotiate the share of program costs they will carry based on their value contribution; for instance brands with greater market/brand pull will bear a lower share of program costs.

*Capillary is proud to partner with the VIG Group for this initiative

How Loyalty Program Impacts Customer Behaviour and Benefits Brands

Loyalty programs are growing in popularity for a reason. They make customers feel valued. And when that happens, their purchase values, frequency, and engagement rates see a  significant uplift.

Much of it is rooted in behavioral psychology theories and is validated by multiple data-driven research and studies, and it indeed has a real influence on what customers do. Let us look at the many ways in which a loyalty program impacts customer behavior.

  • Increases Purchase Value

Brands that incorporate loyalty programs in their marketing strategy see a direct positive impact on their revenues. A loyalty program provides brands with rich customer data that can be used to influence purchase behavior and create high impact cross-sell/up-sell opportunities.

For instance,  brands can leverage customer insights to generate real-time, rule-based dynamic vouchers during checkout. Each coupon will be unique and highly personalized based on multiple factors like customer’s purchase patterns, product preferences,  store location, etc.
Dynamic Vouchers helped a leading hypermarket chain to generate $8.8 million in incremental sales with 3X  higher redemptions (compared to text messages). As per research by Frederick Reichheld of Bain & Company (the guys who invented the Net Promoter Score!), increasing customer retention by 5% increases profits by a minimum of 25% to a whopping maximum of 95%. 

  • Customers Trust You with Their Data More Easily

A great loyalty program experience is an opportunity for brands to showcase true brand value and offer customers relevant product suggestions, discounts, and other experiences in exchange for data. Consider the case of ‘personalization.’ Millennials know personalization makes their world more fun, and statistics reveal that more and more millennials expect brands to personalize their communication and messages. The loyalty program plays a vital role in bringing the customer on the same side as you, in curating these personalized interactions. It makes your customers more open about sharing demographic, psychographic, or behavioral insights. For example, they will more readily fill out profiles as part of your research initiatives. Brands can take it to the next level by letting customers participate in product sampling and creating focus groups. 

  • Turns Your Customers into Brand Advocates

Your loyalty program automatically encourages your existing customers to speak well of you among their peers. Happy customers who shop from your brand time and again quite naturally talk about their shopping choices and the benefits they receive to other customers and thereby attract new shoppers to your store. If you gamify the loyalty program and reward non-transactional behavior like referrals, reviews, and social shares, you can easily strike a goldmine. 

Here’s a classic example of advocacy accelerating customer acquisition.

IKEA

Loyalty programs also often have an element of pride associated with the higher tiers of membership. It offers a sense of privilege and gives your customers some bragging points. These then entice new customers to join in and participate in the exclusive experience that your brand designs for its premium clients. It works on a social-proof model and brings you more and more new customers, while you focus on keeping the existing ones happy.

  • Elicits Honest Feedback for Improvement

With a robust loyalty program, your brand creates a direct and intimate communication line with your customers. It makes members eager to provide useful tips, suggestions, ideas, etc. that can help increase brand equity. Loyal customers who have been members for years and have first-hand experience of what it means to be a part of your world are in the best position to offer genuine and relevant feedback. Thus, your loyalty program can make the ‘voice of your customers’ louder and more authentic! You and they are ‘in it together’ and this way, your customers get to extend their influence over what you do, the products and services you offer, and so on. These can lead to new product developments, service design revamps, and even exploration of new retail and commerce channels.

  • Multiplies Participation in Omnichannel Campaigns

Your loyalty program also adds jazz to your activation events, digital marketing campaigns, product launches, seasonal offers, etc. Having a reliable database of active and emotionally connected customers gives you access to a pool of people who are many times more likely to respond positively to your communications, campaigns, contests, and more. This display of camaraderie and belonging in a public environment, whether on social media or in the real world, makes for a high conversion marketing cohort. For example, Harley Davidson is known for the ‘fierce’ loyalty it inspires among the ‘Harley Owners Group (HOG)’ – so much so that customers not only purchase and ride Harley bikes but also buy branded accessories and clothing. 

  • Engages Customers as Brand Custodians

When your loyalty program succeeds in making your customers feel a sense of camaraderie with your brand, they naturally become your brand custodians – living, breathing people who defend a negative perspective about your brand.

Today, marketing in a digitally connected world is highly competitive, and prospective customers spend hours researching your brand and reading product reviews. Sites like Amazon, Facebook, and Google Reviews have become extremely relevant, and customers tend to trust them blindly.
Having a reliable and loyal customer base helps you stay ahead of the curve in trying times. Happy customers often answer frequently asked questions on your behalf, pitch in to help a fellow user or shopper out, and offer their two cents wherever they can make a difference. That’s why rewarding customers for non-transactional behavior like writing reviews, sharing social posts, and referrals goes a long way in expanding your reach as a brand.

  • Brings a Higher Return on Marketing Spends

We all know that acquiring new customers can be too costly, many times more than retaining existing customers. This is where loyalty programs wield their magic wands and multiply your return on every marketing cent invested. Loyalty programs act in a dualistic way to improve your marketing ROI: by giving you access to critical insights (interests, preferences, purchase lifecycle, etc.) on a deeply engaged cohort with reduced purchase friction and through referrals/advocacy etc. As the loyalty program matures, it turns into a self-sustaining and self-managed system (with the use of technology and effective management, of course!), that increases revenue and sales from existing customers while helping you acquire new customers at a reduced cost. The exhibited loyalty also results in a bigger market share and a more stable stock market performance. In short, the loyalty program helps you create wealth for your organization, your customers, and your shareholders. 

  • Cushions you During the Rough Times

COVID-19 has exemplified how vulnerable the world of brand-consumer interactions are to global socio-economic factors. It has also shown that we live in a world where structural changes can happen faster than we can imagine. In this context, the relevance of brand loyalty has increased tremendously. At the same time, the grounds of loyalty have become shakier.  Brands with a loyal customer base have indeed found it easier to engage, empathize, allay fears, and go out of their way to offer support. Loyalty programs bless brands with access to real-time, relevant customer data, and insights(decline in-store visits, reduction in average purchase value, shifts in product segments, etc.). It has helped brands leverage cross-channel communication through emails, social media, and WhatsApp to spark relevant conversations with their customers and maintain brand recall. Brands with limited access to customer insights will find it extremely difficult to revive themselves, reconnect with their shoppers, and identify them when they return to normal shopping behavior post the crisis.

How to Create a Loyalty Program?

Since loyalty programs are central to a brand’s operations, they need dedicated resources, time, management, and energy from your organization, especially during the initial stages of charting out the structure and the design specifics of the program. Far too many brands follow a fire-and-forget approach to deploying a loyalty program which results in them becoming liabilities instead of profit centers.

To be successful and have a positive impact on topline sales, loyalty programs need to be synced into the overall organizational strategy, specific business goals, and customer aspirations. Let us look at the main steps in creating a successful loyalty program.

  • Defining the goals and objectives

Start from your overarching business goals and identify where the loyalty program fits in. Narrow down on the critical business objectives you want to fulfill from the loyalty program. And then, evaluate the financial return on investment you would expect from your loyalty program. Going through this process can feel a bit like going back to your business basics, but that’s the intention here. It sets you free from biases and outside influences and lets you focus on how and why a loyalty program matters to your business at this point in time. Once you have these broader questions sorted, you will have the wherewithal to build a business case and refine it according to your budgets, resources, technological readiness, and customer needs. 

  • Designing the route to loyalty

Once you have the rationale and your business case ready, you can get your creative juices flowing. This is where you can involve different perspectives both within and outside your company. Thinking about the ‘customer’s journey and experience’ is the most critical piece here. Put yourself in customer’s shoes or even better, get them involved in the program design through surveys, focus groups, or in-depth interviews. Insights gathered here will tell you a lot about customer motivations, preferences, behavioral traits, shopping tendencies, etc. Also vital is insights gathered from internal stakeholders across the organization – from store staff to Marketing Managers to Customer Service to the C Suite.  These will help you discover what your customers want to achieve and how your brand can be a part of those aspirations. For instance, Amazon Prime was conceived around a key insight: customers hated paying shipping fees. Once you crack this for your brand, you will be able to figure out the protocols on which your loyalty program will work – i.e., the exact behaviors you want to influence, how to control them, and the value your customers will derive from participating in the program.

  • Analyzing your technological readiness

For a long time, loyalty programs remained fairly simplistic and were isolated to a single platform. But as they grew in complexity and functionality, loyalty programs became a centerpiece of the entire customer experience. New-age loyalty programs are extremely cross-functional and require close integrations with multiple systems like CDPs, Marketing Automation, Analytics, POS systems, in-store analytics, CRMs, and ecommerce platforms. The most important thing to ensure before launching your loyalty program is that you have the capability to process and make sense of the mountains of data that it will inevitably generate.  Having the technology piece figured out is half the battle won.

  • Planning the program launch and promotions 

Launching your loyalty program is a lot like launching a new product or campaign. You must know what to say, to who, and through which channels. For instance, you might have a segment of existing customers who will be more inclined to join the program and a segment that is likely to contribute the highest revenues. Try to find the overlap between these two segments.  Also, at this point, you must have a sense of the marketing/promotional budget along with the expected signups/membership target. Let’s look at these aspects individually.

    • Launch KPIs

Knowing what you are aiming to achieve with your loyalty program launch is very important to : keep you, and your team focused, assess your launch’s performance, and tweak your variables midway if required. The key performance indicators could be the awareness generated, conversations triggered, word-of-mouth reach, and enrollment.

    • Launch Audience

Exposing your entire customer base to the program at one go is not a good idea, simply because you would have left no scope for testing different versions of the same.  We suggest that you create a small subset of customers with diverse purchase patterns, product preferences, engagement levels, and channel behaviors to test out the program in terms of engagement, customer benefits, and return-on-investment.  This will surface your Ideal Customer Profile for the program and also give you and your team enough bandwidth to manage the program since it would be easier to deal with the expectations of a smaller customer base.

    • Launch Training

Everyone in your company should be thoroughly familiar with your loyalty program and the way it will change your customer engagement dynamics. All your employees must know what your loyalty program is all about, how it works, and how it fits into the broader business goals. These include your in-store associates, your customer support executives, your customer experience specialists as well your marketing and customer communications teams. The last thing you want is for your customers to feel your employees do not know what’s going on.

    • Launch Communication

Your loyalty program launch communication should be easy to spot, simple to understand, and tempting enough to drive your customers to enroll or act upon the same. Tell them what’s in it for them and what they need to do to derive the benefits. It is also essential to use the right channels for promoting your program. Since a major selling point of a loyalty program is the exclusivity and ‘Inner Circle’ aspect of it, it’s important to make your customers feel special while communicating the program specifics. One-to-one communication channels such as Emails, SMSs, messaging apps like WhatsApp are a great way to capture customers’ attention and engage them better. If the program content and benefits is personalized to a customer’s age, location, purchase history, and product preferences, that’s even better!

  • Continuous program improvement

Once your loyalty program is in motion, it’s important to keep a close eye on how it performs. This, of course, requires having access to data reports and dashboards that give you a detailed and summarized view of program-driven ROI, contribution to the topline, customer engagement trends, location wise and season wise patterns, and more. These insights give you the necessary inputs to modify and optimize your loyalty program, and transform it into a self-sustaining virtuous cycle of rewards and revenue-creating a win-win scenario for both your brand and your customers. 

It is here that investing in a holistic loyalty program management platform reaps enormous benefits. You can consolidate all your customer data in one platform, gain omnichannel insights into how customer interactions and shopping behaviors have been influenced by the program, and get real-time insights for the very critical seasonal sales and promotional campaigns.

5 Ways to Increase Brand Loyalty

Now that you are familiar with the hottest trends in loyalty programs and customer retention strategies, here are some of the best practices to increase brand loyalty amongst your customers.

  • Build affinity

Birds of the same feather flock together! If your customers feel you are ‘like’ them and that your values, priorities, and motives are similar to theirs, then they naturally get attracted to your brand. You can build brand affinity by associating with an influencer who fits in with your ethos and is respected and admired by your customers. You can also build affinity by spearheading a social cause, for instance, leveraging your loyalty program to minimize the negative impact on the environment or some unmet needs of a certain unprivileged section of the society. For instance,  Shell* helps its customers minimize the impact of their carbon emissions by offsetting their fuel purchases using the Shell Go+ app.

Shell

The brand uses fuel purchase data to calculate the total carbon emission per customer and offsets their carbon emission by supporting groups and communities involved with preventing deforestation in regions like Peru and Indonesia.

*Shell has an active engagement with Capillary

  • Create convenience

Unique convenience aspects of your program create additional engagement and brand stickiness. Use-cases include access to online shopping channels, discounts within a partner ecosystem, value-addition (access to experts, workshops, exclusive events, etc.), fast shipping, or hassle-free returns. Analyzing the customer experience in its entirety will make it easy for you to understand how the program will benefit the customer at every stage of the purchase journey.

  • Act compassionately

HBR research revealed that the top 10 most empathetic companies increased their financial value more than twice the bottom 100. Empathy and compassion here relate to day-to-day relationship micro-moments with customers rather than a ‘big act.’ Human-to-human interactions – such as between your staff and customers, at any of your stores, online, over email, or phone – are opportunities to make a positive difference. This, however, requires empowering your staff to act in the best interest of the customer. 

  • Nostalgia

When Nintendo launched Pokemon Go, 800 million people downloaded the app, raising Nintendo’s share value by 86% in the first week alone. Nostalgia has a strong pull-effect. It strikes a chord with customers across age groups, geographies, and ethnicities. Brands can find ways to resurface old memories and times lived, through advertising, digital campaigns, or merely one-to-one, personalized emails, and intelligently crafted messages based on the person’s profile and interests. This builds an association between memories and the brand. Paperboat, the Hector Beverages owned food and drinks brand leveraged this effectively in their mass campaigns and brand communications. The brand posted a 62% surge in revenue for FY19.

  • Subscription Loyalty

Otherwise known as ‘premium’ or ‘paid’ loyalty, customers pay a fee to earn special loyalty privileges in this type of program. Although subscription loyalty need not wholly replace a freemium version of your loyalty program, it can certainly complement it. The benefit of a paid model is that you can offer instant rewards to customers – right from sign up – without impacting your bottom line. It also nullifies the typical program lag between earning points and redeeming rewards. Members within a subscription loyalty program usually contribute significantly higher sales and revenue due to the loss aversion mindset. 

How to Measure the Success of your Rewards Program

Once you have launched your rewards program, you need to monitor its performance continually and observe the trends and changes in your customer behavior, sales, and customer satisfaction metrics.

Certain specific key performance indicators (KPIs) help to measure your loyalty program’s success.

  • Repeat Purchase Rate (RPR)

The repeat purchase rate is a ratio of your repeat customers versus your total buying customers. It gives you an assessment of the pull factor and brand affinity.  To calculate this metric, run a report on your total number of customers, followed by your total number of repeat customers. Divide the number of repeat customers by the number of total customers. Next, multiply that number by 100 to get a percentage (i.e., 0.01 is 10%).

Each industry has a different benchmark for Repeat Purchase Rates (RPR) and each store will have a different RPR depending on the inventory mix and which customer segments you’re targeting. Generally, a 20-40% RPR is considered a good range. A dip in RPR is indicative of an ineffective customer engagement/ marketing strategy and/or loyalty program architecture. Try executing personalized (demographic, purchase lifecycle, product preferences) cross-channel marketing for your target segment, along with  Bonus Point promotions, Win Back offers, etc.   

  • Customer Retention Rate (CRR)

You are converting visitors into buyers but are you able to keep them engaged for months or do they switch to a competitor after the first transaction? The answer lies in your Customer Retention Rate.

Also shortened as CRR, the Customer Retention Rate is another way of measuring the extent to which your brand and loyalty strategy is able to retain your customers over a period. You can calculate it as per the below formula:

The customer retention rate reveals the percentage of customers returning to your brand within a specific period. It thus removes new customers added during the period to give you the ratio.  Your loyalty program will have a significant influence on the Customer Retention Rate (CRR) and a dip in CRR requires reassessing your program structure like reward catalog, earn/burn rules, tier upgrade rules, and ease of redemption. There are several ways to boost your CRR: optimizing your loyalty program architecture and increasing engagement and brand recall through cross-channel marketing, personalizing promotions to a micro-segmented audience, and utilizing customer feedback and surveys to enhance products and services.

  • Loyalty Redemption Rate (LRR)

This metric is a good measure of your loyalty program’s engagement value as it reveals how participative your customers have been.  Loyalty Redemption Rates (LRR) is critical to the effectiveness of your loyalty program since it has a direct impact on your loyalty-driven topline sales. The redemption rate depends on your loyalty program’s simplicity, attractiveness, and popularity among your customers. It is a ratio of the total points redeemed by customers versus the total points issued by you over a period. 

The loyalty redemption rate helps determine the relative success and ease of utilizing different loyalty initiatives, types of loyalty points, and earning and redeeming methods. 

A low Redemption Rate indicates that your customers are not actively engaging with the program, either due to complex program structure, steep redemption rules, lower value Per Point (VPP) or a restricted reward catalog.

  • Customer Lifetime Value (CLV)

CLV, or Customer Lifetime Value, is a master metric that analyzes a customer’s value across the brand relationship cycle. It calculates the value customers have already brought to your brand and also predicts the future value they could add. CLV is the difference between total revenues (earned plus expected) and the total costs of acquiring the customers (incurred plus forecasted). 

At a glance, CLTV tells you how much a customer is worth to your brand and gives you insight into their overall value. From there, you’ll have better clarity of how much you should be investing in customer retention going forward.  This is a great way to segment your highest-value customers, giving you a chance to target them with personalized campaigns intended to increase engagement and loyalty —and their overall spend. A CDP integrated loyalty platform like Loyalty+ is an excellent tool for calculating CLV, since it aggregates all the key data components in one place.

Increasing  Customer Lifetime Value is usually the topmost KPI for brand managers and marketing heads. In a retail scenario, CLV boosts can be achieved by increasing the Average Order Value and Purchase Frequency through personalized, time-bound Dynamic Vouchers, Celebratory Campaigns (Birthdays/Anniversary etc.), Bonus Point Campaigns, cross channel marketing etc. 

Conclusion

Loyalty marketing is quickly evolving beyond the confines of being just a retention program and into a critical entity within the Customer Experience flywheel. As a result, loyalty programs have become complex engines with many moving parts that –  when managed well  – can significantly accelerate the company’s growth and revenues.  A well-run loyalty program can dramatically increase the economic value of an organization by means of continuous investment in the right customer acquisition channels and marketing strategies to improve profitability. And most importantly, they are a key factor in crafting those micro-moments of delight throughout the purchase journey;  and transforming casual shoppers into staunch brand advocates.

Dominic Machado