5 Best Practices For Loyalty Programs

If you're thinking about a loyalty program for your business, or if you're trying to evaluate or upgrade your current one, this quick checklist will help you get the most out of it.

A few weeks ago in this space I posted When Loyalty Programs Are a Waste of Money, analyzing the criteria under which a loyalty program would be most appropriate for a business. The most effective kind of loyalty program is one that uses the information provided by a customer's rewarded behavior to fashion more relevant, personalized, or satisfying services or offers for that particular customer, thereby earning more and more of the customer's loyalty. In this earlier post I showed how your own loyalty program's appropriateness and economics would depend largely on the characteristics of the customer base you serve.

As these kinds of programs have proliferated, however, and as customers themselves have become more interconnected and knowledgeable through social media, the better loyalty programs seem to be characterized by five important best practices, which I often recommend to companies. There are lots of other considerations, but if you're thinking about a loyalty program for your business, or if you're trying to evaluate or upgrade your current one, then these five best practices can serve as a quick checklist:

1. Never waste an opportunity to gain insight about a customer. An effective loyalty program will offer a choice of services or treatments in order to reveal more about a customer's personal preferences. Providing points in return for completing surveys or responding to inquiries can generate a wealth of insights, but so can more specific offers designed to illuminate different customers' different motivations. A financial services firm, for instance, could improve insights into a customer's needs and investment perspective by offering a mix of awards based on either lifetime achievement or short-term behaviors. With an appropriate mix of awards you could even encourage customers to specify their prizes in advance of earning the points to redeem them, in order to gain these insights earlier.

2. An effective program offers modularity, enabling participants to mix and match aspects to their own preferences. Modular offerings are a practical way to allow for customer-driven personalization of a program without going to the extreme of full customization. Key aspects of the program, like member qualification, can be developed with several alternatives, and customers can be offered a set of guided choices to select from. A sophisticated marketing approach would offer different sets of choices for different groups of customers based on their value—so everybody wouldn't be choosing from the same set. For example, a lower value customer might chose from rewards alternatives that include a service upgrade, while high value customers might have choices that include additional redemptions or alternative merchandise. In addition, modularity will allow a program to incorporate partners and co-sponsors more easily.

3. Consumers value openness. They want a service or program that works with other programs. The more open your program is, the more beneficial and attractive it will be to customers. Transferable points and rewards offer the customer the greatest flexibility in using program earnings. As you gain customer insight, your program can mature into a more and more open proposition without endangering customer loyalty, because the barrier to a customer's switching will no longer be purely economic (i.e., the value of the points earned), but convenience (having to "teach" another program about individual desires and preferences). Openness is inevitable in loyalty marketing programs, and companies must choose whether to lead the charge, or to react to it. If your competitors' points or miles are available for purchase on the open market (as is the case with many airline frequent flyer programs, for instance), you may even want to allow your best customers to redeem the points you issue for prizes offered by your competitors! Think about it: if you run an airline, don't you want to know what competitor airlines your best customers also like to fly on?

4. A loyalty program should be managed around customers, not products. Align the organization of your program around certain identified sets of customers, and then measure your marketing managers by the impact they have on customer behaviors within these different groups. This is the most direct way to make progress in each customer segment, and to improve the loyalty (and lifetime values) of the individual customers in each segment.

5. Above all else: simplicity. The fewer rules and restrictions you have, the more engaging your program will be for the customer. It's better to narrow your offers to those you can deliver consistently, rather than including elements that can't be relied upon. Airline programs frequently suffer, for instance, when they publicize high-value redemptions that turn out not to be very readily available. Such offers often do more harm than good, by unnecessarily raising customer expectations and then not delivering. If you can't deliver reliably on what you promise in your loyalty program, you not only damage your program's credibility, but you could undermine trust in your whole brand.

Don Peppers is a speaker, consultant, and co-author of Extreme Trust. Follow him on twitter @DonPeppers

[Image: Flickr user Jason Teale]

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  • Shep Hyken

    All five of the strategies in this article make perfect sense. The key is that once customers join the loyalty program, don’t take them for granted. Too many companies are focused on growing the program in terms of number of members. Just because a customer is a member of the loyalty program, doesn’t mean they are a loyal customer. Use the program to develop and nurture a relationship with them – to really make them loyal.

  • Habeck786

    Don, I currently run a simple buy 10 get 1 Free at my coffee shop. I would love to make this a much better program for both me and my great customers. Any thoughts on a 2.0 version? Thanks, Aric

  • Don Peppers

    Also, Aric, in your situation, running a small business with face-to-face customer interactions, don't forget the simple power of personal recognition.  If I were in your shoes, I'd first make sure that my wait staff and cashiers memorized names and regular orders, so people can be recognized when they walk back in to the coffee shop.  The more frequently someone comes, the more likely they'll be remembered, along with their "regular" order.  Encourage your people to converse with customers, whenever it's not inappropriate.  Hire people for their extrovert, upbeat personality, not their experience, per se.  It shouldn't be hard to teach the skills needed, but personality is an asset you can't create with any amount of training.

  • mplifyr

    Hi Aric, if you would like to create your own customized, powerful rewards program that suits your business goals, mplifyr is a product that is going live in the next 2 months.  It's geared for small businesses that want to offer more than the buy 10, get 1 free that only most coffee shops can afford. You can create many types of deals that you can give your customers points for such as point per dollar deals, give them rewards if they spend a minimum amount with you and you can even create custom activities that you create and so much more. It's extremely affordable and as I mentioned, suited to the small business. Good luck!