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Marketing

15 Jan 2024

How to design effective retail loyalty programs

Reza Javanian

Mohammadreza Javanian

Talon.One loyalty expert

discounts and inventory management
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5 minutes to read

Retailers need a new way to engage with customers. The traditional loyalty program — you get a punch card and the more punches you get, the higher level you reach, with each level offering bigger rewards — no longer works. For one thing, it's boring; who wants to fill out a punch card and track their progress? Plus, these programs don't provide any real value for customers because they aren't personalized — a major setback for 71% of consumers who expect companies to interact with them on a personalized level

This is why it's important for retailers to invest in creating effective and exciting retail loyalty programs that offer real value to shoppers at every stage of their relationship with your brand.

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Essential insights to design effective retail loyalty programs

Loyalty programs are a popular and effective way for retailers to reward and retain their customers. By offering special perks, discounts, and other rewards, retailers can incentivize customers to continue shopping with them and build long-term customer relationships. However, not all loyalty programs are created equal, and it is important for retailers to carefully design and implement their programs to maximize their effectiveness.

The following takeaways help you build and implement a loyalty program that stands out from the crowd, enabling you to create value for your customers and your business.

Set clear goals

  • Start by understanding the business goals and objectives of the loyalty program. This will help to ensure that the program is aligned with the overall strategy and direction of the business.

  • Consider the target audience for the loyalty program, and what they are looking for in a loyalty program. This will help to identify the types of rewards and benefits that are likely to be most attractive to customers.

  • Define specific, measurable, achievable, relevant, and time-bound (SMART) goals for the loyalty program. This will help to ensure that the program is focused and effective, and that progress can be tracked and measured.

  • Identify key performance indicators (KPIs) that will be used to measure the success of the loyalty program. This could include metrics such as program enrollment, customer retention, or sales generated through the program.

  • Develop a plan for how the loyalty program will be implemented, including how rewards will be earned and redeemed, how customers will be engaged and communicated with, and how the program will be promoted and marketed. This will help to ensure that the program is well-organized and executed, and that it achieves its desired outcomes.

Offer valuable and relevant rewards

​​Offering valuable and relevant rewards is an important aspect of successful loyalty programs because it helps to motivate customers to participate and engage with the program. By offering rewards that customers care about, brands can create incentives for customers to earn and redeem rewards, which can drive customer retention, repeat purchases, and other desired outcomes.

Offering relevant rewards can help to improve customer satisfaction and build long-term relationships with customers, which can be valuable for brands. 

Rewards should be valuable, but not too valuable

Loyalty rewards should be valuable in order to motivate customers to participate in the loyalty program and earn rewards. However, if the rewards are too valuable, this can create challenges for the business. For example, if the rewards are too generous, the cost to the business can become unsustainable, which can impact profitability and long-term viability. In addition, if the rewards are too valuable, this can create unrealistic expectations among customers, which can be difficult for the business to meet in the long term. Therefore, it is important for loyalty rewards to be valuable, but not too valuable, in order to balance the needs of the business with the expectations of customers.

A rewards program that offers discounts on products you're already buying can feel like a waste of time and effort compared with other loyalty programs that offer more unique or exciting perks such as:

  • A chance to win an all-expenses paid trip to New York City (or wherever you want)

  • The chance to get your favorite artist perform at your next birthday party

  • Tickets to an exclusive concert or sporting event

  • Individual consultation for fashion or beauty styling.

Make the program easy to use

  • Make the program easy to use. You don't want customers getting frustrated or overwhelmed with a loyalty program that's too complicated. If you offer multiple points levels and rewards, keep it simple by offering clear rewards per point level.

  • Offer an easy way for customers to redeem rewards. The fastest way to lose customer loyalty is by not making it simple enough for them to use their rewards! If you're offering points as rewards, make sure there's an easy way for customers to check their points balance and/or redeem their points at checkout (e.g., through a mobile app).

  • Make it easy for customers to sign up in the first place. Customers are more likely to stick around if they can quickly sign up—so make sure there's no friction in signing up with your new loyalty program! This means keeping check-out times low, having clear steps on how users can join (by email address or phone number), and giving them options about how often they want promotional emails from you sent out (if applicable).

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Regularly assess your program’s effectiveness

To assess the effectiveness of a loyalty program, there are several steps that can be taken:

  • Review the goals and objectives of the loyalty program, and assess whether they have been achieved. This could include reviewing metrics such as program enrollment, customer retention, and sales generated through the program.

  • Examine customer feedback and survey data to understand how customers are responding to the loyalty program. This can provide insights into what customers like and dislike about the program, and whether there are any areas for improvement.

  • Compare the performance of the loyalty program with industry benchmarks and best practices, to see how the program compares to others in the market.

  • Review the costs and benefits of the loyalty program, to assess whether the program is delivering a positive return on investment (ROI) for the business.

  • Identify any areas for improvement in the loyalty program, and develop a plan to address any issues or challenges that have been identified.

In terms of how often these assessments should be carried out, it will depend on the specific program and the needs of the business. In general, it is recommended to assess the effectiveness of the loyalty program on a regular basis, such as quarterly or annually, in order to monitor progress and identify opportunities for improvement.

By conducting regular assessments, businesses can ensure that their loyalty programs are continuously improving and delivering value to the business and its customers.

You should also use this data as a way of improving your loyalty program in the future by reviewing what works best for different types of customers at different times throughout their lifecycle with the brand (i.e., new versus loyal).

Upgrade the program from generic to specific

The most effective loyalty programs are specific enough to be meaningful, but not so narrow that they alienate customers. After all, the ultimate goal is to cultivate a sense of community among your members and make them feel like they're part of something special.

Before you can start designing a loyalty program, it's important to define what success looks like for it. There are many ways for this to happen including:

  • Increasing sales volume or market share

  • Reducing operating costs

  • Improving customer retention rates

  • Increasing customer lifetime value (CLV)

  • Reducing attrition rates and/or churn rates

  • Driving online traffic/engagement/conversions

If you want customers to participate in your loyalty program, then it needs to address their needs in some way—otherwise they'll just ignore it like any other generic marketing channel (email blasts, ads on Facebook). By personalizing rewards based on data collected from customers' past purchases or interactions with store employees through various channels, retailers can ensure they're providing incentives that will actually appeal directly back to their stores.

One of the crucial aspects of personalization is creating rewards that are:

  • Unique to your brand.

  • Relevant to the customer’s interests.

  • Valuable to customers, such as exclusive experiences rather than generic merchandise.

Collect customer data to curate rewards

With the right data, you can curate rewards that are relevant to each customer. For example, if someone bought a specific type of clothing item in your store and then used their loyalty card to buy another item of similar price, they may be interested in receiving a coupon code for free shipping on their next purchase. By analyzing the items they've previously purchased and comparing them against other similar customers' purchases, you can identify this trend and send out promotions accordingly.

This type of personalization not only keeps shoppers coming back but also makes them feel valued as customers—and it will help you stand out among competitors who aren't taking advantage of such opportunities!

Create an integrated app or website experience

It’s important that the app or website is user-friendly and easy to navigate. You want customers to be able to quickly find what they are looking for and make a purchase easily. Security needs to be a top priority as well, since digital loyalty programs are more vulnerable than physical ones.

Gamify the experience with a leveling system

Gamification is a powerful tool that can be used in a variety of ways to motivate people and drive loyalty.

It’s the process of adding game-like elements to non-gaming situations, and it has been shown to motivate people to perform certain behaviors in a variety of contexts. For example, gamification can help engage customers and drive loyalty at retail stores by encouraging shoppers to earn rewards or points for completing various actions on the store’s app or website. In addition, loyalty programs are effective in attracting new customers because they encourage repeat visits from existing customers.

Reward all customer interactions, not just purchases. You can offer rewards for referrals and recommendations or reward customers when they share content on social media.

Track progress toward rewards and provide notifications

Retail loyalty programs are most effective when they track progress toward rewards. You should be able to see how many points or miles a customer needs before he or she can redeem them for a reward, which is the goal of your program. Don’t forget about those members who have opted out of notifications because they don’t want to be bombarded by emails or texts from you; provide them with updates about their progress as well!

Provide personalized experiences for each customer

Customers are willing to trade some privacy in exchange for relevant offers that match their preferences and interests, so use this information accordingly by allowing customers to opt into receiving notifications based on their unique shopping behaviors (e.g., if someone buys shoes on average every two months and then stops coming back after buying three pairs within three weeks, send her coupons for new shoes).

Why Talon.One?

Talon.One is the ultimate solution for businesses looking to create and manage powerful loyalty programs. With its ability to automate loyalty systems and work seamlessly across in-store and online channels, Talon.One makes it easy for businesses to offer consistent, engaging experiences to their customers.

The platform's gamification capabilities provide a fun and exciting way to motivate customers, while its notifications keep them informed and engaged with the program. Plus, with the ability to reward all customer behavior, not just purchases, Talon.One helps businesses drive loyalty and engagement in a comprehensive and holistic way. 

Conclusion

Retail loyalty programs are a great way to increase customer engagement, but they need to be designed with the customer in mind. The best loyalty programs offer rewards that are relevant, exciting and valuable to customers, making it easier for them to stay engaged with your brand.

Loyalty program designers should avoid making their programs boring. Instead, they should seek ways to integrate gamification into their offerings. This approach will enable customers to monitor their advancement towards rewards and maintain their interest, preventing them from finding the program dull.

For more on how loyalty technology can help your brand, check out our report, "The Loyalty toolkit."

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Isabelle Watson

Loyalty & promotion expert at Talon.One

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