What You Need to Know About Successful Loyalty Program Design

Author: Guest Contributor, Jim Tierney
2 / 28 / 2017
Loyalty Program Design - Lenati

Loyalty programs are often the lifeblood for many marketers, especially when customer experience is top of mind. For many brands, their loyalty program design is a crucial element of their customer engagement strategies.

Loyalty360 caught up with Pam Spier, a Senior Manager at Lenati, to find out more about loyalty program design and how to launch successful loyalty programs. At Lenati—a marketing strategy firm that helps some of the world’s leading brands build customer loyalty and generate business growth−Spier has worked with such global brands as Hilton, Nordstrom, T-Mobile, Microsoft and more.

What are some of the biggest challenges companies face when designing a loyalty program?

Spier: One macro level challenge brands face is defining the playing field for “loyalty” at their company.  Innovation in this space has increasingly meant brands are expanding the definition of “loyalty program” to membership services, subscription offerings, and experiential programs. Companies need to start by defining the scope of what they want to solve for, and what is right for their brand and their customers.

Another challenge that we see time and again is that companies often fall into the trap of looking for immediate value from programs. Most programs need a ramp-up period to acquire members and give them time to engage. In the design phase, you should decide if you are building a short-term program for transactional returns, or designing a new way customers will engage with the brand. The answer may determine the right philosophy for assessing return on investment. This needs to be incorporated into companies financial planning and programs must be given time to see results.

We also see that many companies try to do too much, making the program and experience way too complicated by incorporating too many rewards, too many rules, restrictions, etc. Programs need to be simple and easy to engage with. The customer shouldn’t have to work hard to engage. One way to design for simplicity is to start with a scaled back program—and then test, learn and measure unpublished benefits and experiences.

Can companies create a loyalty program without offering discounts and cash back?

Spier: Absolutely! While discounts are the number one thing that customers traditionally expect in a loyalty program, with the right messaging and the right set of benefits and rewards, you can create a program that is brand led and appeals to the emotional connection customers have with your brand.

Customers have needs that span from transactional utility to emotional connection. There are many ways to deliver utility and transactional benefits beyond discounts, including focusing on the experience—making shopping easier, offering enhanced shipping, member-only checkout, etc.

How do companies design for innovation?

I’m so glad you asked this question, because we get asked this question by our clients all the time. Clients want to know, “How do we innovate or how do we incorporate a ‘wow-factor’ in our programs?We find that our clients want to innovate and want all of the unique features in their program, however, once we put costs against it in an economic model we typically end up saving those to roll out in subsequent phases over time. Companies, ultimately, have to choose at the executive level how committed they are to making innovation a corporate priority. A few brands that have gone all in on loyalty innovation include Starbucks and Amazon. They started with basic features and rolled out innovation over time.

We certainly see companies designing for innovation, but to my point above, that plan is a long-term investment. There is often a sticker shock of being disruptive.

What trends are you seeing in loyalty program design?

Spier: This is an exciting time for loyalty. More companies are moving beyond traditional loyalty programs, and starting to integrate loyalty across the company to improve the customer experience. To do this, we help companies explore tools, services, membership models and benefits that enhance the core customer experience.

Also, more companies are considering strategic partnerships that expand the value of the brand. Companies are finding symbiotic brands whose customer base overlaps with theirs, and using each others’ assets to enhance the desired lifestyle of their shared customer set.

And finally, Loyalty Marketers are looking at how to “future-proof” the program. Long-term trends in the economy—and changing customer behaviors—reveals opportunity for loyalty to help improve a company’s position in the market. Determine how trends—like the sharing economy or the shift of more products to services—will impact your business not three years from now, but five to 10 years. How will the fundamental advantage of your loyalty program (the 1:1 customer relationship) enable you to compete in the future?

Any advice for companies thinking about designing or re-designing their loyalty program?

Spier: Design around your customers. Many companies design a program for themselves, forgetting that the program needs to be reciprocal, with the customer seeing as much benefit (if not more) than the company. This means talking to your customers…a lot. We often leverage focus groups and surveys–throughout design and launch—to ensure that companies are designing a program in which their customers want to engage.

And if I can offer one final piece of advice. Spend time upfront to more accurately project the ROI of the program features and benefits under consideration. The most successful programs are those that are ROI positive. Projecting ROI is hard for many marketers that are using dated Excel models built on a bunch of assumptions about their customers. One approach is using data-driven customer simulation. We’ve developed a ROI Simulator that runs projections based on the company’s customer data and can run numerous scenarios simultaneously. This approach is not only more accurate, but more agile to support executive dialogue and decision making. Use customer insights effectively and embrace the big data movement.

This thought leadership series by Lenati and Loyalty360.org focuses on the evolution of customer loyalty and how companies are developing customer engagement strategies—including investments in customer experience, analytics and innovation—that accelerate business growth and build loyalty.

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