Best Practices Guide to Create a Winning Loyalty Program

TABLE OF CONTENTS

1. OVERVIEW…………………………………….

A good loyalty rewards program must reflect the interaction paradigm of today’s shoppers. Modern consumers don’t just buy from businesses – they also share their opinions on Facebook, tweet about their experiences, share pictures on Instagram, write reviews, ask/answer questions, recommend products to their friends and more. A modern day loyalty rewards program should enable you to reward users for not just for purchases, but for all-round, 360 degree engagement.

This document assumes that you have already decided to implement a loyalty rewards program and provides guidance on all aspects including how to name it, which activities should be rewarded, how many points to allocate for a given activity, etc.

If you are still trying to decide whether you should have a loyalty rewards program for your business, the answer is “Yes”!

loyalty program guide
loyalty guide

2. NAMING YOUR LOYALTY REWARDS PROGRAM…………..

Although a rose by any other name would smell as sweet, we do recommend that you put some thought into naming your loyalty rewards program. Here are some guidelines to follow:

  1. It should be tied to your brand. A great example is Macy’s Star Rewards. Macy’s has a star in their logo and the reward program cleverly references that while making the users feel like stars!
  2. Keep it simple & descriptive. A good test is to share the name with a test group and ask them what they think this name represents. If they can’t figure out that the name refers to a loyalty rewards program, it is probably not a good name. Most companies add one of the following words to their loyalty program: rewards, club, inner circle, insider, member or points.
  3. Capture the emotion. A luxury brand may want to entice users about being a part of the inner circle whereas a value oriented brand may want to emphasize deal bucks.

Once you narrow down on a few names, try them out in various sentences and see which one feels right for your brand + emotion:

“I am a member of <loyalty rewards program name>”
“Have you joined the <loyalty rewards program name>?”
“Please enroll for the <loyalty rewards program name>”

Naming Your Loyalty Rewards Program
loyalty guide

3. NAMING YOUR REWARD POINTS………………………….

Again, the guidance from the previous section is applicable here.

  1. Be descriptive. Users should know what they are earning. Are they earning points that can be redeemed later or are they earning dollars?
  2. Connect with your audience. You can be straightforward and call them reward points or miles; make it friendly and award buddy bucks or thank you points; or you can get all cute and cuddly and let users earn teddy smiles. Think about your audience demographics and their emotional connection with your brand to help determine what is likely to appeal to them.

About 93% of loyalty rewards programs use the word “points” therefore it is the safest word to use! Add a brand appropriate prefix and you can’t go wrong. Some examples are Virgin America Elevate Points or Citibanks’ ThankYou Points.

Earn rewards points
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4. REWARD TIERS…………………………….

It is a great idea to offer multiple reward tiers. It will motivate users to earn more points for gaining exclusive benefits.

It is important to put some thought into designing the reward tiers. Think about what your goals are. As an example, your goals could be:

  1. Increase overall user engagement on the website (reviews, Q&A, email sign up, etc.) and on social media (word-of-mouth recommendations, photo sharing, Pinterest, etc.)
  1. Increase revenue per customer per year by 20% in 12 months by
    1. Increasing AOV by 5%
    2. Increasing repeat purchase by 15%

Now categorize your current customers in 3, 4 or 5 (max) categories based on their current spending pattern or LTV. Your loyalty rewards program tiers should be designed to target each of these categories with the goal to move them to the next tier!

Keep in mind that not everyone is interested in a loyalty rewards program. Usually, about 15% of your audience will have no interest in a loyalty rewards program. The rest of the audience’s interest will range from passive interest to very active interest.

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4.1. Reward Tier Pyramid

Tiers add an element of gamification to your loyalty rewards program that influences customer behavior. You also need to motivate customers to pursue each new tier with effective rewards.

Create a pyramid based on your current user categorization and set a 12 month target for how you want this pyramid to look. For example, say that your current customer categorization looks like the Image A

reward tier pyramid

Your loyalty rewards program should have four tiers targeting each of these customer segments with the goal of moving them up in the pyramid. So your 12 month objective may be to move approximately 10% of your customers into a higher tier and make the pyramid look like Image B

This gives you a good foundation to design your loyalty tiers and the associated incentives while keeping an eye on the expected ROI.

reward tier pyramid 2
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4.2. Naming Your Reward Tiers

Now that you have decided how many tiers you will have and the target user segments, it is time to name these tiers. Reward tiers should be named so that even the lowest tier feels somewhat special. If you want to start simple, use Silver, Gold, Platinum and Diamond. Avoid Bronze. No one likes Bronze.

You also have the opportunity to get clever here. For example, Sephora has the following tiers:

  • Beauty Insider
  • VIB (Very Important Beauty Insider) – play on VIP
  • VIB Rouge – play on cosmetics plus red carpet treatment
loyalty program naming your reward tiers

Reward tier names should be chosen to create an aspiration – users should want to get to the higher tier just for the bragging rights or feeling special. There should also be added incentives associated with higher tiers.

All users who register for the loyalty rewards program should be automatically set at the entry level tier. They should not be required to earn points to be in the lowest tier. This tier should open up some benefit (though small) for simply signing up for the loyalty rewards program. For example, an entry level tier could allow the user to buy from an exclusive product set or get a one-time offer for free shipping.

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4.3. Achieving Reward Tiers

You should decide the number of points required to achieve each tier depending on the following factors:

  1. The number of points that users can realistically earn on your website so that you achieve a distribution of users in the pyramid described in Section 4.1 within 12 months.
  1. Whether all points will qualify towards a tier change. For example, while users may be able to earn points for email signups and product reviews, you may decide that only points earned for purchases count towards a tier change. This will depend on your objectives.

Here is an example of how points could be allocated for various levels.

  1. Insider’s Circle:
    1. Basic level for all users who sign up, even with 0 points
    2. Make them feel appreciated even at this level.
  2. Gold:
    1. Points required: equivalent of $150 in purchases over 12 months
  1. Platinum:
    1. Points required: equivalent of $300 in purchases over 12 months
  2. Elite:
    1. Points required: equivalent of $500 in purchases over 12 months

    In this case, the tier qualification is based on purchases. Points can be earned and redeemed for other actions, but will not help the user go to a higher level.

4.4. Setting Lifetime Tiers

Over a period of a few years, when a user has spent a significant amount of money with your brand, you can choose to define a “lifetime” tier. For example, in the above case, when the user has spent $5,000 on your site, you can say that the user has earned a Gold tier for life.

This strategy will motivate the users to spend more on your site for achieving a lifetime tier. Once they get used to buying from you and getting the Gold treatment, it will be hard for them to buy from anywhere else.

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5.  REWARDING POINTS…………………

You should award points for not just purchases, but for a 360 degree engagement with the customer. Once you define your objectives, you must then define which user activities on your website will earn points. These user activities should go towards achieving your objectives.

Here are some activities that should earn points.

5.1. Purchases

This is a no-brainer. Purchases should always earn points. Typically, 10 or 20 points for every dollar spent is a good ratio to start with. That way the users feel that they have a meaningful number of points in their account. 500 points sound much better than 25 points although they may translate to the same value!

loyalty program rewards points
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5.2. Account Creation And Profile Completion

Award points for creating an account.

loyalty program account creation

Also, award additional points for completing all profile information. The more information you have in the user’s profile, the more you know about the user.

loyalty program rewarding points for profile completion
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5.3. Reviews And Wish-lists

Award points for activities such as writing a review and adding products to a wishlist.

customer reviews and wishlists
loyalty customer reviews and wishlists
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5.4. Social Sharing And Engagement

Award points for social sharing and engagement. This gets the users to act as your brand ambassadors. Each social activity drives referral clicks.

Activities can include:

  1. Friend referrals
  2. Share on Facebook, Twitter, Pinterest
  3. Facebook Connect, Twitter Connect
  4. Facebook Fan, Twitter Follow, Instagram Follow
  5. Become an Email Subscriber
loyalty program social sharing and engagement
Social Sharing And Engagement
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5.5. Surprise Points

It is important to introduce a “delight” element in your loyalty rewards program.

  1. Award certain number of points on the user’s birthday.
  2. Give extra points to your top 5 purchasers every month
  3. Reward users for achieving certain milestones, such as the maximum number of referrals in a particular month

These points should be awarded sporadically and should contain an element of surprise. This strategy works really well to maximize customer delight.

5.6. Determining Number Of Points

Your loyalty rewards program is meant to improve customer retention and repeat sales. However, there is a cost associated with awarding loyalty points. You are allowing users to earn discounts or dollars which will affect your margins. Therefore it is important that you choose your points structure carefully. It should be attractive enough to get a lot of participation but should also ensure that it is economically viable.

It is a three step process:

  1. Decide which user activities you want to reward
  2. Determine the expected return from each of these activities
  3. Assign reward points to each activity to match your target ROI

Here are some examples:

5.6.1. Points for the Referral Program

Say you want to reward points for referring a new customer.

  1. Here’s how you can calculate the expected return: Average Order Value (AOV) + Customer Life Time Value (LTV) i.e., if your AOV is $100 and the customer LTV is $200, the expected benefit from each new customer is $300.
  1. If your target ROI is 15x, then you should be able to spend $20 to acquire a new customer.

Therefore a good strategy would be to give $10 worth of points to users for referring a new customer and $10 off on first purchase to their friends.

5.6.2  Points for Social Media Sharing

How do you assign a value to a social sharing action such as a Facebook post or tweet? Here’s a good rule of thumb to follow if you want to be conservative:

– Assume each post will generate 1 click back to your site
– Assume this traffic will convert at the normal conversion rate
– Assume that 50% of these will be new customers

If your conversion rate is 3%, here’s what this math looks like for every 100 shares:

– 100 clicks
– 3 sales
– 1.5 new customers

Using our $100 AOV and $200 LTV, we can now calculate the expected benefit from 100 shares:

3 sales = $300
1.5 new customers = $300
Total = $600 (for 100 shares)

Therefore value/share is $6. Assuming you want 15x ROI, you can reward up to $0.40 worth of points per share.

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6. REDEMPTIONS………………….

Here are the most common redemption strategies:

  • Exclusive Offers
  • Account credit
  • Discount codes/coupons
  • Third-party Gift card codes
Loyalty Rewards Redemptions

6.1. Exclusive Offer

An exclusive offer is a good strategy to use at every level. This is something that users are not able to access normally.

Examples of exclusive offers are shown below.

  1. Special incentives that can’t be obtained elsewhere, such as Super Elite members getting a chance to meet a celebrity relevant to your brand/demographics.
  2. Access to exclusive, limited edition products. For example, Platinum members are allowed to buy certain products that other members are not allowed to. These products are exclusively available only to Platinum members.
  3. Code for free shipping just for signing up for the loyalty rewards program.
loyalty program exclusive offers
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6.2. Account Credit

Account credit is an extremely effective option that ensures that points are redeemed to buy additional products on your own website.

We suggest a combination of Exclusive Offers and Account Credit as the preferred redemption options.Examples are “$50 store credit” or “$10 off the next purchase of $20 or more”.

6.3. Discount Codes

You can offer discount codes on your own website. For example “25% off your next purchase (max discount $50)”.

While discount codes are effective, users prefer Account Credit more. In general, users prefer dollar amounts off more than percentage amounts off, such as $10 off over 10% off.

6.4. Third-party Gift Codes

This is typically not a great strategy because you are not encouraging users to spend their points back on your site. However, sometimes this strategy can be used to give users an award which has a very high perceived value compared to your actual cost. Examples:

  1. $50 Restaurant.com gift card. The perceived value is $50 but it will cost you only a fraction of that.
  2. Magazine subscriptions. Again the face value is much higher than the actual cost. You may even be able to give away a free 12 months subscription and make money on that rather than spend money!
  3. Movie tickets
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7. NOTIFICATIONS……………….

It is important to keep the users engaged with the loyalty rewards program. With so many distractions and choices, the old saying “Out of sight, out of mind” has never been more true for brands. Notifications are an important part of the engagement process.

Here are the notifications you must enable for your loyalty rewards program.

  1. New enrollments: Welcome email, sent immediately to all newly enrolled loyalty users.
  1. Points Redemption: Confirming points redemption actions.
  1. New Unclaimed Loyalty Points: This is a great strategy to get users enrolled in the program.  “You have 2,500 unclaimed loyalty points” email can be sent to a user who made a $250 purchase but has not yet enrolled in the loyalty rewards program.
  1. Earned Loyalty Points: This email is for enrolled users who earned new loyalty points.

 

  1. User reaches a points threshold: This email is sent to users who reach a minimum number of points required for a given award redemption.
  1.  Idle Account Notification: This email is sent if the account contains a non-zero number of points and has been inactive for a certain period of time.
  1. User is at x% of a new level: This email is to incentivize user to attain the next level. It acts as an encouragement, telling the user how close the user is to the new level.
  1. User has attained a new level: Congratulate the user on attaining a new program level.
  1. Summary Email: Monthly email summary sent to user to explain the status of the user in your loyalty rewards program.
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8. PLACEMENT…………………….

To maximize engagement loyalty rewards program should get prominent placement on your website.

8.1.  Placement In Top And Bottom Navigation

Place a link to the loyalty rewards program in the top navigation header on your website. Also include it in the bottom navigation footer.

placement of loyalty rewards program on website
placement of loyalty program

8.2.  Real-time Notifications

An immediate notification that includes a link to the loyalty rewards program should appear when points are earned. This is a highly effective strategy and accomplishes the following:

  1. It acts as a call to action for users who are not yet enrolled in the loyalty rewards program. Such in-context notifications produce highest enrollment rate.
  2. It acts as a reminder to users who are already enrolled in the program.
real time loyalty point notification
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8.3. Placement In Context

Loyalty rewards program prompts should be placed in context wherever possible to indicate to the user that points can be earned for completing that activity.

Loyalty rewards program prompts
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9. SUMMARY…………………….

The best practices outlined in this document provide a step-by-step guide to implementing a successful loyalty rewards program. Zinrelo will work with you to design, implement and measure the results from your loyalty rewards program.

best loyalty program
loyalty guide

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