The ABC's of Loyalty Programs

The ABC’s of Loyalty

Programs

How to Implement a Loyalty Program

by LocalBizConnex

The ABC’s of Loyalty Programs

www. LocalBizConnex.ca Page 2

Table of Contents

1.0 Things you need to Know 3

2.0 Program Design 4

2.1 Know what you Want 4

2.2 Know what your customers Want 4

2.3 Define your Segments 5

2.4 Test, test and Retest 5

2.5 Analyze, Refine and Add Value 6

3.0 Reward Structure 6

4.0 Return on Investment 7

5.0 Setting up a Loyalty Program 8

5.1 Let people opt In 8

5.2 Issue Memberships 8

5.3 Send regular Emails 9

5.4 How to Structure Rewards, Buy nine, Get one Free 9

5.5 Discounts 9

5.6 Clubs 9

5.7 Sharing with Friends 10

5.8 Contests 10

6.0 To Recap 10



1.0 Things you need to Know

Loyalty Programs are an elegant way to communicate and build relationships. They

are used to reward customers and increase business. Small businesses often face big

challenges as they compete with the big box stores in local markets. Now they can

also offer reward programs that encourage residents to Shop Local. According to

Brian Ott of Gallup Business Journal, “Giving participants what they want” is the

secret to a successful Loyalty Program.

Companies interested in implementing these types of programs are looking for ones

that meet their objectives. Some are trying to attract new customers, others to

increase frequency of visits, basket size, market share, sales and of course profits.

These objectives can be met by designing programs that are attractive to the target

customer. Programs must connect with customers by offering compelling reward

structures, be “fun” to engage, and provide a feed-back loop for communications

between companies and customers.

Customer engagement is the key to maximizing any investment in a loyalty program.

But how do you get customers to participate and how do you satisfy this captive

customer base? Simple, participants want a few key things; quality rewards, ease of

collection and redemption, interesting and innovative specials and discounts, and

inclusion in a successful program.

Loyalty Programs have historically been the purview of large companies, not

anymore. We implement programs as a subscription service. You pay for what you

need not for custom software or resources. We take care of the details of

implementing the program, you enjoy the increased business. Read on to get the

information you need to implement a successful program. Remember, anything that

we have not covered is just an email or telephone call away.



2.0 Program Design

As a retailer or consumer business that runs a loyalty program, generating sales may

not be your prime objective. Other objectives may include enhancing customer

loyalty, encouraging residents to shop in the local community, building your brand or

capturing detailed customer data.

Here are five steps for designing an effective loyalty program.

2.1 Know what you Want

To understand your program’s

effectiveness, you need to measure its

performance. Start by defining your

objectives and success measures. What are

you trying to accomplish, is it attracting

new customers, trying to gain a greater

share of wallet from existing customers, or

are you aiming to drive more frequent

store visits or higher spends? All of these

objectives suggest a different program

design and different measures of success.

2.2 Know what your customers Want

Different customers have different motives. Some want discounts or price

savings, others may be seeking better service, convenience or early notification

of new products. By understanding these divergent customer needs, the

program can be tailored to better meet them. You may even lower costs by

avoiding discounts that may not drive response.



2.3 Define your Segments

Understanding your customers’

motivations also allows you to segment

your customer base. “Customer

segmentation lets you target people with

specific messages and offer products that

resonate with them. You can also use soft

rewards, as opposed to discounts, that align

with their purchase patterns,” says Chris

Robertson, Manager in Deloitte’s

Consumer Business practice.

2.4 Test, test and Retest

To make your program more profitable, experiment with some of the

following strategies:

Make it compelling to spend , do not just tell your customers how many

points they have earned; entice them by explaining what their points can

buy.

Encourage specific types of buying behavior by running special

promotions, encouraging redemption of high-margin products or

awarding higher points for buying bundled services.

Partner with other vendors or retailers to encourage reciprocal spending

and rewards.

Sell extra points to customers who want to top up their existing points to

access a reward more quickly.

Forget about mass advertising. Target your marketing at specific

customer segments.

Monitor the points liability on your balance sheets to keep it within a

specified range. If the liability is too high, encourage redemption with

special promotions. If it’s too low, offer more significant rewards that

encourage customers to save their points rather than redeeming right

away.



2.5 Analyze, Refine and Add Value

Continue to analyze the data you collect to ensure the program meets

your customers’ evolving needs. Changing markets and shifting

consumer tastes may make a once-vibrant program stagnant. By

tweaking your reward structure for the program, conducting better

financial modeling or closing process gaps, you can improve your

participation rate.

When designing the program, base it on best practices. These include using customer

segmentation to focus on your most profitable customers, leveraging purchasing

efficiencies and encouraging redemption of higher-margin items. Always remember

to take tax implications into account when managing liabilities.

3.0 Reward Structure

Successful retailers connect with customers via loyalty programs at three levels. The

first is an introduction to the program with the customer receiving a generic reward

for enrolling in the program. At the second level, the retailer contacts the customer

directly, often via e-mail, to offer rewards to the customer. Two-way communication

occurs at the third level with customer or retailer initiated feedback using platforms

such as Facebook and Twitter.

Consider reciprocal rewards to extend your program reach. For example, if you sell

dog food, team up with a veterinary office or pet grooming facility to offer deals for

the mutual benefit for your company and your customer. The target audience

obviously owns a dog, so any additional products and services that the dog

Redeem points for Rewards

Points at Sign-Up

Accumulate at different

Points Levels

Discounts and vouchers for

members



requires offers added value to your company and team member. Providing customers

with value beyond what your company can offer shows that you understand them,

and expands your network to reach your partners’ customers.

4.0 Return on Investment

All investments are measured by their Return on

Investment (ROI). To successfully measure ROI for a

loyalty program you need to:

Develop quantifiable loyalty goals

Define the specific behavior you are trying

to achieve

Determine which products and services will

drive those behaviors

Analyze the profit margins of the selected

products and services

Determine if the same reward rate can be

attributed across all products and services and markets, or is differentiation

required

Define reward rate by product/service and market

Conduct tests to determine what reward rate will return the maximum

profitability

Implement the program and constantly evaluate the reward rate

The incremental revenue that can be expected to be generated by the program

includes:

Revenue generated by increased customer frequency

Larger basket sizes per visit

Reducing the defection rate of program members

The program costs include:

Participation charges

Sign-up procedures



Program overhead, i.e. the people necessary to run the program

Program communications

Reward liability

The cost of soft benefits, i.e. perks, recognition, member events

Use incremental revenue and program costs to calculate the ROI of the program. This

is a good way to see how changes in strategy affect customer behavior. Also keep in

mind that many program benefits are soft and cannot be measured.

5.0 Setting up a Loyalty Program

The strategy is defined, the objective identified and now the next step is to put the

program into place.

5.1 Let people opt In

If you want high participation in your program,

let people opt in. On your website or at your

cash register, give customers the option of

filling out a form to join your loyalty program,

with the promise of receiving regular or

occasional special offers form your business.

Keep track of these email addresses with your

customer management software.

5.2 Issue Memberships

Create a real or virtual membership card that

customers can use to track their purchases and

work their way up to a discount. Membership cards can be a major influence

on customers' behavior. After all, if they know it will take just three more

purchases at your business to earn their reward, why would they go anywhere

else?



5.3 Send regular Emails

Set up an email newsletter to communicate with loyalty program members so

they feel like they're part of an elite group. These emails can be filled with

useful content, descriptions of new products and special offers.

For example, if you sell body care products, your email newsletter might

contain tips on how to deal with dry winter skin, an explanation of the

ingredients in your newest body wash and a coupon for 5% off the customer's

next order.

5.4 How to Structure Rewards, Buy nine, Get one Free

This is the method used by a number of coffee shops, which give visitors their

10th drink free. You can use this as a model and tailor the specifics to your

business.

5.5 Discounts

These are useful, particularly if you run

a service-based business. It may make

sense to offer a discount on future

orders to customers who spend above a

certain amount. For example, award a

10% off coupon for every $100

customers spend in a single order.

5.6 Clubs

Most supermarkets offer a club-style

rewards program, which tracks purchases and permits certain advertised deals

only to those who are members. This method works well for businesses that

use targeted advertising and can be used to get customers into the store using

loss-leaders.



5.7 Sharing with Friends

Give points when members “ share” or “like” your businesses. Increase points

by simply being social, members get points and their friends get points when

they sign up, everyone wins.

5.8 Contests

You could hold regular contests to write reviews for products, come up with

ideas for the regular email newsletter, or simply hold a raffle for all customers

who spend more than a set amount in a given month.

6.0 To ReCap

To design a great program you must know

what you want to accomplish and what appeals

to your customer base. Build loyalty by

providing first-time participants awesome

benefits, hooking them, and offering benefits

with every purchase.

Your rewards must encourage program

participation, build market share and maximize

return on investment. They need to also

include communications channels to distribute and collect information, information

that is used to “fine tune” the Loyalty Programs. Finally, choose a platform that lets

you modify your program to meet changing business needs.

LocalBizConnex was established to provide marketing tools that were up until

recently only available to large corporations. They use information on target markets

and buying trends to develop marketing campaigns and discounting strategies. Now

you can too.

Documents

The ABC's of Loyalty Programs