Building a winning customer loyalty program

The competition for your customer’s attention is steep — and only getting steeper. Traditional marketing tactics have declined in efficacy. Savvy customers have become more discerning about claims in advertisements and are more careful about how and where they spend their money.

Millennials are motivated by brand loyalty predicated on a product’s value, quality, and consistency. Along with Gen Z, these two groups amount to more than half of the United States population, and they prioritize companies that value transparency and provide seamless digital experiences. 

Customer loyalty programs have grown in popularity due to these preferences: with a loyalty program, customers can buy experiences from their preferred companies in exchange for access to discounts, experiences, or other benefits.

In this guide, we’ll explore how to build an effective, lasting customer loyalty program focused on building lasting customer relationships. We’ll also highlight how a composable CDP like Simon Data can provide deeper customer understanding and personalized engagement, two key factors in catering to today’s primary consumers.

Why is customer loyalty important?

Customer loyalty is important for many reasons, including:

• Increasing customer lifetime value (CLTV) and retention rate: With a loyalty program in place, you can better maintain and grow your customer’s lifetime value by incentivizing them to make repeat purchases seamlessly and more frequently
• Improving your net promoter score (NPS): Offering your most dedicated customers flexible, personalized options that add value to their experiences helps turn them into champions of your business
• Reducing customer acquisition costs (CAC) and churn rate: Building and maintaining customer relationships through loyalty programs ensure a source of consistent revenue, thereby reducing the pressure to source and secure new customers

The types of customer loyalty programs

There are five primary types of customer loyalty programs: points-based, tiered programs, subscription-based, value-based, and referrals. Each of these provides unique ways of serving content to and engaging your customers. Let’s dive a bit deeper into them below.

Points-based programs

Points-based loyalty programs entice customers to sign up by offering rewards once they make enough purchases or complete certain account activities to reach certain milestones, such as earning 100 or 500 points. These rewards are typically discounts on services or products. You also have the option to gamify your program by offering additional rewards for engaging differently with your brand — by playing a mobile game or hosting triple-point days, for instance.

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A popular example is Starbucks’ Star Rewards program, where customers earn a set amount of stars with each purchase they make. When a customer makes enough purchases to earn enough stars to hit a milestone, they can apply their points to new orders to receive free food and drinks. The program incentives more frequent purchases to earn stars, and ensures future purchases with the offer of discounts.

Tiered programs

Tiered loyalty programs offer customers different levels of engagement with your product or service. Often, you can structure tiers in order of spend level, purchase frequency, or order size, and charge accordingly.

For example, a brand selling athletic wear might offer a tiered program to incentivize repeat purchases and engagement. Their program might offer three tiers: Bronze, Silver, and Gold. Bronze members earn points and get early sale access. Silver members enjoy those benefits, plus double points, free shipping, and birthday gifts. Gold members receive all Silver perks with additional benefits like triple points, early product launches, exclusive events, and priority customer service. 

Subscription-based programs

One of the most common loyalty programs, subscriptions are popular ways to offer your audience rolling access to their desired content or product. Nearly all streaming platforms drive revenue from their subscription loyalty programs, offering their content at a fixed monthly charge in different tiers. Some brands offer subscriptions so members can gain access to exclusive savings and items, as well as purchase any number of product on a recurring schedule, which offers customers a “set-and-forget” kind of convenience while increasing average order value and encouraging repeat purchases.

Value-based programs

Value-based programs offer customers a secondary reason for their purchase as a means of encouraging repeat purchases. Typically, this secondary reason is focused on social good, such as donating a portion of proceeds to social causes and non-profit organizations. The customer can then enjoy their purchase while knowing they’ve helped their communities.

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Value-based programs, though less directly beneficial to customers, still encourage repeat purchases from customers whose values align with the goals of the program. TOMS Shoes and Bombas, a sock company, each promote their products alongside their commitment to donating a pair of shoes or socks to a person in need for every pair that is purchased.

Referrals

If you follow any number of content creators or influencers on social media, you’ve probably seen their referral codes offering special discounts on products or services they’re promoting. 

These programs can work for multiple audience types and products and can be deployed on most out-of-the-box online storefronts in the form of unique discount codes or referral links that customers can share with friends. 

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BARK, a Simon Data customer, offers a customer referral program that gives referred customers free goodies and the referrer a store credit when their friend “joins the pack.” Another example is the underwear and clothing company Parade, which made headlines using this technique through 2020 and 2021 during their initial launch period, targeting micro-influencers and their followers.

Crafting a winning customer loyalty program

Know your audience

Before you decide which type of loyalty program to start, you should have a deep understanding of your customers’ behavior. You may already be aware of key trends in behavior or touchpoints in your primary customer flows, but it’s important to thoroughly understand why those trends occur and which touchpoints to address when developing a successful loyalty program.

You may already be aware of key trends in behavior or touchpoints in your primary customer flows, but it’s important to thoroughly understand why those trends occur and which touchpoints to address when developing a successful loyalty program.

Zero- and first-party customer data is an essential tool for understanding your customers. This can include personal preferences they’ve enabled in their profiles or opted to share with you online. You can also consider patterns of behavior such as daily app scans or visits to a brick-and-mortar store. 

In some cases, especially online, customer data platforms (CDPs) can help you identify and gain a 360-view of your customers. Simon Data’s CDP offers a composable architecture, which makes it easy to collect and combine customer data from many different locations, parties, to draw insights on their interests and behavior, and create presentations on your findings.

Setting and aligning program goals 

At the end of the day, the goal of any customer loyalty program is to create new revenue streams. But you should also be invested in increasing customer retention, driving repeat purchases, or encouraging your customers to be brand advocates. 

Each type of loyalty program covered above offers a different way you can engage your customers. Knowing what your goals are will help you pick the right program. For example, customers may be turned off by a value-based program that doesn’t align with their values and stop making purchases.

Aligning your goals with your program type will help you build a strong, compelling brand loyalty program. If you know your core audience makes frequent, recurring purchases, you can show them their potential savings if they enrolled in a subscription-based loyalty program, or offer guaranteed access to your service a set number of times per month via a tiered program. 

From there, using a CDP can help you identify and reach out on the right channel at the right time to only those customers who are most likely to subscribe, helping you build a robust program from the jump.

Designing the program

Once you’ve chosen a loyalty program, Simon Data’s segmentation capabilities can create targeted customer groups based on program engagement and behavior. You can see where customers find or interact with your brand most frequently, and shift your campaign’s acquisition program to focus on that platform. 

If your customers are most frequently referred to your website via Instagram, targeted ads and an influencer referral campaign might make the most sense. If your customers use your app, in-app notifications about a loyalty program are likely to draw signups because most users are already using the app.

Once you’ve decided where to reach your customers, you can personalize their invitations. Personalization helps customers recognize the value of a loyalty program when done properly. Simon’s CDP uses AI and predictive analysis to identify customers and their behavior patterns, which can help you tailor each customer’s rewards to their loyalty program activity.

CDPs like Simon Data also offer you the ability to create seamless omnichannel experiences. These are essential to growing programs and retaining customers because they help you stay in touch with your customer at every level. 

With a CDP, you can store all of your customer data in a single location — and activate that data from a single location — which helps make their experience with your loyalty program effortless across online, in-app, and in-store purchases. 

Launching and promoting the program

Once you’ve built your program, it’s time to start marketing it. Start building your marketing plan by identifying those channels and designing your campaign against them.

Multi-channel and omnichannel marketing strategies are more effective and wide-reaching than single-channel, but it’s important to keep your messaging consistent across platforms. 

Remember: the majority of customers prioritize consistency in product quality, value against competitor brands, and seamlessness of customer experience. Take care to develop high-quality experiences alongside the strong imagery and language that your customer base can use to recognize the program quickly. 

Some other options for marketing your loyalty program include:

• Leveraging influencers and brand ambassadors
• Offering incentives for sign-ups, such as introductory discounts or bonuses for signing up within a given timeframe
• Making sign-ups seamless: When a customer makes a purchase, offer them a chance to create an account easily by adding a password, or by offering to save their purchase to a new account to earn points toward future purchases

Measuring success and continuing optimization within loyalty programs

Once your program launches, it’s important to regularly optimize the benefits you offer to maximize customer value. Loyalty programs offer clear metrics for measuring success and ensuring continuous improvement, such as:

• Your total active member count: Active members = repeat customers. The higher your active member count is, the more likely you’ll see an increase in purchases from them
• Redemption rates: Similarly to active members, redeeming discounts from your loyalty program often means customers are engaged
• Purchase history: You can chart customer purchase frequency before and after joining a loyalty program

CDPs like Simon Data make information like this readily available to your teams for real-time tracking and analysis. With these metrics available, you can easily gauge the success of your program in regular intervals and more nimbly experiment with new offers and discounts. 

Best practices and tips

You’re ready to craft your loyalty program! Before you get started, here are a few best practices to keep in mind:

• Maintain consistency: Offer your customers a reliable, pleasurable experience. Drip campaigns that offer every new customer access to your loyalty program are great for making sure all of your customers learn about and are able to join your loyalty program
• Technical accuracy is important: You don’t want a customer who has earned enough points for a discount not to be able to use it. Make sure your technical teams are prepared to implement your program design, and consider enabling data gathering tools like Simon to accurately assess that your program is applied consistently 
• Personalizing campaigns: Consider designing program elements that focus on individual customer preferences and milestones. You can use birthdays to offer discounts, anniversaries for special events, or celebrate program milestones with your customers after months or years of program enrollment
• Engagement: Meet customers where they are. Engaging your customers through multiple touchpoints on multiple platforms is key to driving engagement
• Innovation: Keep it fresh! New discounts, programs, events, games, or other experiences can help excite your customers and entice them into your stores or making purchases online

Customer loyalty matters more than ever

In an attention economy, customer loyalty programs are an important method for capturing engagement and ensuring your customers make repeat purchases. Successful loyalty programs build brand affinity, create opportunities for building trust, and offer clear ways to gauge impact on revenue.

The team at Simon can also help demonstrate the value a CDP can deliver a customer loyalty program. Join customers like JetBlue, WeWork, and Resy in using Simon’s CDP to explore new revenue opportunities and build customer loyalty with personalized experiences, benefits, and discounts.