5 best practices for launching a loyalty program
Author: Marc Castrechini
Source: Retail Customer Experience
Loyalty programs are all the rage in retail right now. Industry prognosticators appear united in the belief that technology will transform the customer experience as retailers make progress toward achieving a true omnichannel environment that knows customers better and rewards them faster.
A 2019 study by TSYS, a global payments provider, seems to support this prediction. According to the research, 94 percent of retailers have or plan to implement a unified commerce platform within three years. This trend is likely driven by consumers’ desire for more personalized experiences. Seventy-nine percent of consumers surveyed said personalized service from a sales associate is an important factor when determining where to shop.
One could argue that personalized service, which usually involves some form of loyalty program, has always been important. This is true. But now technology is making it possible for businesses to scale up personalization. Large retailers are investing heavily in platforms that gather more information about their customers while delivering real-time offers and curated experiences to capture a larger share of their wallets. Smaller retailers, for good reason, are starting to pay attention — and even get worried.
The technology race is real
Small businesses fear falling so far behind larger competitors that they can’t keep up in a meaningful way with technology investments. Big retailers have scale on their side, and that is a real advantage when deploying a loyalty-focused omnichannel platform.
Small businesses also have fewer resources — and less brand recognition – to fight loyalty program fatigue. Of the 30 loyalty programs that the average North American household holds, 54% are inactive, according to the 2017 Colloquy Loyalty Census. The challenge for small businesses is not just launching a program, it’s generating enrollment and then keeping it top-of-mind for customers.
But there is a tremendous upside for small businesses that deploy effective loyalty schemes. When competing against rivals of a similar size, technology advancements represent an opportunity to outmaneuver competitors. Retailers willing to do what it takes to provide more personalized service through effective loyalty programs could achieve a sustained competitive advantage if they leapfrog competitors technologically. These kinds of strategic chess moves should happen now, when the technology is still relatively new.
For many small businesses, the decision to launch a loyalty program is still not necessarily straightforward. The investment needs to have a business case behind it. If it doesn’t help the company to acquire new customers, drive more sales and increase the odds of customers coming back, then the program has failed. Furthermore, loyalty schemes need to avoid alienating existing customers who may be experiencing fatigue as more retailers launch programs.
Loyalty program best practices
The obstacles to launching loyalty programs are not an excuse to be complacent. Rather, they are cause for approaching this business decision with the care and deliberation of any financial investment. Here are five best practices for retailers to consider as they embark on this journey.
1. Make sure the program is technically feasible. Just because a particular loyalty program would be ideal, doesn’t mean it will work. Before an assessment begins, determine whether it can be integrated into your existing POS system. Also, determine which VAR would do the implementation, how long it will take and the cost.
Pay particular attention to mobile-enabled solutions. According to TSYS’ survey, 63 percent of consumers use their mobile phones while shopping. That means most customers will be browsing the web – and other shopping sites – while physically shopping at a brick-and-mortar store. Savvy retailers will invest in systems that provide offers via mobile (SMS, mobile emails and digital ads) to help customers make purchase decisions in the store that they might otherwise delay or give to an online retailer.
2. Be realistic about ROI. Introducing a loyalty program because everybody says you should is not a solid rationale. When assessing your need, perform an honest analysis of how it will increase your sales volume. Ask yourself how you will turn customer data into personalized offers that will give lift to your bottom line, as well as how you will measure the impact of the program.
Keep in mind that loyalty programs don’t have to involve discounts. Customized experiences – like accessing a store an hour before it opens on Black Friday – can be just as effective at cultivating customer loyalty.
Realizing the benefit of loyalty programs also means investing in training front line staff. Employees have to understand the program and believe in it if they are expected to sell it to customers.
3. Minimize friction. Most loyalty programs involve an initial customer sign-up and an ongoing method of tracking that individual’s interactions with a business (e.g., the ubiquitous plastic key card). Customers generally want to provide the minimum amount of information necessary to receive the program’s benefits, while businesses want to extract as much information as possible during the initial sign-up. The best loyalty programs minimize unnecessary friction while providing incentives for customers to provide more information about their experiences with the brand.
4. Make redemption effortless. Cutting coupons is a thing of the past for a reason: Most consumers don’t want to deal with the hassle of searching for offers, holding on to a piece of paper and remembering to hand it to the cashier at checkout. Mobile-centric loyalty programs, for example, are successful because anybody can download an app. Chick-fil-A saw a 20% increase in conversions thanks to its app-based Chick-fil-A One loyalty program, according to Digital Marketing News. The easier it is for people to redeem rewards, the more likely they are to sign up in the first place.
5. Pilot programs are essential. Changing how you interact with customers is a major endeavor, and even the best-run businesses will make missteps along the way. Reduce the risk to your business by launching programs with a test group. See how people react to the program, what the adoption rates are and how it impacts friction during customer interactions. Use this exploration period to test how the group responds to different versions of the program.
The obsession with customer loyalty is here to stay. But disruption will also continue to happen as new market entrants find creative ways to gather more customer data while eliminating friction. The businesses that offer personalized experiences and just-in-time rewards in ways that delight customers will position themselves for sales growth, while those that delay technology investments will risk falling behind.
Small businesses should be actively exploring loyalty programs, if they don’t have one already, but should not lose sight of business fundamentals. Not every loyalty program is a good loyalty program. At the end of the day, they have to drive sales and improve the company’s bottom line.