According to Bain & Co., by increasing retention by as little as 5%, companies can boost their profits by up to 95%. Most marketers understand this reality and know that an effective loyalty program can be instrumental in retaining current customers as well as acquiring new ones. This is why more and more brands are implementing loyalty programs; in fact, the loyalty management market size is projected to grow from $11.4 billion in 2024 to $25.4 billion by 2029.1
Loyalty programs play a pivotal role in securing a brand’s position as the preferred choice among consumers, fostering increased engagement and brand loyalty. A healthy loyalty program is an integral part of the incentive that draws in new customers. According to McKinsey & Co., customers of brands with existing loyalty programs are 50% more likely to recommend them to others – thus playing a role not only in retaining customers but also in attracting new ones through positive word of mouth.
Also bolstering retention is the enhanced value that loyalty program members receive from the time and money they spend with a brand, typically through rewards. For members of top-performing loyalty programs, 64% are more likely to purchase more frequently and 35% are more likely to choose the brand over competitors.2
In addition to retaining customers, a loyalty program with the right incentives will encourage customers to spend more by buying a broader set of goods or services, or spending more on each purchase, and purchasing more often. McKinsey found that 31% of loyalty members were willing to pay a higher price to stay with a brand.3
While the number of consumers who belong to loyalty programs continues to grow, they are only actively participating in a few. For this reason, brands are dedicating more resources to building new loyalty programs or redesigning their existing ones to bring greater value to both their customers and their business.
How can brands successfully launch or improve an existing loyalty program and avoid missteps along the way? We’ve broken it down into 6 phases:
To find where you want to go, you need to have a full understanding of where you are. Benchmark the current state of your loyalty program if you have one. If you don’t, analyze your customer base and their activity and feedback, in combination with the current market environment, your competition, budget and business objectives. This can help make informed decisions and establish the goals of your new program. Define the key performance indicators (KPIs) for your program – engagement and conversion rates, revenue per customer and per campaign, purchase frequency, etc. – then benchmark where you currently are to inform your future goals.
These data points will help measure customer activity and behavior:
These metrics help quantify the business value loyalty members contribute and identify ways to increase it:
Marketers can use surveys to gather data on customer satisfaction with their own or competitors’ loyalty programs to provide insights into which brand interactions or incentives are most valued by prospective or current loyalty members. You can begin by surveying customers about different loyalty program benefits to determine which incentives they value most, such as:
After analyzing metrics, marketers should overlay their findings with a few additional insights:
The outcome of Phase 1 is a brief which lays out the vision for the brand’s loyalty program. It will outline the program’s objectives, the brand’s current marketing or loyalty KPIs, as well as success metrics for the new or redesigned loyalty program.
LEGO, facing intense market competition, saw a need for stronger customer retention. Partnering with ZAP, LEGO launched a tailored loyalty program offering points and exclusive discounts for their customers. The program was outfitted with personalized rewards that catered specifically to individual preferences.
The seamless integration with LEGO’s existing operations allowed for complete control over branding and customer experience. Within the first year of the program’s rollout, the program achieved remarkable results: a 3,691% increase in customer visits, a 2,310% rise in new member enrollments, and a 3.280% boost in loyalty transaction value.
This case highlights the importance of understanding customer preferences when designing a loyalty program.
Based on insights gathered from the goal-setting phase, marketers should consider three primary design categories:
Whether implemented individually or combined in a hybrid model, the design should be tailored to a brand’s specific business goals and customer preferences. The loyalty program design determines how a program is built, what incentives and features it boasts and what type of customer experience it offers. In order to make an informed decision, marketers can outline the core benefits of each design option and consider how each one would work within their business. A few questions to consider are:
Once you decide which design option you will implement, the design phase is all about building a detailed program structure and testing before you hit the GO button.
During this phase, you will ensure that everything you need to enact the program is operational. This might include:
Categories for loyalty program communications might include:
After establishing which types of messages apply to their new loyalty program, marketers can create a calendar to introduce these communications over time.
In an integrated communications program, Whole Foods launched their new loyalty program, 365 Rewards in conjunction with their campaign to introduce their new, lower-priced concept store 365. Whole Foods created a cross-channel campaign that complemented their communications around the 365 brand launch, and included a wide range of marketing communications like cross-channel videos, direct mail postcards, displays ads, in-store signage, mobile application, and content modules on the 365 website. Their efforts resulted in 7,500 rewards sign-ups within four weeks of the store opening and more than 20,000 rewards sign-ups in the first four months.
During this phase, you will be executing against the comprehensive roadmap and detailed project plans you developed during Phase 3. It’s time to hone in on the individual project plans that spread across multiple departments.
At this point in the process, the steps involved are custom to each brand and depend on the program design option a brand has selected, its industry and its technology needs.
In Phase 4 you will create all of the marketing collateral and technology tools needed to implement the communications plan developed in Phase 3. These may include apps, websites, direct mail pieces, emails, social media accounts, etc.
Launching or relaunching a loyalty program requires coordination among multiple teams—marketing, IT, accounting, and operations. This phase is crucial for finalizing organizational workflows and management details to ensure smooth program implementation. Each team will have unique project plans, but coordination across departments is essential to meet project milestones in sync. Assigning a dedicated point person for technology partners helps ensure accountability and keeps builds or integrations on schedule. By the end of Phase 4, all detailed plans should be executed, and the loyalty program should be poised for a successful launch.
5-4-3-2-1 Lift-off! After all the planning, analyzing, and working to put the plan in place, the day has come to hit the START button. This short phase can be quite frenetic since there are so many different channels, messages and people involved. This is part of the reason that having a mapped out, ready-to-go communications plan is essential for getting things right during the launch.
The launch of the Disney Movie Insiders program demonstrates how a meticulously planned loyalty program can seamlessly transition from the drawing board to reality.
Disney’s reimagined loyalty initiative engages fans with a point-based system that rewards their passion for movies. With a comprehensive communication strategy spanning social media, mobile apps, and emails, the launch day was orchestrated to ensure maximum engagement and clarity.
By earning points for each purchase and redeeming them for enticing rewards like gift cards and collectibles, members are enticed into a cycle of continuous participation. Disney’s omnichannel approach ensures that every touchpoint – from sign-ups to point redemption – is captivating and user-friendly.
Thanks to their well-executed loyalty program, Disney was able to transform customer interactions into a seamless, rewarding experience, highlighting the power of a detailed launch plan and innovative engagement tactics in creating a loyalty program that not only retains customers but also turns them into devoted brand advocates.
The earlier planning phases called for a definition of how success is measured and monitored. Once the loyalty program is launched, marketers should immediately start collecting data about its performance.
This could include, but is not limited to:
As initial data is collected, be ready to look for early negative indicators and solve for them immediately. Once you have collected enough data to identify trends, stakeholders can review the information and adjust the loyalty program’s rules or approach, if needed. These may be small tweaks to delivery channels or messaging, or as in the case of Woolworth, they may be significant changes to the program structure. Establishing a regular cadence for reviewing performance and optimizing the program will ensure it is a successful investment.
Loyalty is the connective tissue between the company and the customer. A well-designed loyalty program can:
A 5% increase in customer loyalty can increase the average profit per customer by 25% – 100%4, which is why creating a healthy program is so important to a brand’s bottom line. A strong loyalty program can build not only transactional loyalty, but long-lasting emotional loyalty, trust and advocacy.
1 https://www.globenewswire.com/ 2 https://aws.amazon.com/ 3 https://www.linkedin.com/pulse/power-loyalty-tom-smith 4 invespcro.com
Data Axle Olivia is a rising senior at Boston College from West Chester, PA. This summer, she is a Marketing and Research Assistant Intern at Data Axle, where she collaborates on creating product and sales content, conducts research, and generates ideas for various content formats. Outside of work, Olivia enjoys cooking, running, creating oil pastel art, and practicing hot yoga.