One of the most powerful tools in brand promotion is loyalty marketing. Think about it: Do you know anyone who doesn't have at least one shopper rewards card, or a points-earning credit card?
Loyalty programs are a win-win for your customers (in the form of enticing rewards and deals) and for your brand (in the form of your target audience choosing your brand over your competitors' offerings). These programs are also good because getting additional business from an existing customer is less costly than acquiring new customers.
It’s important to note, before we delve further, that loyalty marketing is not a fix for a brand with declining performance or serious issues; however, it can help a generally healthy brand maintain its edge and grow.
In addition, a loyalty program isn’t a whim; it’s a long-term investment that will evolve over time along with customers’ needs and preferences.
So, what should you be thinking about if you’re considering a program?
Financial Considerations for Loyalty Programs
To arrive at a budget, first ask yourself what your brand objectives are. Are you looking to increase retention? Drive repeat purchase? Build advocacy? Gain market share? You can have more than one of these objectives, but you’ll need to nail them down in order to arrive at the type of program you need, what it is going to cost, and the return you can expect.
At the same time, you need to analyze your competitors’ programs, if they have any. Try to spot the gaps and opportunities that will help you differentiate your program and increase business.
If you’re wondering about the ROI on a rewards program, start by calculating factors like increased purchase frequency, an uptick in the average value of an order, and, if new customer referrals are an earning activity, include those conversions in your calculation.
Then dig into your own metrics: What’s the lifetime dollar value of your customer? This also helps determine your investment. The highest value customers could justify more significant rewards, and the others could benefit from smaller incentives. One important thing to keep in mind is, if you decide to reward all customers, it could affect your return.
That said, the actual ongoing cost of the rewards and incentives themselves is far from the only expense in your loyalty program. You also have the initial setup costs — technology, for example, plus design and program development. You’ll also want to market the program for the launch, and on an ongoing basis.
Speaking of ongoing, you also need to factor in customer support and program management. And how will you fulfill all the redemptions? Be realistic about the budget and staffing required to create a seamless and engaging loyalty experience.
The Path from Loyal to Royal
Now that we’ve covered some of the financial aspects of your loyalty program planning, let’s talk about the program experience.
Typically, you have two choices: the traditional points-based loyalty program, in which redeemable points are assigned based on purchases, activities, or spending level, or you can go with an engagement-based program that offers VIP experiences, for example, or early access to special offers and events. You don’t necessarily have to choose one or the other; some companies incorporate both approaches — it’s just more complicated to administer such a program.
Earlier we mentioned that a loyalty program should be expected to change and evolve. What that means is, everything doesn’t need to happen at once. Start with a phased approach, and you can gradually introduce new features and rewards, expand eligibility, assess customer feedback, and optimize the program over time.
This has probably given you a lot to think about and, still, it just scratches the surface, but it should give you greater confidence if you’re thinking about a loyalty program. Many of our consumer promotions at Berlin Productions have been integrated with loyalty programs, so, if you’ve got more questions or you’re looking for help, contact us or our new promotions microsite, berlinpromotions.com.