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How to Build a Customer Loyalty Program That Works (Real-Life Examples and Key Takeaways)
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How to Build a Customer Loyalty Program That Works (Real-Life Examples and Key Takeaways)

Oct 06, 2023
    |    
7 min read
    |    
Hiver HQ
Siddharthyka Saraswat

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Imagine stepping into Starbucks on your birthday morning, a place where the aroma of coffee is the universal language. You order your usual, and the barista, recognizing you, smiles and goes, “Happy birthday! This one’s on the house.”

This is Starbucks Rewards in action—a customer loyalty program that contributes to 40% of the coffee chain’s total sales revenue.

A customer loyalty program is more than just a marketing strategy; it’s a way to say, “We value you” to your customers. It’s a way for your business to build a sense of loyalty and community with your customers.

But building a customer loyalty program that works is easier said than done.

So, what goes into building a customer loyalty program? And what can you learn from some of the best customer loyalty programs today? We’ll answer all these questions and more in this article.

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What is a Customer Loyalty Program?

A customer loyalty program is a structured marketing strategy designed to encourage customers to continue to shop at or use the services of a business associated with the program. It’s like a virtual pat on the back, saying, “Thank you for choosing us. Here’s a little something to show our appreciation.” 

Why is it needed, you ask? In today’s competitive market, acquiring new customers can be significantly more expensive than retaining existing ones. A well-structured customer loyalty program not only helps in retaining customers but also in enhancing the overall customer experience and brand affinity.

Benefits of a Customer Loyalty Program

Apart from the fact that retaining customers is cheaper for businesses, there are a whole lot of reasons to invest in building a customer loyalty program. A good customer loyalty program can move your key metrics in the right direction and help you make better, data-driven decisions. Here are some benefits of a customer loyalty program:

1. Increased Customer Retention: A loyalty program rewards customers for repeat business, encouraging them to return and make additional purchases.

2. Enhanced Customer Engagement: By offering exclusive rewards or benefits, businesses can keep customers engaged and foster a sense of belonging.

3. Boosts Brand Reputation: Positive experiences and rewards lead to satisfied customers, who are more likely to share their experiences and recommend the brand to others.

4. Data Collection: Loyalty programs provide valuable insights into customer preferences and buying behavior, enabling businesses to tailor their offerings more effectively.

5. Higher Revenue: Loyal customers tend to spend more, and enticing rewards can increase the average transaction value.

6. Boosts Customer Loyalty: A customer loyalty program, as the name suggests, brings customers closer to the business and offers lifetime value to the customers. 

How to Build a Customer Loyalty Program for Your Business?

Let’s go back to our first question, “What goes into building a customer loyalty program?”. 

It involves understanding what your customers will appreciate and aligning your own business needs with it. Then, the task is to promote the program the right way so that your customers feel the need to be a part of the loyalty program you have built.

Let’s break down the process into points and understand each step in detail:

1. Define Your Goals

Before you outline your customer loyalty program, you need to have a clear answer to what you want it to achieve. Whether it’s increasing customer retention, boosting sales, or gathering customer data, having clear objectives will guide the program’s structure and rewards.

This can be further broken down into these actionable steps:

  • Set Clear Objectives: Identify the specific outcomes you want from the loyalty program, such as a percentage increase in customer retention or sales. Clearly defining these objectives will help in creating a focused and effective program.
  • Know How You Will Measure Success: Develop key performance indicators (KPIs) like customer engagement levels, redemption rates, and incremental sales to evaluate the program’s effectiveness and make necessary adjustments.

    Once you roll out your customer loyalty program, these metrics will tell you whether or not it’s working for your customers. Customer service platforms with custom reports, like Hiver, can help your team track the metrics you want.
Track key metrics to gauge the success of your customer loyalty program with custom reports on Hiver.
  • Align with Brand Values: Your customer loyalty program should have the same voice as your brand’s. It should reflect your brand’s ethos and values. It should enhance your brand image and create a cohesive customer experience.

2. Understand Your Customers

The most tricky part of building your customer loyalty program is pinning down exactly what your customers want. Research your target audience and understand their needs, preferences, and behaviors. This will help create a program that resonates with them and offers truly valuable rewards.

Let’s break this down further and see how you can understand your customers to build the right customer loyalty program:

  • Conduct Market Research: Utilize surveys, focus groups, and data analytics to delve deep into your customers’ preferences, needs, and purchasing behaviors. This insight is crucial in developing a program that resonates with your audience.
  • Create Customer Personas: Develop detailed personas representing different customer segments. This will help in customizing the program to meet the varied needs and expectations of your diverse customer base.

💡 Case In Point: Sephora’s Beauty Insider Program

Sephora Beauty Insider is a tiered customer loyalty program that rewards customers for spending money at Sephora. Customers earn points for every dollar they spend and can redeem points for discounts, exclusive products, and other rewards. 

Sephora’s Beauty Insider Program | Customers can redeem their reward points by choosing a product of their liking.

The program has three tiers:

  • Beauty Insider: Customers earn 1 point for every dollar they spend.
  • VIB: Customers earn 1.25 points for every dollar they spend and receive exclusive benefits such as early access to new products and sales.
  • Rouge: Customers earn 1.5 points for every dollar they spend and receive the most exclusive benefits, such as free shipping, early access to limited-edition products, and personal shopping experiences.

Actionable takeaways:

  • Offer tiered rewards to incentivize customers to spend more money.
  • Offer personalized recommendations for products/services when customers redeem their points.
  • To create stickiness with your business, provide exclusive benefits to higher-tier members to make them feel valued and appreciated.
  • Make it easy for customers to redeem their rewards, irrespective of the customer persona.

3. Choose the Right Rewards

Based on your understanding of your customers, select attractive and relevant rewards. This could be discounts, exclusive access, freebies, or cashback. Your rewards should be able to cover all your personas, i.e., all your customers should ideally find value in your loyalty program.

For example, we talked about the Starbucks Rewards program at the beginning. It offers free drinks, food items, and early access to new products, catering exactly to the preferences of its coffee-loving customers

Here’s how you can choose the right rewards for your customer loyalty program:

  • Offer Valuable Incentives: Select rewards that have real value to your customers. Whether it’s exclusive products, early access, or personalized services, the rewards should make the customers feel special and appreciated.
  • Ensure Relevance: The rewards should align with your business model and be relevant to your products or services. For instance, a restaurant might offer a free meal after a certain number of visits, while an online store might offer discount codes or free shipping.

💡 Case In Point: Amazon Prime

Amazon Prime is a paid membership program that paved the way for premium loyalty programs. It offers customers a variety of benefits, including free two-day shipping, access to exclusive deals and discounts, and streaming services such as Prime Video and Prime Music.

Amazon Prime | Customers get various benefits with Prime membership, including access to Amazon Prime Video, free delivery, exclusive deals, and more.

Amazon Prime is one of the most successful customer loyalty programs in the world and has helped Amazon to become one of the most valuable companies in the world.

Actionable takeaways:

  • Offer a variety of benefits to appeal to a wide range of customer personas. As the company says, “There’s something for everyone with Prime,” Prime offers a variety of benefits, such as free shipping, streaming services, and exclusive deals, which makes it appealing to a wide range of customers.
  • Make it easy for customers to join and participate in your program. Customers can join the Amazon Prime with just a few clicks.
  • Offer exclusive benefits to members to make them feel valued and appreciated. Amazon Prime members have access to exclusive deals and discounts, as well as other benefits such as early access to new products and services.

4. Promote Your Program

Once your program is up and running, promote it through various channels like email, social media, and in-store advertising to maximize participation.

As we just discussed, Amazon Prime is a prime example of effective promotion, leveraging its vast platform to offer a multitude of benefits.

Let’s take a look at how you can do this with your customer loyalty program:

  • Leverage Multiple Channels: Use every available channel, including your website, social media, email newsletters, and in-store displays, to promote your loyalty program and encourage sign-ups. Diversifying your promotional channels maximizes reach and participation.
  • Create Awareness: Develop engaging and informative content to educate your customers about the program’s benefits. Use clear and compelling messaging to convey the value of joining the loyalty program.

💡 Case In Point: Uber Rewards

Uber Rewards is a loyalty program that rewards Uber users for taking rides and ordering food with Uber Eats. Users earn points for every dollar they spend on Uber rides and Uber Eats orders and can redeem points for discounts on future rides and deliveries. The program also offers members exclusive benefits, such as priority pickup, access to premium vehicles, and free rides and deliveries on their birthdays.

Uber Rewards | Customers can gain points by using Uber rides or Uber Eats to get discounts on future rides and deliveries.

Uber promoted the Uber Rewards loyalty program through a variety of channels, including:

In-app messaging: Uber sent in-app messages to users about the program and its benefits.

Email marketing: They sent email newsletters to users about the program and its benefits.

Social media: They promoted the program on social media platforms such as Twitter, Facebook, and Instagram.

Paid advertising: They ran paid advertising campaigns to promote the program.

Key takeaways:

  • Promote your loyalty program through a variety of channels. Uber promoted the Uber Rewards program through a variety of channels, including in-app messaging, email marketing, social media, and paid advertising.
  • Make it easy for users to join and participate in your loyalty program. Uber Rewards users can join the program with just a few taps in the Uber app.
  • Offer a variety of rewards to appeal to a wide range of users. Uber Rewards users can redeem their points for a variety of rewards, including discounts on rides and deliveries, access to premium vehicles, and free rides and deliveries.

Build A Customer Loyalty Program That Truly Delivers Value

Building a customer loyalty program is no small feat, but it’s well worth the effort. It’s about understanding your customers deeply, acknowledging their loyalty, and giving back in a way that resonates with them. It’s not just about offering rewards; it’s about creating lasting relationships and enhancing the overall customer experience.

When you look at successful programs like Amazon Prime or Sephora’s Beauty Insider, it’s clear that a well-thought-out loyalty program can be a game-changer. It’s about finding that sweet spot where your customers feel valued and your business experiences growth and enhanced brand reputation.

Remember, the key is to keep it simple, relevant, and valuable. Listen to your customers, understand their needs, and offer rewards that they truly value. It’s a continuous journey of learning and adapting, but the rewards – increased customer retention, higher revenues, and stronger customer relationships – are well worth the journey.

An engineer turned B2B marketer, Siddharthyka creates research-driven, actionable content for professionals from various backgrounds, such as customer success, IT, and finance. She also collaborates with industry experts to create insightful campaigns and content for readers. When away from her work desk, she can be found reading about the cosmos or picking a new coffee roast to try.

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