Loyalty Program: how to build it

The Sand-Mill Model is a customer loyalty-oriented framework.
And in B2C there's nothing better than a Loyalty Program to make it work.

In this article I will show you how to create an effective Loyalty Program.

Programma Fedeltà: come funziona

Loyalty programs are a very effective tool to create and maintain a lasting relationship with your customers and represent one of the most effective drivers for the Sand-Mill Model Re-Purchase Wheel.

I'm not the only one saying this: according to the Loyalty Report 2021 conducted by Bond and Visa, loyalty programs influence 91% of consumers to make more frequent purchases and 63% to spend more on each individual purchase.

The keys to success, as in all relationships, are related to listening and the consequent relevance of communications: customers appreciate being recognized and rewarded for their purchases and loyalty to the brand. A well-structured and personalized loyalty program can be a crucial element for differentiate from competitors and create a strong emotional connection with customers.

Loyalty Programs are also an excellent tool for collecting customer data,  better understanding their preferences and purchasing behaviors, and connecting the dots between online and offline: loyalty cards have always been the best methodology for also tracking in-store purchases.
With this data, it is possible to trigger email and WhatsApp automations, to bring users back to our online or offline store with targeted suggestions.

The components of a Loyalty Program

One of the main advantages of a Loyalty Program is to introduce a dynamic of gamification in managing customer relationships, through points, levels, and rewards.

The Loyalty Points

Loyalty points are the thermometer of the customer's commitment in the relationship with the brand.

I have tested different ways of assigning points in the past.

The options available to us are:

• 1€ spent = 1 point: the most immediate understanding option
• 1 € spent = 100 points: this option can be used when you want to make the association between points obtained less immediate and more detached
• A turn of Wheel = 1 point: used to detach points from monetary value, measuring only the repurchase frequency as a loyalty index.

Points also allow you to take advantage of scarcity by setting an expiration date.

This can be set at the end of the year, after 365 days from the acquisition of points or according to other logics, depending on the average repurchase cycle. It is important to remind program members of this deadline with a series of automatic emails.

In order not to cancel out the advantage obtained in a calendar year in the following year, it is possible to set the retention of a certain percentage of the points obtained, or define saving thresholds, which can correspond to level thresholds.

When the previous points expire, the customer's balance will start again from the last saving threshold reached.

One last piece of advice: to strengthen branding, avoid simply calling them "points", but choose a creative and original name, linked to the brand or product.

Starbucks has little stars that it calls "Stars", Verdevero (an Italian brand of ecological and sustainable detergents) calls its points Little Leaves.

The Levels of the Loyalty Program

The levels of the Loyalty Program can be used to keep users motivated to achieve specific spending goals.

They consist of growing benefits that lead to rewarding the most loyal customers with exclusive advantages.

An example is Genius, Booking's loyalty program, where customers can reach higher levels by making new bookings through the platform.

The operation is simple: to move up a level, it is necessary to complete the required number of stays in 2 years. If a stay dates back more than 2 years ago, it will not count.

Once the advantage is obtained, it will last for life.

Programs like Genius are based solely on levels.

Therefore, they do not provide for redeeming points to obtain an immediate reward.

Genius, the loyalty program of Booking.

Is it better to use a tier system or a points redemption system?

It clearly depends on the business model.

However, loyalty program tiers and points redemption can be complementary if integrated correctly into a strategy.

We can do this by applying the Sand-Mill Model and its two main segmentation tools, the Wheel Turns and Value Tiers. Here's how:

• To identify loyalty program tiers we use Wheel Turns (number of purchases).
• To assign points we use the spending value, setting tiers to redeem rewards in conjunction with the Levels of Value.

The possible strategies that derive from this logic are many.

For example, we can match one of these levels to entry into the VIP Program, which in turn will unlock the right to double points for each purchase.

The points can then be redeemed and "burned" in exchange for rewards.

Rewards

Loyalty programs can offer customers a wide range of rewards.

Among the most common rewards are discounts on future expenses, free items, product or service upgrades, and access to exclusive content.

The rewards of loyalty programs can be divided into different categories, such as:

1. Discount coupons: points are converted into discount coupons that can be used online or offline.
2. Free products: these can be normal products for sale that are redeemed by converting a certain amount of points.
3. Brand exclusive accessories: these can be branded accessories, not for sale, but obtainable only through the loyalty program.
4. Exclusive access: this type of reward offers customers access to exclusive events, offers, or services.
5. Donations supporting a cause that shares the brand's values: for example, if the product is linked to sustainability, it is possible to offer the customer the opportunity to convert points into donations to environmental associations.

Loyalty programs can offer combinations of these rewards, creating a diverse system to incentivize customers to return and purchase. It is important to choose rewards that best fit your business and your customers to ensure the effectiveness of the loyalty program and enhance customers' shopping experience.

 

Advanced Tips

Once the Loyalty Program has been built, we need to make it effective.
Custom automations, integration with other Marketing Automation flows, and bonuses come to our aid.

Use automatic emails from the Loyalty Program

Automatic emails play an important role in adopting the Loyalty Program and making it effective.

I have written a specific article to analyze all automatic emails to implement in an effective Loyalty Program.

Here I want to emphasize two main types of emails.

The first email (the most important)

My advice is to introduce the Loyalty Program into the Re-purchase Wheel as soon as a user becomes a customer, celebrating this milestone.
In this first email, you can also suggest to the reader some activities to earn extra points.
We can encourage them to follow our social profiles and tag us in a Story, write a review, and invite a friend through the Referral program.

Reactivation

It is essential to set up automatic emails to reactivate inactive customers, those who are no longer making purchases from us.

I have mapped out different ways to reactivate users with automatic emails linked to the Loyalty Program.
1. Reactivation by offering extra points for purchases within a tight timeframe
2. Reactivation by suddenly loading bonus points: makes reaching new levels or rewards more attainable.
3. Reactivation anticipating the next milestone

If you want to know more, I have collected and mapped all the different automatic emails to be implemented for managing a loyalty program in this article.

 

Talk often about Points

To keep customers engaged in the Loyalty Program, it is useful to always keep them updated on their points and any expiration dates.

You can do this by including this information in a box at the end of the emails (both for post-purchase transactional emails and other automations).

This way, customers will always have their points balance and available reward options under control: this will encourage them to come back and make purchases.

For example, if a customer has 495 points and only needs 5 more to get a reward, the Abandoned Cart email can indicate the lack of a few points and highlight how completing the purchase allows reaching that specific reward.

This simple trick will increase the effectiveness and conversion rate of the email.

Provide a FAQ section

An effective Loyalty Program is clear and has simple goals for customers to achieve.

To reduce friction and the load of questions for your Customer Care, remember to include in the page of your website related to the Loyalty Program a FAQ section, with frequently asked questions and their answers.

This page can then be linked in all communications that refer to the points and the Loyalty Program.

Use Bonuses, Not Discounts

Once you understand how the Loyalty Program works, it is clear how bonus points are a healthier alternative to discounts for running promotions.

For example, with bonus points, we can surprise the customer on their birthday or encourage them to fill out surveys.

Bonus points also allow us to incentivize actions in support of the Advocacy Base (social media follows, story tags, reviews) and stimulate Referral.

We can test different ways of assigning bonuses and evaluate the impact on new spins of the Repurchase Wheel.

The three main ways of assigning bonus points are:

1. Direct loading to the customer's account:
   E.g. We have added 100 bonus points to your account! You have unlocked these benefits
2. Promotion for a limited time that doubles the assigned points:
   E.g. Buy by the end of the month and you will receive double Loyalty Points
3. Fixed bonus in exchange for a purchase:
   E.g. Make a purchase today and get 100 bonus points

I'll close with a final tip: to engage with your audience and at the same time strengthen your positioning, you can also award extra points from your Loyalty Program when people take an action consistent with your values.

For example? If you want to strengthen your sustainable positioning, offer an extra 100 points to those who plant a tree with Treedom!

Conclusions

I have analyzed the different components of a Loyalty Program and the elements to consider in order to strategically build it.

Keep in mind that very often less is more: better to have few mechanisms, but clear and easy to manage.

Many offline retailers, e-commerce businesses, and omni-channel realities have already implemented a loyalty program. However, they often do not realize that simply implementing it is not enough to make it work.

It is also necessary to communicate with customers in a relevant and personalized way, leveraging transaction data and building a relationship of mutual value.

This is where the power of Marketing Automation comes into play.

Building a plan that will accompany customers from the first purchase to subsequent cycles of the Repurchase Wheel is now essential. Remember to plan for reactivation emails using incentives on points instead of discounts and set up automations to remind customers about expiring points, suggesting how to use them.

And now? Dive deeper into all the automated emails you need to implement in your Loyalty Program in this article.