Three Steps to a Better Loyalty Program

Well-crafted loyalty programs have the potential to greatly benefit companies by increasing their profitability, available customer intelligence data, and overall customer base. However, many are not achieving their full potential. The Boston Consulting Group analyzed the current landscape of reward programs and their results suggest that this is due in large part to the inherent complexity in creating loyalty programs.

The full white paper is worth a read. Authors Dylan Bolden, Patrick Hadlock, and Keith Melker explain the “economics of loyalty,” explore current programs in detail, and provide an action plan “leading to loyalty” that could serve as a starting point for your next loyalty rewards project.

Here we share a brief overview of the three main recommendation detailed in BCG’s report, “Leveraging the Loyalty Margin: Rewards Programs that Work”:

1)   Integrate with existing brand/marketing strategies

It took time for many companies to realize that their social media efforts needed goals aligned with greater business initiatives (and ties to all relevant departments) to succeed. It became clear that this allowed for the delivery of unified messaging to customers, and for efficient response to incoming comments and questions.

Similarly, the goals and procedures of loyalty programs must be closely linked to existing brand and marketing strategies for maximum effectiveness. BCG notes that ties beyond marketing and brand management departments to IT/CRM, operations, finance, and content management teams enables “access to customer data; deep relationships with key members across the organization,” and, ultimately, the “opportunity to drive significant value quickly.”

2)   Vary the “loyalty levers” employed

BCG identifies three major loyalty program strategies/levers:

  • Earn-and-burn levers: Basic frequency and points programs, in which customers’ purchasing activity earns rewards at preset thresholds.
  • Recognition levers: Frequent purchasing activity rewards customers with “progressively elite rewards tiers.”
  • Customer relationship management levers: Previous purchase data informs targeted offerings to customer segments.

BCG’s research shows that many companies rely heavily on earn-and-burn tactics, resulting in a stagnant and expensive program. They suggest varying the program’s reward strategies to capitalize on those efforts that increase customer spending at the lowest cost.

3)   Target the right customers

BCG’s research showed that “the most profitable programs invest more in [those] customers who spend more.” By setting up a tiered program with clearly defined thresholds and rewards, and then utilizing customer data to offer loyal members targeted promotions, companies can incentivize customer segments to increase spending.

Overall, BCG stresses that “successful loyalty programs are tightly shaped around the individual attributes of each company and brand.” By combining customer-focused rewards with targeted messaging, well-designed loyalty programs can reward companies with significant competitive advantages.

Read The Boston Consulting Group’s full paper, “Leveraging the Loyalty Margin: Rewards Programs that Work,” here.