Want to create a customer loyalty program that increases retail sales? Check out this guide on customer loyalty cards and retail rewards to discover how to set up a rewards program that keeps your customers coming back.

In a recent post I talked about the importance of customer loyalty. Getting your existing customers to come back saves you money in the long run because it costs up to 5x as much to attract new customers. Sinking your budget into customer acquisition is a major gamble that rarely yields results, especially for brick and mortar retailers.

When you can build customer loyalty you grow revenue, plain and simple. Research has proven that returning customers spend 67% more than new customers and as many as 82% of customers are brand loyal.

“The success of a brand doesn’t merely depend on the value of a customer’s single purchase,” said Ankit Runwal, marketing specialist at Social Annex. “Rather, it’s about the value the customer offers over his lifetime.”

One of the easiest ways to build customer loyalty is by rewarding your customers for their business with loyalty cards and retail rewards.

Why Retailers Need Customer Loyalty Programs

Everything You Need to Know About Customer Loyalty Programs — Why Customer Loyalty Programs Work

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Think about that frequent coffee buyer hitting up Tim Hortons or Starbucks throughout the work week. With each purchase they earn rewards on a digital punch card or reward points that accrue on their account.

Those points eventually add up to a free coffee… and they know it. They know that every purchase gets them closer to that freebie.

These types of programs are popular because customers get more bang for their buck. The loyalty program creates value, and it’s effective at getting customers to return. According to research from Nielsen, 84% of consumers prefer to shop with retailers who offer this kind of loyalty and rewards program. Loyalty matters because it lifts your bottom line. Increasing your customer retention rate by 2% can reduce overhead costs by as much as 10%, and boosting retention by 5% can increase revenue 25-100%.

You’ve already got a terrific product and you offer an amazing customer experience. When you add a customer loyalty program on top of that you can easily convince them to choose you over another local business. And when they choose you they’ll choose to spend more – a lot more. A 2016 Bond Loyalty Report sponsored by Visa found that 66% of consumers will actually increase the amount they spend to maximize the accrual of reward points.

There’s also the benefit of word-of-mouth. The same report showed 73% of rewards members are more likely to recommend retailers with great rewards programs.

Another huge benefit for retailers is the ability to incentivize specific purchase behaviors so customers take the action you want them to take… like buying products you need to turn over in your inventory, improving sales for new product launches, or making purchases on specific days/times.

The Customer Benefits are What Keep Them Coming Back

Everything You Need to Know About Customer Loyalty Programs — Benefits that Keep Customers Coming Back

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While there are plenty of benefits for you, don’t make the rewards program solely for your benefit. 66% of marketing executives believe that loyalty programs are designed to build customer loyalty. That’s true, to a point. But your customers don’t necessarily see it that way. More than 70% of consumers feel loyalty programs should demonstrate the retailer’s loyalty to the customer.

They don’t always want a dollar value. Customers want to know they can trust a retailer. When you offer valuable and meaningful incentives, you reach customers on a personal and emotional level. Those incentives indicate that you understand what your customer wants, you’re loyal to them, and you’re willing to give back as a show of thanks. That nurtures trust and grows the relationship, and it makes them feel more comfortable shopping with you.

Plus, there’s a certain level of gamification that comes with most loyalty and retail rewards programs. Accruing points and reaching reward milestones is an achievement. From that perspective a loyalty program can enhance the shopping experience with a certain amount of entertainment.

How Retailers Get Loyalty Programs Wrong

Everything You Need to Know About Customer Loyalty Programs — How Retailers Can Avoid Simple Mistakes

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When you’re not willing to focus on the customer with your loyalty program you can seriously hurt engagement and the lifetime value of your customers. Some retailers see more than 90% of customers sign up for reward programs. Yet, on average, only 42% of loyalty program members are active.

A few reasons why rewards members lose interest and shop elsewhere:

  • 85% of retailers struggle with how to add value outside of product discounts
  • 97% of loyalty programs are transactional – customers have to spend money to earn rewards
  • 77% of transactional loyalty programs fail in the first two years.
  • Only 25% of loyalty programs reward customers for non-transactional engagement
  • 78% customers are dissatisfied with the lack of personalization in rewards programs

What Customers REALLY Want from Loyalty Card Programs

Everything You Need to Know About Customer Loyalty Programs — What Customers Really Want

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It’s no surprise that customers want free stuff. According to data shared by UPS and eMarketer, product discounts and free products topped the list among respondents when asked to identify the most valuable loyalty program benefits.

But there were a number of other perks that customers wanted to see as well. The list included:

  • Product discounts
  • Free products or cash back, gift cards, or rebates
  • Free shipping
  • Access to exclusive sales, discounts, and promotions
  • Added convenience or priority treatment
  • Customized recommendations based on their purchase behavior
  • Elevated status
  • Being recognized as a frequent shopper

Today’s customers are also looking for other benefits with their loyalty programs:

  • Going digital with an app rather than requiring a physical rewards card or key tag
  • Improving communication and keeping members up to date on points and status levels
  • Rewards programs that work both in store and online for retailers with an omnichannel presence

You don’t have to offer your customers everything, but you do want to make sure your rewards program has value specific to their needs and interests. Personalization is a great place to start. From there you should communicate with your customers. Engage them with conversation and surveys to reveal what they find most rewarding. Show them you value their opinion and build trust by refining your reward program based on their feedback.

Types of Retail Loyalty Programs

Everything You Need to Know About Customer Loyalty Programs — Types of Loyalty Programs

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There’s no right way to administer a loyalty program. They take several forms and you don’t have to limit yourself to a single type of retail loyalty program.

Point-Based Loyalty Rewards Programs

This is one of the most common approaches to a loyalty program in retail. This is commonly seen with fuel and grocery rewards and at stores like Gamestop and Sony Rewards. Customers earn points when making purchases where the points earned are based on the amount spent.

Those points are assigned a monetary value and can be spent like cash as they’re accrued.

The Good:

  • There’s tangible value for customers as they save up points
  • Flexible enough when customers can purchase whatever they want with points
  • Can be used to drive specific customer’s actions by promoting specific products
  • Steers away from the discount model to keep average order values high

The Not-So-Good:

  • Point programs can be confusing to operate and administer
  • You may have to operate a separate portal, catalog, or kiosk for redemption
  • Lacks the “instant reward” that comes from other rewards programs

Tiered Loyalty Rewards

Tiered loyalty rewards track the behavior and purchase habits of customers. As they move up through the tiers, customers unlock additional benefits, incentives, and rewards that typically increase in value. This is the most common reward model seen in retailers like Sephora and Best Buy, as well as with airlines and the hospitality industry.

The Good:

  • Tiered rewards reduce the churn rate of your most valuable customers. High value rewards keep them coming back
  • Lower-tier rewards require less of a cost investment
  • New members are instantly rewarded as soon as they join

The Not-So-Good:

  • Tiered programs can be complicated to set up
  • May be less appealing to new customers unless the value hook in the entry tier is just right
  • Appeals toward luxury or high-end business as opposed to a small retailer
Everything You Need to Know About Customer Loyalty Programs — Types of Rewards Programs

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Paid Loyalty Rewards Programs

Paid programs are less common at the brick-and-mortar level but not out of the question. They can be attractive for the right customer audience when there value behind joining is obvious. These kinds of loyalty programs provide an exclusive feel where customers only gain access to the benefits when they pay the membership fee but once they’re in, they’re in, and they don’t have to spend more to gain additional benefits.

Gamestop uses a point system and also has a multi-level buy-in membership. The membership offers product discounts, free shipping, exclusive content, gaming magazines, and more. Amazon Prime is another example of a paid loyalty rewards program.

The Good:

  • Customers tend to spend more under paid loyalty programs
  • They’re simple and straightforward, making them easy to understand
  • Loyalty program provides an additional revenue stream
  • Highly targeted to a specific audience segment

The Not-So-Good:

  • It can be difficult for first-time customers to see the value in a paid membership
  • A payment gateway to membership is a point of friction that some customers will never cross
  • Paid programs are likely to require additional levels of customer service

Punch Card Loyalty Rewards

Punch cards are one of the oldest forms of rewarding loyal customers. Some retailers still use a custom punch on a paper card or a special stamp. A local coffee shop I frequent still punches physical cards. Subway used to use punch cards as well as sticker cards that you could save up to get a free sandwich.

It’s a novel concept that’s effective. One purchase equates to one punch on the card. Fill up all the spots on a card and you get an exclusive discount or free product. The thing is, customers are less inclined to keep track of punch cards nowadays. Thankfully, there are plenty of retail rewards programs that have switched over to digital punch cards built into branded apps.

The Good:

  • One of the easiest programs to track
  • Remains one of the most familiar models among consumers
  • Extremely low cost to implement in a retail business, especially with digital punch card apps
  • Digital punch card programs make personalization and targeted rewards much easier

The Not-So-Good:

  • Can be a common target of loyalty fraud if not carefully monitored
  • Like discounts and freebies, the punch card rewards may decrease perceived product value

Tips to Launch a New Rewards Program

Everything You Need to Know About Customer Loyalty Programs — How to Launch a Rewards Program

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Implementing a new rewards program is the first step to improving customer loyalty and lifting revenue. But, a reward program doesn’t sell itself. You can’t flip the switch and expect benefits right away. If you’re thinking about adding a loyalty program, here are some tips to keep in mind.

Make it Simple to Administer

If your rewards program is difficult for you to setup and understand there’s a good chance it could also be troublesome for customers who are in a hurry. Don’t make your rewards program any more complex than it needs to be. If a simple points accrual or punch card program works for your store then run with it.

Make it Simple to Earn

If customers don’t understand how they can earn points and rewards in your program then there’s a good chance they’ll lose interest or ignore it completely. A lot can be said about simple programs where rewards are as transparent as “Spend $100, Get 10 points.”

Also, give them more ways to earn beyond purchases. Focus on customer engagement that brings value to your business. This can include things like:

  • Registering an account and sharing extended personal info
  • Birthday
  • Purchasing specific items
  • The amount of money spent (high and low – don’t neglect any audience segment)
  • Social engagement with your retail store and social shares
  • Referrals that bring you new customers
  • Signing up for your email list
  • Shopping on specific dates
Everything You Need to Know About Customer Loyalty Programs — Keep it Simple

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Make it Simple to Spend

You also want to make it easy for customers to spend their rewards. Every step you make them take is a point of friction that will turn them off to using the rewards program again. Spending to take advantage of rewards should be no more difficult than a normal transaction.

Make it Easy to Join

Are you noticing a theme here yet? Simple is key. If you want customers to join then make it easy to do so. Don’t try to collect a ton of information especially when you have them doing something they didn’t anticipate. Gather the minimum information to get them registered. You can always follow up with an email with a survey or a login to provide more information to further customize their rewards.

Make it about the Customers

Remember, most customers feel that loyalty programs are about showing your loyalty to the consumer. Make it clear in the rewards and earnings that the program is all about them. If you’re focused on earnings and profit then you could limit the perceived value resulting in fewer signups and abysmal participation.

Make Promotion a Regular Thing

People need to know about your program in order to take advantage of it. Your employees should be promoting the program with every customer that comes into your store but don’t neglect other routes of promotion:

  • Post to your social channels so your followers know about it
  • Announce it and provide updates in your subscriber newsletter
  • Send personalized, automated emails reminding members of their points, status, and available rewards
  • Sign people up automatically with an offer of points on that very first purchase
  • Encourage rewards from referrals so your customers turn into brand advocates that bring more customers, and more rewards members
  • Post signage in your store and online detailing the perks of your program and how to join

Recommended Loyalty Programs for Brick-and-Mortar Retailers

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Top image via Satori Studio.