THE CLARUS Blog

Loyalty Program Design and Validation: How to Build the Framework for a Meaningful and Measurable Program

If you’re thinking about loyalty program design, these are some of the questions you’re considering:

  • What should your program look like?
  • Who should be involved in the process?
  • How do you make sure your customers will like it?
  • How can you ensure your organization can execute on it?
  • Where should you begin?

Just know that you are asking the right questions. And, rest assured, there is a proven process for getting you the answers you seek.

Whenever we partner with a retailer to build a premium loyalty program, we first hold a loyalty program strategy and alignment session to get all parties on the same page.

Then, we explore the 6 areas below to give you the answers to the questions above – And the direction you need for both your organization and for your customers.

With this approach, you will come away with a program that’s appealing to your customers, easy for them to participate in, and delivers meaningful incremental impact to your business.

Here are the key things to consider along your program design journey.

 

1. Figure Out Your Overall Program Value Proposition

The value of the program needs to be immediately evident to customers, without the need for them to do too many calculations.

Consumers are going to evaluate your offers for only a few seconds, so be sure to let them know about the rewards, benefits, and experiences they can expect as a registered loyalty program member. Those rewards, benefits, and experiences that should not be available to non-members. It should look, feel, and be exclusive.

If you’re wondering how to differentiate, it starts with taking inventory of your proprietary assets that can be used as rewards and benefits in the program.

Things like closeout/overstock products, service enhancements, celebrity spokespersons, sponsored events, a trip to your HQ, your community, your philanthropic initiatives, and so much more.

Strive for differentiation and be unique!

Your program should be simple to understand and enrollment should be easy.

The easier you make it on your customers, the more they will embrace it.

The program should also be automated and easy for you to operate. But, ensure ease of use for your customers and find ways to automate and drive efficiencies on the back end – either internally or via your loyalty partner.

 

2. Incorporate Targeted Promotions to Add Value, Create Excitement, and Maintain Interest

There’s more to loyalty programs than the foundational elements. Those are just table stakes. What makes a program exciting are promotions that add energy and drive engagement. It’s like having a sale without the margin erosion.

So how should you approach it? Well, seasonal promotions are a must but mix in others throughout the year to keep members on their toes.

As best you can integrate program promotions with the brand’s marketing calendar to increase your overall effectiveness and conversion rates. There’s nothing like a self-identified group of loyalists who are looking for ways to get closer to the brand.

Program members are the perfect group for you to test out new ideas, different types of offers, new creative and messaging, and even new products and services.

You’ve got their contact information. They’re more likely to provide feedback. And you can position it as an exclusive program benefit to your “most valuable customers.” As a bonus, you can measure program members’ behaviors against non-members.

There’s nothing but fertile ground and opportunity.

 

3. Use Easy to Understand Currency That Allows Flexibility for the Brand

When it comes to consumers assessing the equity value of a program, choosing the right currency is essential. The two most prominently used currencies are points and cashback.

Points are immediately understood by consumers. It’s what they’ve “grown up” with from the beginning. Points are a tracking mechanism used to resemble value accumulated in the program while allowing brands to declare they have no cash value outside of the program.

Feel free to brand them to meet your needs. Some popular names include tokens, stars, miles, etc.

Points also provide a great deal of flexibility by allowing the brand to adjust its value to better manage ongoing liability and costs. For instance, a reward item that was previously 5,000 points, can be increased to 6,000 points to help the brand burn off additional liability.

Just realize that consumer goods companies and other manufacturers have been doing this for years. When the cost of goods increases, they can either raise the price or reduce the quantity or, many times, do both.

Fortunately, points aren’t the only play or even the best option in all cases. Although consumers understand them, points don’t create loyalty.

Therefore, cashback and discounts, the cornerstone of premium loyalty programs, can be a more compelling tactic.

If you’re not a grocery store or commodity brand, then try to stay away from discounts and the margin erosion it ultimately represents.

Instead, use cashback in a branded currency that drives a repeat purchase with you.

The difference?

Discounts just lower your price in hopes that the consumer returns for another low-margin purchase. Whereas cashback is only paid out after the consumer makes a qualifying purchase – which many times compels her to purchase a higher amount than she planned to get a greater cashback benefit.

And once the program member receives her cashback, she’s more likely to return to use her reward as part of her next purchase in an amount that exceeds her reward – leading to yet another cashback reward. And the cycle continues.

 

4. Design an Unbelievable Program, But Be Ready to Launch with a Manageable One

When designing a program, I like to guide my clients to shoot for the stars. Let’s imagine all the wonderful things the program can be or would be if all things were possible. I don’t like to limit thinking and concepts based on observations of the typical things we see and experience every day.

Let’s identify those special, fun, personal moments that make you want to share them.

Even if we conceive of program elements that are impossible or difficult to implement today, it keeps us mindful of the greatness we want to achieve for ourselves and our customers.

Did you know that most programs launch at between 70%-80% of the final design?

Why is that you ask? It’s because we want to deliver an amazing experience. But what we can’t do is promise amazing and deliver ho-hum.

So, here’s a proven approach:

It’s important to get the basics right before layering on the extras.

Use a phased approach that gets you to market in a reasonable time, with a tested and proven platform.

Add the bells and whistles in phases because that keeps things manageable for the brand and IT departments for both the brand and the loyalty partner.

Introducing new program elements and benefits in quarterly/semi-annual phases keeps the members on their toes, engaged, and on the lookout for what’s coming next.

5. Determine Your ROI & Metrics

The beauty of a well-designed program is its ability to deliver measurable impact on customer behaviors and brand financials.

So, how will you know if your program is “measuring up”?

Establish benchmarks for known customers before program launch to be measured against their behaviors once they join the program

Program metrics are about driving incrementality and measurable engagement. Common metrics that allow us to track program performance include:

  • Incremental transactions (increase in frequency, AOV, total transactions, etc.)
  • Increased customer lifetime value (stay longer and spend more)
  • Improved customer retention (reduced churn YOY)
  • Program member behaviors vs. non-program members (members should exhibit more brand affinity than non-members)
  • More brand beneficial engagements (referrals, social follows/likes/shares, content consumption, event attendance, communications/offer acceptance, etc.)

A loyalty program should lead to additional profit and not be a cost center.

Like any investment, the brand should expect and receive a positive return.

Here are the loyalty program KPIs you should be measuring.

 

6. Think Outside the Box and Thrill Your Members

Engage employees and frontline associates in the validation of the design.

Solicit feedback from those who interact with customers daily such as in-store associates, call center agents, and field representatives. Make them part of the process by listening to them, recognizing their contributions, and rewarding them to keep them engaged.

Design the reporting and analytics templates before launch.

Know what you’re going to measure and ensure you can accurately capture the needed data and report on it. Without good data, we’re just guessing. And that’s not a sound approach when you must defend the value of your program.

With that said, know that we don’t always have all the data we need. But it’s OK to take some calculated risks. Look for ways of improving the value proposition and member experience.

Put yourself in your customers’ shoes. Focus on what they value most, not on what’s easiest for you to do.  Keep the program fresh with a continuous focus on program enhancements.

Stay on the lookout for opportunities to update your program and thrill your members.

Test new program features with a small group of program members each quarter. That doesn’t mean you have to implement the feature you’re testing, but it’s good to know what types of features move the needle.

 

There are No Absolutes in Loyalty Marketing

There may be many consultants and processes in the marketplace, but the fundamentals are similar.

Just pay attention to these program design rules and you’ll be just fine.

  1. Create a compelling value proposition that is a “no-brainer” for consumers.
  2. Add excitement with program promotions that are aligned with brand promotions and tentpole events. Continuously improve the program with new elements, earning opportunities, rewards, and member-only benefits
  3. Use easy to understand currency and remember – Points aren’t everything when it comes to building loyalty.
  4. Be comfortable with a 75% solution that can be run at near 100% efficiency and add new elements in phases over time to approach the ideal program design
  5. Identify member behavior benchmarks and program performance metrics before launch. And be ready to track the program performance with regular reporting and quarterly strategic program reviews based on your KPIs.
  6. Be better than average. And most certainly, don’t be “me too.” Be bold!

Designing loyalty programs is 60% science and 40% art. There are no absolutes in loyalty marketing.

So, don’t let anyone convince you that they know everything that’s going to happen in your program and exactly how your customers will behave.

Do the right thing for both customers and employees and you won’t regret it.

Next, learn more about creating a profitable premium loyalty program financial model.

And if you want to talk more about loyalty program design for your brand, reach out to us anytime.

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