When you are creating a customer loyalty program for your business, there are three main parameters to consider—Overall Structure, Rewards, and Customer’s position.
When these three things are planned well, we gain customer loyalty.
How to measure customer loyalty
Increased purchase frequency
This is achieved when customers purchase with a store more frequently than they did before. This can be done by offering a better value proposition and by reminding customers through emails, SMSs and notifications about your various offerings.
Increased basket and wallet size
When customers spend more at your store than they did earlier, they display loyal customer behaviour. This could mean buying more of the product they generally buy or buying other complementary or unrelated products at your store for convenience or other incentives.
Gaining customer advocacy
Customers become your advocates and promote you among their peers and social network when they feel satisfied.
Decreased customer price sensitivity
This occurs when customers purchase from your store even when you charge slightly or substantially higher than other stores selling similar products. This can be achieved when your products and services are superior than your competitors.
Extended customer lifetime value
When customers patronize your business for a long period of time, they show loyalty. This occurs when they feel satisfied with your products, prices and services. They may also stay connected for a longer time to get more benefits and discounts in the future.
Increased business performance
Employees, customers, management, and returns in your business show a positive attitude and trend.
Ideal loyalty model
The above seven things can be achieved through the following three attributes of your customer loyalty program.
1. Structure
You have to decide the kind of loyalty program you want to adopt—linear or tier-based.
Linear structure allows similar benefits and rewards to all the customers while a tier-based loyalty program structure lets customers purchase more with you to graduate to a higher tier level for enhanced benefits.
Tier effect: We have to understand the kind of mind shift consumers experience when they move from one tier to another. How differently do they feel about their connection to the business and products? What kind of community connection do they feel when in different tiers?
Number of tiers: Second thing to consider is the number of tiers that will be ideal for your customers’ motivation.
Transition from one tier to another: You have to decide the parameters on the basis of which customers graduate from one tier to the next.
2. Rewards
Consider the types of rewards your customers will appreciate at different levels or tiers. What will motivate them to switch from your competitors to you? What will motivate them to purchase more with you, at a higher frequency.
Reward type: Whether you should give redeemable reward points, cash back, free products, etc., should depend on what your customers value the most. A/B testing of rewards can be done to understand your customers’ behaviour.
Reward magnitude: The next thing to decide is the magnitude of rewards to be given to loyal customers in various tiers. Decide the percentage of sale you’d like to give back to customers through loyalty programs. You can also check if your customers relate magnitude to better or preferential service.
Reward frequency: Decide how often you’d like tor reward customers. You can give reward points on every payment made, give a product free on every fifth visit, or give a free consultancy session after 10 paid sessions. This depends on how much motivation your customers need to return.
Reward packaging: What kind of reward packaging influences customers’ behaviour the most? Check if better packaging of the reward program helps influence customers more with the same or low reward magnitude and frequency.
3. Customer factor
Customer-Program alignment: Check how aligned is your loyalty program with the expectations and behaviour of your customers. You can do a focus group survey to check what works with your customers. Alignment of the program with the aspirations and requirements of the customers is important to ensure that your Customer Loyalty Program is successful.
Role of the customer: Define the role of the customer in your loyalty program. Do they have to purchase more, visit often or stay connected to earn rewards or help you get the desired returns? Define and simplify the connection points between the customer and loyalty reward earning and redemption, so that customers can conveniently participate.
These three main heading need to be established well for any customer loyalty program to be effective and get the desired seven results mentioned above.
Loyalty software like Loyera help you step-by-step to address these three attributes through its sequential loyalty program set up features.