9 ways to generate customer loyalty

Loyalty schemes allow companies to tap into detailed information about their customers’ behaviour, encourage repeat customers and generate more revenue. However they need to be relevant to your customers’ needs. Here are some ideas for features, new and old, which companies are using.

Given the high cost of acquiring new customers, it’s not surprising that companies are keen to keep existing customers happy. Customer loyalty programs are big business – the Qantas Frequent Flyer Program recently signed up its 10 millionth member while MYER One has over 5 million members.

Loyalty programs allow companies to reward customers for repeated purchases, and tap into a rich seam of information about their buying habits and interests, which in turn helps drive customer engagement and revenue growth.Loyalty programs

The benefits are not limited to big business either – new online services have made software programs accessible for smaller firms and can help them compete more effectively against the big chains.

However not all loyalty programs are successful. The key lies in ensuring they are relevant and rewarding for your customers, so companies need to consider carefully what features and benefits to offer. Here are some of the different options, ranging from the more traditional to latest innovations:

1. Give points for spending

The most common type of loyalty program is where customers earn points for every dollar they spend which they can redeem later, in the form of free products or a discount on their future spending. The points-based system is most suitable where customers make frequent purchases, such as supermarkets, however it is not right for every business.

Mark Price, managing director of Waitrose, the upmarket British supermarket chain, believes collecting points is outmoded in an age of instant gratification. Waitrose stores are now giving out on-the-spot rewards to shoppers in the form of free coffee and a newspaper.

2. Create a tier system

Many hotel loyalty programs group customers into tiers – gold, platinum and so on – according to how much they spend, with those in higher tiers accruing points at a higher rate. Customers also receive perks such as room upgrades, free wifi, free breakfast and access to executive lounges, again depending on which tier they are in.

Tiered systems allow companies to tailor rewards more appropriately, so customers spending less don’t get tired of saving up points for an unachievable goal. The idea is to hook customers in and encourage them to increase their spending to move up to the next stage.

3. Tailor the rewards

The most successful loyalty programs tend to be those which tailor rewards to individuals’ interests. Fortunately new customer relationship management systems make it easier for companies to collect this type of information and differentiate their offer to reflect each customer’s profile.

Professor Marcel Corstjens of INSEAD and Professor Raji Lal of Harvard Business School argue that technology is allowing us to return to the way shopkeepers interacted with customers a century ago. “Shopkeepers knew each one personally and treated them accordingly. If that customer went to another retailer who didn’t know the shopper as well, he or she would receive an inferior service. Then as well as now, the more a shopper spends at a particular store, the better that retailer can offer specific value propositions that competitors can’t match.”

4. Consider perks and privileges

Creative rewards can give added delight to a loyalty program and make customers feel special – such as VIP invitations to exclusive events or sending them a gift on their birthday.

Peter Noble, CEO of digital agency Citrus, which has carried out research into Australian loyalty programs with marketing agency Directivity, says: “Ultimately financial rewards win the day for consumers and is the main motivation for joining loyalty programs. But a winning program is one that also has multiple emotional and unexpected benefits creating an element of ‘surprise and delight’ and tailoring offers based on consumer needs and preferences.”

5. Support a good cause

Another way to engender customer loyalty is to support causes which are close to their heart. With over 4 million members, Priceline’s Sister Club is one of Australia’s most successful loyalty schemes. In addition to its wide range of benefits – points, ‘secret sales’, deals, invitations to events and a birthday gift – it has set up its own charity. Priceline Sisterhood raises funds for other charities which reflect the main health concerns of women.

6. Allow customers to share benefits

According to the research by Citrus and Directivity, 65% of loyalty program members want to share their benefits with family, friends or a charity – and if they could share, 70% would shop more often and 45% would spend more.

Adam Posner of Directivity believes there is scope for marketers to differentiate their programs: “Apart from the big programs which offer a community connection or the option to give points to someone else, generally it’s not a big feature of loyalty programs,” he says.

7. Take your partners

Partnerships are an integral part of the leading customer loyalty programs such as Coles flybuys and MYER One. Smaller companies can follow their example by joining forces with others providing complementary products and services.

Partnerships will allow you to benefit from cross-selling opportunities and offer a broader range of benefits. Sarah Richardson, a loyalty expert who was formerly the general manager of loyalty at Myer Holdings, says: “One benefit of having partners is that it provides an extra revenue stream for the organisation because you ‘clip’ the ticket along the way.

“Customers will also engage more with the program because there are more places to earn and burn their points. But there are disadvantages too. For example, it can impinge on your brand if partners don’t behave the way you want them to.”

8. Charge a subscription fee

Charging for loyalty schemes may sound counter-intuitive but in fact it is a growing trend. Amazon Prime, one of the most successful subscription schemes, allows members to receive free shipping in return for an annual subscription, thus helping to overcome so-called ‘sticker shock’, where customers abandon their shopping carts at the check-out once they see shipping costs added to their bill. According to the consultancy McKinsey, Prime members are estimated to spend more than four times more with Amazon than non-members.

Subscription fees can also help companies to engage more closely with customers. A variety of retail websites now offer discounts on products in return for an annual fee. The Aquire program, launched earlier this year by Qantas to allow SMEs to earn points on flights, says it will charge an annual fee of $179 from October 2014.

9. Link in to social networks

Using loyalty programs in conjunction with social networks such as Facebook or FourSquare allows customers to act as ambassadors and spread the word to their friends. A new scheme by food brand Heinz allows customers who ‘like’ the Heinz Facebook page to receive a coupon which doubles in value when forwarded to friends.

Andrew Baxter, Chief Executive of Publicis Worldwide Australia, says research supports the need to balance financial benefits with the ability to ‘win hearts and minds’. He says: “Today, so-called soft rewards such as giving points when members share news about a brand on social media, or sending gift cards for simply logging onto their online account, are as important as the anticipated financial rewards.”

Last updated:
27 February 2019