Five Things a Good Loyalty Program Should Have

I’ve done a lot of thinking and consulting with respect to when loyalty programs are more appropriate for a business and when they aren’t.

Of course, there are many different issues to consider when and if your company does a loyalty program, but I think today’s five most important components of a good loyalty program are:

1. Insight. Never waste an opportunity to gain insight about a customer. An effective loyalty program will offer a choice of services or treatments in order to reveal more about a customer's personal preferences. Providing points in return for completing surveys or responding to inquiries can generate a wealth of insights, but so can more specific offers designed to illuminate different customers' different motivations. A financial services firm, for instance, could improve insights into a customer's needs and investment perspective by offering a mix of awards based on either lifetime achievement or short-term behaviors. With an appropriate mix of awards you could even encourage customers to specify their prizes in advance of earning the points to redeem them, in order to gain these insights earlier.

2. Modularity. An effective program is modular, enabling participants to mix and match aspects to their own preferences. Modular offerings are a practical way to allow for customer-driven personalization of a program without going to the extreme of full customization. Key aspects of the program, like member qualification, can be developed with several alternatives, and customers can be offered a set of guided choices to select from. A sophisticated marketing approach would offer different sets of choices for different groups of customers based on their value—so everybody wouldn't be choosing from the same set. For example, a lower value customer might chose from rewards alternatives that include a service upgrade, while high value customers might have choices that include additional redemptions or alternative merchandise. In addition, modularity will allow a program to incorporate partners and co-sponsors more easily.

3. Openness. Consumers value openness. They want a service or program that works with other programs. The more open your program is, the more beneficial and attractive it will be to customers. Transferable points and rewards offer the customer the greatest flexibility in using program earnings. As you gain customer insight, your program can mature into a more and more open proposition without endangering customer loyalty, because the barrier to a customer's switching will no longer be purely economic (i.e., the value of the points earned), but convenience (having to "teach" another program about individual desires and preferences). Openness is inevitable in loyalty marketing programs, and companies must choose whether to lead the charge, or to react to it. If your competitors' points or miles are available for purchase on the open market (as is the case with many airline frequent flyer programs, for instance), you may even want to allow your best customers to redeem the points you issue for prizes offered by your competitors! Think about it: if you run an airline, don't you want to know what competitor airlines your best customers also like to fly on?

4. Relationships. A loyalty program should be managed around customers, not products. Align the organization of your program around certain identified sets of customers, and then measure your marketing managers by the impact they have on customer behaviors within these different groups. This is the most direct way to make progress in each customer segment, and to improve the loyalty (and lifetime values) of the individual customers in each segment.

5. Simplicity. Above all else, keep things very simple for the consumer. The fewer rules and restrictions you have, the more engaging your program will be for the customer. It's better to narrow your offers to those you can deliver consistently, rather than including elements that can't be relied upon. Airline programs frequently suffer, for instance, when they publicize high-value redemptions that turn out not to be very readily available. Such offers often do more harm than good, by unnecessarily raising customer expectations and then not delivering. If you can't deliver reliably on what you promise in your loyalty program, you not only damage your program's credibility, but you could undermine trust in your whole brand.