What Makes a Good Loyalty Program? How Real World Data Can Improve Customer Loyalty.

Modern consumers want a more personalized, and experience-led, loyalty program compared to the traditional rewards for dollars spent. This method can actually benefit brands too. Here’s how.

According to Queue-it, 79% of consumers are part of some membership, subscription, or loyalty program with brands.?

So it’s no surprise that loyalty programs have been around for many years.?

What is surprising, most of these programs are almost identical to what they looked like when they first started. Only a few companies have really innovated, and those are the brands themselves.?

Some brands realized the traditional loyalty model of providing points to consumers based on the dollars they spent wasn’t the best fit for their customers or brand.?

Smart, because not all customers are equal. So we shouldn’t be surprised that the one-size-fits-all loyalty programs are no longer the best fit.?

Maybe that’s why 78.6% of respondents from Antavo’s 2023 Loyalty Report said they plan to redesign their loyalty program within the next three years.?

That said, a good question to ask is: What makes a good loyalty program??

A Good Loyalty Program

For starters, the best loyalty programs are those that know a conversion is only one aspect of the customer journey. It’s much more in-depth than just that one metric.?

Harvard Business Review published an article titled “Do Rewards Really Create Loyalty?” In that article they state, a great loyalty program can speed up the loyalty life cycle of a customer. Encouraging a first, or second, year customer to behave like a company’s most profitable tenth-year customer.?

Rarely does that happen with a one-size-fits-all approach. A brand needs to have a larger loyalty-management strategy.

The Harvard Business Review goes on to state that the full potential of value sharing through rewards is realized only when customers become sustainably loyal.

Loyalty programs designed to treat rewards as short-term promotional giveaways or specials of the month can create some value. If done the right way they can motivate a customer to try a new product or service.?

But until the program is designed to build loyalty, it will result in at best a small fraction of its potential value.?

A New Era of Loyalty Programs?

A Forbes article from January 25, 2024 says that loyalty programs have entered an era focused on hyper-personalization.?

Personalization seems to be a common trend amongst most consumers. Remember, in this article we reviewed McKinsey’s 2022 and 2023 report on consumers in the Health & Wellness market. Both those reports also emphasized the importance and priority consumers are placing on personalization from brands.?

A more personalized approach to loyalty, and overall consumer engagement, makes customers feel more invested in participating because benefits have been tailored to them. When a customer feels that way, it’s safe to assume they are less motivated to shop around for a different brand.?

In addition to personalization, consumers want a real brand experience. The experience needs to connect with their belief systems and align with priorities/topics they have or care about.?

When it comes to Health and Wellness products, we know from the McKinsey reports that priorities/topics consumers care about are evidence-based, science-backed products.?

The current sales driven loyalty program model that revolves around discounts and monetary rewards no longer meet customer expectations for unique offerings.?

According to this article, a few primary reasons customers cancel programs is because of a lack of rewards that are relevant to them, a lack of digital presence, and a lack of community.

An experience-led program that enables customer personalization can solve this.

Experience-Led Loyalty Programs

This article offers three strategies to revamp your loyalty program.?

Idea #2 is what stood out to us: “Develop loyalty programs based on experiences, not transactions”?

You can’t offer personalization to customers if you don’t engage with them to collect lived experience data.?

The best loyalty programs will be the ones who successfully collect lived experience data as part of the loyalty program. And use the data to offer long-term personalized benefits, rewards, offerings, etc.. to customers.?

This allows the brand to build a deeper relationship with the customer, AND it significantly increases the lifetime value of the customer.?

The lifetime value of a customer with current loyalty programs is capped. Since it’s all based on dollars spent over a lifetime, there’s a limited amount of products that one customer will need to buy from you on an annual basis.?

However, there’s endless opportunities to collect lived experience data from your customers and use that data to provide better personalized offerings.?

This data can also be used for strategic offerings to less active customers who are similar. It might even help convert these less active customers to act more like your long term loyal/sustainable customers.?

With this strategy, as a brand owner, you’re likely adding a 5x-10x multiple on the Lifetime Value of the customers you’re collecting this lived experience data from.?

Loyalty Programs Beyond Financial Targets

As brands look to revamp and evolve their loyalty program, many standalone loyalty providers cannot provide the full solution alone.?

This is why partnerships are playing a bigger role, and will likely continue to expand.?

Traditional loyalty programs are designed to hit financial goals and targets for brands. Reward customers for dollars spent, with the hope it gets them to spend more.?

We said it above, there’s a ceiling on the lifetime value of customers, and overall benefits for the brand, with this type of model. And it doesn’t address the personalization and experience-led priorities of the modern consumer.?

The best loyalty programs will keep the same focus, but through partnerships start incorporating personalization and experience-led opportunities.?

For brands, understanding the direct correlation between personalized experiences and Customer Lifetime Value highlights the significance of catering to individual needs within a loyalty program.

When done the right way, it secures immediate repeat business while laying the foundation for a mutually beneficial relationship with lifelong customers. This results in an increased customer lifetime value, turning customers from a transaction to a valuable asset for the brand.

We hinted at this above. There’s also many ethical opportunities for brands to use this proprietary data collected in these programs to advance many aspects of their business.?

It’s also important to note that consumers are willing to pay for a more rewarding experience.

Paid Loyalty Programs

Before reading the McKinsey report linked below, I would have thought asking customers to pay for a loyalty program would have been a terrible business decision.?

However, McKinsey found that consumers are 60% more likely to spend money with a brand after joining a paid loyalty program, compared to 30% at a free loyalty program.

The report also found that paid loyalty programs drive higher purchase frequency, basket size, and brand affinity compared to free loyalty programs.?

Paid loyalty programs do not make sense for every industry and every business.?

The McKinsey report suggests paid loyalty as a good strategy for brands in industries where multiple companies offer comparable products.?

Thinking CPG health & wellness brands?

The report suggests that ‘brands struggling to compete in a highly fragmented or undifferentiated market should consider paid loyalty as a means of acquiring consumers and creating an economic loyalty loop, where the paid features make it unfavorable to switch brands.’

One final stat that’s fascinating from the McKinsey report:?

Consumer demand for paid loyalty programs is growing. In 2019, consumers spent an estimated $25 billion to $30 billion on paid loyalty programs, about a 25 to 50 percent growth rate from the previous year.?

Real World Data and Loyalty Programs

We’ve been believers of a more experience-led loyalty model since 2017.?

It started when we integrated our 2x patented Releaf App with loyalty programs in the cannabis dispensary space. Allowing retailers to better engage with customers when they leave the store, collect the lived-experience data from them on product use and experience, and leverage that to offer more personalized guidance on future visits.?

At the same time those stores were increasing the lifetime value of their customers because of the data collected from them.?

We expanded the customization of this function with our Penzai software in 2020. Creating even more personalization, and experience-led opportunities for brands and consumers.?

With a focus on converting first time customers into loyal lifelong customers within 2-4 weeks.?

First and foremost, we believe this results in a better experience and outcome for the customer. Specifically in health & wellness. Helping consumers find a better path to their ideal health & wellness. And make data-backed purchasing and consumption decisions.?

For brands. Offering consumers a program that meets their desire for personalization, being experience-led, and has a community aspect creates a serious competitive advantage.

This article, along with others, can be found at MoreBetter.ltd