Let's Talk Loyalty
You already know that keeping existing customers happy is way cheaper than getting new ones, and that they tend to spend more and recommend you to their friends. That's why DTC brands are putting more effort into building awesome loyalty programs.
But hold on a sec, not all programs are created equal. What works for one brand might flop for another. There are also a ton of digital tools out there that make launching and tracking these programs easier, but that also makes it trickier to know if they're working.
Building Your Program
The goal of a loyalty program is to reward customers with awesome perks that make them want to stick with you. Sounds simple, right? But there's more to it than that. Brands sometimes rush into things and copy what their competitors are doing or pick a program they like from another brand. This is a recipe for disaster.
The best loyalty program for you will depend on a bunch of factors, like your target audience, your business model, and what kind of products or services you offer. It's kind of like a suit - a custom-made one will always look and fit better than something off the rack. The same goes for loyalty programs. If you don't consider these things, your program might not work at all, or even scare customers away. Imagine a luxury brand offering discounts as a loyalty perk. Totally out of place, right? Affluent customers aren't looking for deals, and a discount program might come across as cheap, hurting the brand's image.
The best programs are the ones that are in sync with both the brand and its customers. When a brand can hit this sweet spot, the program is much more likely to be a success.
Choosing the Right Program Type
There are tons of different loyalty programs out there, which can be confusing. But really, they all fall into two main categories: balance-based and tier-based.
Balance-based programs give customers points for things like making purchases or taking specific actions. These points can then be redeemed for discounts or free stuff. This type of program usually works well for brands with price-conscious customers who are looking for good value for their money. They like the idea of getting tangible rewards, like what they might get at a grocery store or drugstore.
Tier-based programs, on the other hand, are designed to reward customer loyalty by assigning them a level or tier. Higher tiers come with better perks, like free shipping or early access to new products. This type of program is a good fit for brands with wealthier customers who care more about exclusivity and status than discounts.
For example, clothing brand Kith launched a three-tier loyalty program this year. It offers members perks that resonate with their affluent audience, including exclusive custom items, early access to new products, and invites to VIP events.
Of course, some brands use a hybrid approach that combines elements of both balance-based and tier-based programs. Airlines are a good example of this. They often have programs that let passengers earn miles for flying, with certain perks like priority boarding unlocked at higher tiers. The key is to make sure your program is clear and easy to understand, and that you have a way to measure its success (more on that coming up).
Picking the Perfect Perks
Here's the thing: many brands make the mistake of thinking that discounts are the holy grail of loyalty programs and what all customers want. But that's not always true. Especially for brands that sell premium products or services, customers might value other perks more than discounts. In fact, discounts can turn some customers off because they make the program seem too transactional.
That's why it's crucial to understand what your specific customers value and what would motivate them to act, like buying something or recommending your brand to others. The best way to figure this out? Just ask them!
This is exactly what Kaylin Marcotte did when she launched her puzzle company Jiggy in 2019. Even though she started a loyalty program to encourage repeat purchases, she also saw it as a way to connect with customers and get their feedback. She asked them what they wanted from her company and its puzzles. Based on their input, Marcotte created a puzzle club - a paid subscription service where customers can get regular deliveries of puzzles. She credits these conversations with her customers, along with data on their buying habits, for designing a loyalty program that's been a success for her company.
Loyalty programs can be divided into four categories:
Exclusivity:
What it offers: Early access to products, content, services, or events.
Best for: Premium brands with affluent customers who value being "in the know" and having special privileges.
Cash:
What it offers: Discounts, free shipping, and free products.
Best for: Price-conscious customers who are highly motivated by saving money and getting the best value.
Services:
What it offers: Bundled product and service experiences.
Best for: Brands with a service component (e.g., pet grooming, skincare consultations). This strategy creates a more holistic and appealing offering for customers.
Community:
What it offers: Exclusive online spaces for customers to connect, share experiences, and provide feedback.
Best for: Brands where customers have a strong shared interest (e.g., pet owners, sneaker enthusiasts). Fosters brand loyalty and generates valuable user-generated content.
Tracking Your Loyalty Program's Success: Essential Metrics
The flashiest loyalty program won't mean much without clear success metrics. Are customers engaging and are the rewards driving desired actions like repeat purchases or higher order values?
Choosing the Right Yardstick
The key to measuring effectiveness is selecting the right Key Performance Indicators (KPIs) based on your program's specific structure, perks, and rewards. Here are some essential metrics to consider:
Enrollment Rate: This measures the percentage of unique customers who have signed up for your program.
Engagement Rate: This tracks the percentage of unique customers who actively interact with the program in any way (e.g., logging in, earning points).
Redemption Rate: This reveals the percentage of unique customers who utilize program perks like discounts or event access.
Program Costs: This includes both variable costs (discounts, free products) and fixed costs (IT maintenance, staff training) associated with running the program.
By monitoring these core metrics, you can gain valuable insights into your program's health and identify areas for improvement.
Examples of Companies Winning the Loyalty Game:
Starbucks Rewards: This program is a classic for a reason. It's easy to understand, offers tiered benefits, and integrates seamlessly with the Starbucks app, making it convenient to earn and redeem rewards.
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Sephora Beauty Insider: This program caters to beauty enthusiasts with a points system that unlocks exclusive perks and discounts. Higher tiers offer additional benefits like early access to new products and birthday gifts.
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Ultamate Rewards: Similar to Sephora's program, Ultamate Rewards uses a points system with tiers and exclusive benefits. It also offers points multipliers for specific purchases and birthday point bonuses.
Opens in a new window www.glossy.co
Amazon Prime: While not a traditional loyalty program, Prime offers a variety of perks that incentivize repeat business, including free two-day shipping, exclusive deals, and access to streaming services like Prime Video.
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REI Co-op Membership: This unique program offers a lifetime membership for a one-time fee. Members receive dividends on purchases, discounts on classes and experiences, and early access to sales.