Over a third (34%) of US business leaders say they want to improve customer loyalty, per a March 2023 survey by WEX and Edelman. But loyalty isn’t what it used to be.
Over half (58%) of US adults say they are less loyal customers due to rising costs, according to June 2022 data from Dynata. As inflation and a tough economic climate lead consumers to prioritize price over brand, marketers need to rethink their loyalty strategies and align them with what matters most to their customers.
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What makes a successful customer loyalty program
Loyalty programs are taking on even greater importance as brands struggle to acquire new customers and keep current loyal customers buying. Loyalty program structures can vary from brand to brand, but there are three foundational elements that every program should have
- A value proposition
Discounts are the No. 1 thing that consumers worldwide want from loyalty programs, per November 2022 data from Marigold.
But nearly a quarter (23%) of loyalty program professionals worldwide, across industries, say their biggest challenge is offering deep enough discounts to attract customers, per a February 2023 survey by Eagle Eye. In fact, some brands, like Chick-fil-A and Starbucks, are raising their thresholds for freebies due to rising costs.
For brands struggling to provide deep discounts, a points-based rewards system that provides customers with upgrades, freebies, exclusive offers, or early access to products could be a more cost-effective option to build customer relationships.
Loyalty programs can also provide more value to customers by establishing a tiered program. This can include lower-cost or free options for price-conscious customers, as well as extra perks for those who are willing to pay for a more exclusive experience.
Another way to level up the loyalty experience is by partnering with another brand to offer twice the rewards. This gives customers access to more perks and discounts while helping each brand expand their customer base.
2. Ease of use
Convenience is another major factor in loyalty programs. First thing’s first: Brands need to be sure that redeeming loyalty points or rewards is a seamless experience, whether customers are in-store or online.
Other convenience-related options to consider offering via loyalty program include alternative payment methods, free and/or faster shipping, free returns, more generous return windows, and adding more locations or methods for customers to pick up or return items.
Most customers have come to expect a personalized customer experience, but personalization can take on many different forms.
Over half (53.9%) of consumers in Australia, the UK, and the US say that a brand recommending products based on previous purchases makes them feel like the brand knows them, according to December 2022 data from Yotpo. Other elements of personalization that help consumers feel like a brand knows them include:
- Emailing when a product the customer is interested in is back in stock (45.2%)
- Using the customer’s name in emails and texts (37.7%)
- Knowing a customer’s size, dietary preferences, skin type, etc. (36.7%)
- Knowing which loyalty tier a customer is in, and treating them accordingly (32.8%)
- Sending messages when loyalty points are about to expire (30.2%)
How to measure customer loyalty
There’s no one-size-fits-all way to measure happy customers, but brands can focus on one or more metrics in their loyalty programs, including:
- Customer retention rate
- Repeat business
- Customer lifetime value
- Customer satisfaction
- Customer feedback
- Word of mouth
Whatever metrics brands choose, they need to think about what matters most—whether it’s encouraging repeat purchases, retaining customers, or increasing customer lifetime value.
The role of customer data in loyalty
The key to a more relevant, personalized loyalty program is access to customer data.
- Mobile apps are especially helpful in zero- and first-party data collection. Brands can gather information on when customers are logging in, how they’re searching and paying for items, and what program benefits are of most interest.
- Surveys, polls, and quizzes also help to obtain audience data and give customers a chance to provide feedback on what works—and what doesn’t—within a program.
But this data has applications far beyond enhancing brands’ loyalty programs. It can also be used to more accurately segment and target consumers across the web, improve retargeting efforts of lapsed customers, and fill in the gaps left by third-party cookie deprecation.
Best-in-class customer loyalty programs
Starbucks is widely recognized as having one of the best loyalty programs across both the food service and retail membership categories.
- Starbucks Rewards reached 31.4 million US members in the third quarter of 2023, up 15% YoY, according to CEO Laxman Narasimhan from a Q3 2023 earnings call.
- “Rewards members in the US drove 57% of tender for the second consecutive quarter, up 3 percentage points from the prior year,” said Narasimhan during the same call.
- In 2022, Starbucks and Delta Air Lines linked loyalty programs, offering Starbucks members the opportunity to earn Delta miles on eligible Starbucks purchases.
Other best-in-class examples include:
- Ulta Beauty’s Ultamate Rewards program, which drives 95% of Ulta’s transactions, according to our Retail Loyalty Programs report
- Target Circle, which boasts more than 100 million members, according to a Q2 2023 earnings call
- Nike’s loyalty program, which incorporates various benefits accessible via its family of apps, ranging from the transactional (e.g., free shipping and returns) to the more personally engaging, such as personal stylists, wellness-oriented content, and a social community via its running and training clubs