Securing brand loyalty in a hyper-choice era

ARTICLE | August 02, 2023

In a world increasingly saturated by choice, brand loyalty is becoming a hotly contested battleground. The digital era has given consumers unprecedented access to a global online marketplace, allowing for extensive comparison shopping and, consequently, a swift switch from one brand to another. 

As a result, businesses must fight harder than ever to attract and retain loyal customers. One effective tool in this battle is a well-structured loyalty program. 

The importance and benefits of loyalty programs

Loyalty programs, when designed and implemented effectively, offer a compelling way to encourage repeat business, creating a mutually beneficial relationship between consumers and businesses. 

One of the most significant advantages of loyalty programs is their ability to boost customer retention. According to a 2020 study by Bond Brand Loyalty, 79% of consumers stated that loyalty programs enhance their propensity to stay with a brand. The same study found that 70% of consumers are more likely to endorse brands with robust loyalty programs. This indicates that a successful loyalty program does more than just secure repeat customers – it creates brand advocates, extending the brand's reach and recognition. 

Loyalty programs also provide valuable insights into consumer behavior. These programs can serve as a conduit for gaining enhanced analytics into customers' purchasing habits, demographic data, and the efficacy of marketing campaigns. The information generated can help businesses fine-tune their strategies and more accurately target their customers' needs and desires. 

Beyond data collection, loyalty programs can provide a direct channel for notifying customers about new products and driving increased sales. But to truly unlock their potential, it's crucial to understand the different types of loyalty programs and which ones align best with your business's objectives and customer base. 

Types of loyalty programs

Different business models and goals call for various loyalty program structures. 

Points-based loyalty programs

A traditional and straightforward approach, points-based loyalty programs reward customers with points for each purchase. The accumulated points can later be redeemed for discounts, free products, or other perks. This type of program is particularly popular in retail settings, including restaurants and credit cards. The simplicity of the model, where customers earn as they spend, makes it easy to understand and implement. In addition, offering occasional rewards like freebies or early access to sales can further incentivize customers and foster loyalty. 

Tiered loyalty programs

Tiered loyalty programs involve customers advancing through levels or tiers based on their spending. As customers ascend these levels, they gain access to increasingly exclusive benefits. For example, Nordstrom's "The Nordy Club" assigns a status of Member, Influencer, Ambassador, and Icon based on annual spending.  With each new status, the customer receives additional benefits, including the opportunity to earn more points per dollar spent.  A tiered loyalty program fosters a sense of achievement and exclusivity, making it a suitable choice for businesses like Nordstrom, offering premium products or services. 

Subscription-based loyalty programs

Large enterprises with extensive resources and a broad customer base may consider subscription-based loyalty programs. In this model, customers pay a fee - usually upfront - to enjoy a suite of VIP benefits. Amazon Prime, with its exclusive access to expedited shipping, streaming services, and more, is a prominent example of this model. Though it requires customers to commit financially, the value proposition can create a compelling argument for frequent or high-value shoppers. 

Partnership programs

Partnership loyalty programs involve businesses joining forces to offer shared rewards, expanding the benefit pool and boosting customer engagement. For example, United Airlines has partnered with several different hotel chains and rental car companies to expand customers' ability to earn and spend points. By linking rewards to multiple businesses, customers enjoy a wider range of benefits, encouraging them to engage more with each partner brand. 

Value-based loyalty programs

Value-based loyalty programs focus on resonating with customers’ values rather than providing explicit rewards. Value-based loyalty programs involve an organization pledging a portion of its proceeds to charitable causes. Customers may be able to choose the cause that aligns best with their personal values, fostering a deeper connection with the brand. For example, TOMS Shoes invests ? of its profits for grassroots good, including cash grants and partnerships with community organizations, to drive sustainable change. While this model may not offer traditional rewards, it can generate loyalty by appealing to customers’ emotions and ideals. 

Using technology to implement and manage loyalty programs

The effective use of loyalty programs often depends on the strategic use of technology. Software as a Service (SaaS) platforms have emerged as valuable tools, streamlining the setup, execution, and maintenance of loyalty programs across companies of all sizes. 

At their core, these platforms automate the allocation of rewards, meticulously track customer behavior, and offer analytical insights. This efficiency can lead to considerable time savings, reducing the operational burden on your customer service team. And the digital-first interface of these platforms ensures ease of access for both your customers and employees. With all user information and reward campaign details available online, managing and participating in the loyalty program becomes much easier. 

Importantly, leveraging the power of technology for your loyalty program doesn’t always require a significant financial outlay. Many SaaS platforms offer a range of pricing options, from pay-as-you-go plans to affordable monthly subscriptions. Depending on your business’s specific needs, you can find a solution that aligns with your budget and objectives, providing a cost-effective way to drive customer loyalty and engagement. 

Best practices for managing a loyalty program

Effective management of a loyalty program involves more than merely setting it up. Here are some strategies to optimize your loyalty program’s performance and maximize its benefits: 

Personalization of rewards

Consumers increasingly expect brands to cater to their individual preferences and behaviors. Tailoring rewards based on unique customer attributes can significantly increase engagement and foster strong loyalty. A survey published by Forbes found that, when done right, personalization can result in a 6.4x increase in member satisfaction with the loyalty program. 

Exceptional customer service

A loyalty program can only truly shine when accompanied by outstanding customer service. Even the most appealing rewards strategy will fall short without high-quality service to match. Consistently delivering excellent customer experiences will complement your loyalty program and deepen customer relationships. 

That being said, your employees are the frontline of your customer engagement efforts - making their role in promoting your loyalty program crucial. Well-trained and motivated employees can significantly enhance the success of your program by consistently promoting it during each customer interaction. For example, Panera employees will always ask customers for their rewards account number and then alert them of any rewards they have earned during checkout. This helps to constantly remind Panera customers of the existence and value of the loyalty program.  

Integration with existing systems

Ensure your loyalty program integrates seamlessly with your existing operational systems, including your Customer Relationship Management (CRM), Content Management System (CMS), and Point of Sale (POS) systems. A well-integrated loyalty program can provide a more cohesive and streamlined customer experience. 

Consider strategic partnerships

By diversifying the rewards you offer, well-crafted partnerships can increase customer interest and reward liquidity. Just as United Airlines partnered with hotel chains and rental car companies, are their companies that sell complementary products or services to yours?  Through cross-industry partnerships, you can attract a new customer base while offering your existing customers unique rewards, creating a win-win situation. 

Continuous testing and evolution

The best loyalty programs are dynamic, adapting to changing customer preferences and business needs. Start small, breaking your program goals into management parts and setting and tracking key performance indicators. Regular evaluations allow you to refine the program as needed, ensuring it remains effective and delivers a high return on investment. 

Loyalty programs are a powerful tool for businesses to attract and retain customers in today's competitive landscape. Whether through points-based programs, tiered loyalty systems, subscription models, partnership programs, or value-based initiatives, businesses can leverage these programs to increase customer engagement, drive sales, and gain valuable insights into consumer behavior. If you would like to discuss ways to improve your business, including implementing a loyalty program, please contact our office to speak with one of our expert advisors.