Retail Loyalty Programs: The Definitive Guide

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Emil Waszkowski
Retail Loyalty Programs: The Definitive Guide

As many businesses out there, you might be focusing solely on acquiring customers. There is absolutely nothing wrong with that. But here’s the thing: customer loyalty pays off in the long run. In fact, loyal customers are, five times as likely to buy again, four times as likely to refer your business, and seven times as likely to test an offering. 

Even though generating new sales will always be part of your business, it’s equally important to take care of existing customers. And that’s precisely why customer loyalty programs exist - to help you do it. Given that 75% of consumers would engage more with loyalty programs that offer mobile-friendly rewards, though, it might be high time to build your loyalty scheme around mobile apps. Here’s how to do it properly, based on our experience and the examples of successful loyalty programs.   

What are customer loyalty programs in the first place? 

By definition, a customer loyalty program is a scheme that recognises and rewards customers who purchase or engage with a brand on a recurring basis. These rewards actually come in different shapes and sizes: they often involve valuable points, free merchandise, coupons, or insider perks (i.e. early access to new offers). Their aim, however, stays the same - to encourage a customer to become a regular, or ideally, an avid buyer.

It might not seem like it at first, but loyalty schemes are a growing priority across industries. According to the 5th “State of Marketing” research report released by Salesforce, the use of customer loyalty program platforms is projected to grow 80% in the next two years. Not to mention that 63% of high-performing marketers are already using loyalty program platforms, one way or the other.

At the same time, there’s also one more factor that has an impact on customer loyalty: new technologies. As a matter of fact, it’s already providing new use cases and changes the role of loyalty schemes. And it’s no different in the retail industry. 

When you think about it: Traditionally, loyalty solutions revolved mainly around encouraging bigger orders, collecting points on loyalty cards, and exchanging them for rewards. Of course, such mechanisms still function and get quite innovative at times - but there’s also a bunch of businesses that take customer loyalty to a whole new level. 

Why is that? Because customer expectations are changing, and loyalty changes with them. Some shoppers might be motivated solely by practical concerns, while others may appreciate subjective or less tangible benefits of loyalty programs - such as trust, fair treatment, or the retailer’s CSR efforts. 

For most customers, though, the ability of a retailer to create a convenient shopping experience is a crucial factor when it comes to deciding where their loyalty lies. That’s precisely why new tech solutions, especially those revolving around mobile devices, are perfect for loyalty programs - as they can easily make purchases faster and more convenient.

Why exactly should you invest in a retail loyalty program, though?

  • It’s cost-effective. To give you an idea: Acquiring new customers is anywhere from 5 to 25 times more expensive than retaining new ones, depending on your industry. It’s actually more cost-effective in the long run to keep the existing customers happy and encourage them to return, rather than constantly fight over new ones. 

  • It lets you “merge” online and offline customer activity. Having your own loyalty scheme is the best way to keep track of the whole purchase history and customer behaviour. Because of that, you gain a wide range of data at your disposal - which allows you to provide your customers with more personalised offers, improving their overall experience and encouraging them to buy from you, again and again. 

  • It makes it easier to plan your next steps (and your budget). With so much data at hand, you can easily measure customer lifetime value to see how much you are actually able to spend on a given customer, what revenue can be expected from a similar one, and how to plan your actions and budget accordingly. 

  • It helps you attract & retain more customers. Nowadays, purchase decisions are highly influenced not only by price, but also shared values, customer experience, and the image of the brand. Plus, don’t forget that loyal customers are likely to tell their family and friends about your business. 

  • Speaking of - a reward program also allows you to leverage user-generated content. Loyal and satisfied customers are more likely to publish positive reviews and ratings on websites and social media, which essentially makes them authentic ambassadors for your brand. Why is it helpful? Because customers’ recommendations usually mean much more to other buyers than pretty much anything you say about your business yourself.

How to create a successful loyalty program yourself, then?

1. Put your trust in mobile. 

According to BRP Special Report 2019 about in-store mobility, 63% of customers already use mobile devices for product research, comparing pricing in other stores and checking product’s availability while they are in a store. At the same time, more than 70% of shoppers are more likely to participate in a loyalty program if they can easily access loyalty cards and rewards from their mobile phone.

This indicates that retail & mobile can go hand in hand - and that’s hardly surprising. Mobile applications create an opportunity to make shopping more convenient, and also give something extra to your customers once they’re at it (which often is a good enough incentive for them to buy from you again). 

More specifically, mobile apps make it much easier to:

  • Keep loyalty cards handy, 

  • Collect points with every purchase, both online and in-store (when scanning the loyalty card), 

  • Pay via smartphone (in fact, integrating mobile wallet payment methods with loyalty cards can truly increase user convenience and the usability of the whole reward program),

  • Locate the closest store or branch (and even find specific products inside the store, as well as pay for them with a smartphone in the end),

  • Access dedicated offers, 

  • Buy additional services available for purchase only via the app.  

All of this actually improves overall user experience and boosts loyalty in the long run. At the same time, you’re also getting a chance to communicate directly with your customers within the app and through push notifications, engage them in various ways (i.e. by offering challenges, virtual scratch-cards, and lotteries at the best possible time - depending on their specific actions and whereabouts), and gather relevant data about their buying behaviour, location and other characteristics. This, in turn, helps you offer a personalized experience and build relationships with your customers without flooding them with the information they don't care about.

2. Have a clear strategy.

Both your loyalty program and the mobile app which it revolves around should not be treated separately, as additional methods of increasing customer acquisition, retention, or average order value. They should rather be closely integrated with your business strategy, a central element of customer relationship management and treated as a long-term investment. Especially since such an investment is likely to pay off.

As a matter of fact: a well-implemented, omnichannel loyalty program can easily take your customer relationships to the next level, make mass personalisation possible, and provide you with valuable data on your customers’ behaviour throughout their whole journey which includes multiple channels. 

Still, loyalty schemes and dedicated mobile apps are not only about personalising communication and rewarding the returning customers. They also give you a chance to create a “one-stop shop” for all your customers’ needs related to your industry and thus, open new revenue streams for your business. To give you an example: if you work in a grocery store chain, you could satisfy all needs revolving around nutrition - from making shopping for food more convenient, through giving the ability to check the quality of products, up to educating your customers on how to eat healthy. 

From a business perspective, it’s also an opportunity to promote the producers’ offers without any limitations, such as the actual space available for POS materials in-store. Not to mention that it’s possible to reduce the number of promotional materials and used resources this way, which makes it more sustainable in the long run. We’ll discuss it more in a separate article. 

3. Make it count. 

The best loyalty solutions are always tailored to your customers. To maximise customer loyalty, then, you should first figure out how your target audiences would benefit from the program, what elements of your current offer appeal to them, and what value can be added. Depending on the industry and specific groups of customers, these elements vary. 

That’s one of the reasons why loyalty schemes revolve around various solutions. The different actions that retailers take are, above all: 

  • Creating a points system, which allows frequent customers to earn points that eventually can be exchanged for rewards. It works wonders for quick, inexpensive purchases - provided that the way points are converted is actually simple and intuitive. In fact, there's no point in developing a loyalty program that is difficult to join and to participate in - mostly because customers seem to engage in loyalty programs only if they don’t require a lot of time and effort.

  • Offering tiered rewards. Typically, a tiered loyalty scheme starts with a small incentive for making an initial purchase. As the customers spend more, the value of the rewards increases as well. This loyalty solution seems to work better with more expensive products and services.

  • Rewarding loyal customers with special deals & discounts. With tons of data available thanks to a loyalty program, retailers can easily tailor their offers and messages to specific customers. This can be as simple as sending birthday wishes and offering discounts on that day, but loyal customers can also be rewarded in plenty of other ways (see more examples below).

  • Getting creative with available benefits. Basically, the rewards for loyalty don’t have to be financial. Customers might as well receive free tickets, get invited to relevant events, have access to dedicated offers before anyone else, or even be able to dedicate a percentage of their purchases to charity. Yet again, this depends on what your customers would value more - having tangible rewards, investing in new experiences, or taking stances on social issues they care about.

4. Ensure proper customer experience.

Essentially, what makes your customers want to participate in your loyalty program (and do business with you in the first place) - are not only valuable rewards, but also a convenient shopping experience along the way.  

As already mentioned: loyalty schemes, as many online solutions, can easily be accelerated with the use of mobile devices. The key to seamless user experience, though, is to make sure the app and all its features run smoothly. 

Apart from that, all your channels, both online and offline, should be integrated with one another. This way, you can create an omnichannel, rather than multichannel experience, and track all your customers’ purchases - no matter if made online or offline.  

Then again, you can leverage any available data on previous purchases, product attributes, and purchase context to segment your customers and send them more customised offers and relevant messages. In fact, customers seem to love effortless and personalised experiences these days - and mobile apps can help you achieve exactly that. 

5. Encourage your customers to join the program.  

Even the most innovative and valuable loyalty scheme won’t bring you any benefits if no one participates in it. Therefore: when figuring out your retail loyalty program, you should also pay attention to how you will convince your customers to join it.  

Fortunately, mobile apps are the most effective (and convenient) means to an end when it comes to signing up, using, and promoting loyalty schemes - which is often a good enough reason for your customers to give them a try anyway. Still, you should promote your app through every online channel available to you - social media, your own website (via web push notifications and regular banners, or Smart App Banners displayed on its mobile version), Google Ads, and newsletters, just to name a few. 

Don’t forget to train your staff properly, so that they also inform the customers about the benefits of the program at the checkout and in-store. In fact, customers are five times more likely to develop loyalty to a brand through an in-person shopping experience than an online one.

You might also want to offer special deals for the newly-registered app users, such as giving them a specified number of points to start with, or a discount for the first purchase. After all, the aim is to acquire as many app users as possible, and turn them all into loyal customers. 

6. Measure the loyalty program ROI.

Once you have everything set in motion, don’t forget about measuring the effectiveness of your loyalty program. You can do so by keeping track of relevant KPIs - which will be different, depending on the stage of the lifecycle that your loyalty scheme is at. 

When introducing the program to your customers, what counts the most is the number of app downloads and program activations. Then, you should take into account the number of active users, basket value, and the average order value among the loyal vs other customers. What also matters is definitely attribution - what percentage of your sales actually comes from the loyalty scheme, and whether the customer lifetime value (CLV) within the program increases. 

The ultimate goal is the overall increase in sales (and profit), as well as in LFL - Like for Like, an adjusted growth metric that only includes revenues generated from comparable stores. It strives to exclude the effects of expansion, acquisition or any other event that artificially enlarges or decreases a company's sales - and that’s precisely why it's worth tracking it to measure loyalty program ROI.

Successful loyalty programs - the best examples 

When it comes to mobile loyalty programs used by retailers, there’s definitely still some room for improvement. In many cases, UX and app’s stability leaves something to be desired - not to mention that there’s often no ability to keep the loyalty card handy, browse the nearest stores and available products, or make purchases via the app (which might not be essential for a brick-and-mortar retailer, but it’s valuable for every e-commerce and omnichannel businesses). Actually, even though such features might not be crucial for all customer reward programs out there, they can definitely improve the overall experience with the brand. 

To have an idea of how it can be done properly, though, take a look at some brands that have developed their own ways to boost customer loyalty with a mobile app. 

#1 Nike

NikePlus is quite a unique customer loyalty program which puts an emphasis on member-based access to exclusivity and experiential benefits. To give you a few examples: the members can use free expedited shipping, redeem rewards for free merchandise in-store with the brand’s mobile app, and browse featured products that are available only for signed-in NikePlus members. 

Of course, these are not all the benefits stemming from the program. Actually, some of the perks, such as the ability to chat with real athletes to get recommendations on training and products or enjoy special treatment in-store (including express checkout and special store hours), can hardly be found anywhere else. In the long run, these member-only sales, promotions, in-store events & services, which combine offline and online channels and create a truly immersive experience, are precisely what attracts customers and make them want to stay loyal to the brand. 

#2 H&M 

H&M’s customer reward program, on the other hand, is a perfect example of a fully digital loyalty scheme which revolves around the mobile app. The app users can easily earn points and turn them into rewards, get targeted offers and discounts, take advantage of free online returns, birthday offers and exclusive shopping events, or even choose the option to shop now and pay for the items later. 

The loyalty program itself has two tiers. Basically, each dollar the customer spends at H&M (online or in-store) equals one point. Once they collect up 200 points, they receive a $5 coupon. If they are able to accumulate 500 points, though, they become Plus level members. At this tier, they get all of the regular member perks along with “free shipping, unique experiences, surprise offers, and special access to limited collections.” 

Offering tiered rewards has been a popular loyalty solution in the fashion industry, and H&M’s scheme is definitely proving that they are an attractive incentive for the customers.   

#3 Sephora

Sephora has been a perfect example of a tech-savvy company for many years now. It seems to adopt new technologies constantly - in fact, it was one of the first companies to launch Apple Pay and use chatbots, as an example. 

Therefore, it comes as no surprise that its Beauty Insider Program is quite exceptional as well. The idea behind it is fairly simple: It’s a free, tiered rewards program in the US and Canada that allows earning points on all purchases, and later redeem those points for rewards. Its app, however, is one of the best in the industry.

There are multiple perks the app users can enjoy: getting exclusive access to previews and promotions they won't find anywhere else, finding a store, checking if an item is in stock, keeping the loyalty card handy while shopping, customising a virtual makeover and adding “tested” products to their wishlist, as well as getting recommendations based on particular beauty traits. 

Of course, the program itself is beneficial not only for the customers. Sephora uses shopper data to integrate and optimise the retail and mobile experience, which helps to increase conversion rates and influences customer retention.


#4 Target

Target Circle is a free, easy-to-use loyalty scheme with multiple benefits. Actually, rumour has it that these benefits (from earning on every purchase to having the opportunity to help Target make a positive impact in the local communities) were chosen based on the customers’ preferences.

The perks of the loyalty program alone attract many customers - but the best part is that Target’s mobile app makes participating in it much easier. In fact, app users can browse hundreds of Target Circle offers (and scan barcodes to add these offers while they shop), have access to the latest sales and promotions on Target.com, fill out their shopping lists and easily find the items in the aisles, and always know if their prefered store has what they’re after. 

If that wasn’t enough - certain features are reserved for app users only. Take the Wallet, as an example. With one scan, it lets them pay with their credit or debit card saved in the app, as well as redeem Target Circle offers and earnings. Loyal customers are also able to order through the app, and then choose to have it delivered, pick it up at the local store, or even select Drive Up option and stay in the driver’s seat while their purchase is brought out to them. As a result, Target’s loyalty scheme truly combines convenient shopping with valuable rewards and proper user experience.  

#5 Żabka Polska

Żabka Polska owns the biggest Central and Eastern European convenience store network. Its focus truly has been on convenient shopping, as well as creating “the store of tomorrow” - and its mobile app is a big part of that concept. 

Thanks to “żappka” app, the retailer is now able to get to know the customers better and tailor the offers to them in real time. At the same time, app users can collect points when shopping (and then exchange them for attractive rewards), take advantage of preferential prices and personalised deals which are redeemed automatically for them, as well as browse all stores nearby along with their opening times and services available. Speaking of points, however, it’s also worth mentioning that users can easily gain some bonus ones when engaging with the app, for example by taking part in Żabka’s challenges and other activities organised by the retailer. 

Even though it has been released only recently, the app has been a huge success - it’s currently one of the most popular free applications on Google Play and the App Store in Poland, and it has been downloaded a total of over 2 million times in just over 5 months since its debut.

#6 Starbucks

You might be surprised, but Starbucks has the most-used mobile app among major restaurant chains in the US. One reason behind it is definitely the Starbucks Rewards program that revolves around it. In fact, the loyalty scheme has been around for a decade, and has more than 16.3 million active members who account for about 40% of Starbucks’ transactions. 

What’s also interesting is that the company has now around $1.6 billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in the customer's wallets as well as the digital value of electronic balances held in Starbucks’ mobile app. This amounts to approx. 6% of all of the company's liabilities, and equals more consumer cash than many financial institutions in the US hold - see the chart below (data from 2016).

Even though the chain has struggled with keeping the customers coming back for the latest drink innovations over the years, it’s definitely been successful in persuading customers to use its mobile app. Basically, the app can be used to collect loyalty points (called “Stars”, which add up to Rewards in just a couple of visits), customise drinks, order ahead and pay, as well as take advantage of birthday treats, personalised offers that match your preferences, and free coffee & tea refills in-store. What’s not to like about it? 

Conclusion

Essentially, what makes the mobile loyalty programs work wonders is making sure that they emphasise company’s strengths, are tailored to users, and truly beneficial for both your customers, as well as your business in terms of meeting the long-term goals. In order to make that happen and leverage the technology, though, you have to rethink your loyalty scheme and come up with a proper mobile strategy

If you need any help once you’re at it - you know where to find us

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Emil Waszkowski

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