HOW TO USE

Customer Loyalty
Programs
for Your Business
According toInc.,itcosts a business about 5-10 times
more to acquire a new customerthan it does to sell to
an existing one --
and on average thosecurrent customers of yours spend 67% more than a new one.So, what are
you doing to keep your customers coming back to your business? If youre like 65% of market-
ers, your company has implemented a loyalty program.

But is it working? According to the2011 Colloquy Customer Loyalty Census, of the $48 billion
worth of perceived value in reward points and miles distributed by American businesses annu-
ally, one-third goes unredeemed by consumers. Companies lose money on time and effort, and
customers get no more value from the businesses to which they are loyal.

So how do you keep your business out of that one-third segment? How do you convey enough
additional value in your programs to keep your customers coming back? Its time for marketers
to look beyond convoluted rewards systems and offer actual value to customers using their loy-
alty program. To get you started, this ebook will offer some ideas for customer loyalty programs
that might work for your business, dive into ways to inspire customer loyalty (with or without a
program), and teach you how to measure loyalty so you can track your progress.
03 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

USE A SIMPLE POINTS SYSTEM

This is the most common loyalty program methodology.

Frequent customers earn points, which translate language of their audience by measuring points in
into some type of reward. Whether its a discount, a dollars, and rewards in food items. Customers swipe
freebie, or special customer treatment, customers their stylishBoloco cardat every purchase and the
work toward a certain amount of points to redeem card tracks the amount of money spent. Every $50
their reward. Where many companies falter in this spent earns the customer a free item. Doesnt matter
method, however, is making the relationship between if they choose a super jumbo burrito or an extra small
points and tangible rewards complex and confusing. smoothie - its free after $50. This is an example of a
Fourteen points equals one dollar, and twenty dollars company simplifying points with an accessible cus-
earns 50% off your next purchase in April! Thats not tomer reward system.
rewarding, thats a headache. If you opt for a points-
based loyalty program, keep the conversions simple Although a points system is perhaps the most com-
and intuitive. mon form of loyalty programs, it isnt applicable to all
business types -- this type of loyalty program is most
One example of a company using a points-based appropriate for businesses that encourage frequent,
loyalty program well is Boloco. They speak the short-term purchases.
04 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

USE A TIER SYSTEM TO REWARD INITIAL LOYALTY & ENCOURAGE MORE PURCHASES

Finding a balance between attainable and

desirable rewards is a challenge
for most companies designing loyalty programs. One on flights, expedited check-in, and priority stand-by
way to combat this is to implement a tiered system. seating. Club Gold members get double miles, priori-
Offer small rewards as a base offering for being a part ty boarding, and access to exclusive clubhouses where
of the program, and encourage repeat customers by they can grab a drink or get a massage before their
increasing the value of the rewards as the custom- flight. The key is to offer benefits in the early stages
er moves up the loyalty ladder. This helps solve the to hook the customer into coming back. Once they
problem of members forgetting about their points do, theyll realize that gold status isnt unattainable,
and never redeeming them because the time be- and offers really cool benefits.
tween purchase and gratification is too long.
The difference between points and tiered systems is
Virgin AirlinesFlying Clubinducts members at the that customers extract short-term versus long-term
Club Red tier, then bumps them up through Club value from the loyalty program. You may find tiered
Silver and Club Gold. Club Red members earn programs work better for high commitment, higher
miles on flights and get discounts on rental cars and price-point businesses like airlines, hospitality busi-
hotels. Club Silver members earn 50% more points nesses, or insurance companies.
05 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

CHARGE AN UPFRONT FEE FOR VIP BENEFITS

Loyalty programs are meant to break down barriers

between customers and your business --
are we seriously telling you to chargethema fee? In This program is innovative because it charges loyal
some circumstances, a one-time (or annual) fee that customers while providing enough in return for those
lets customers bypass common purchase blockers frequent shoppers to realize the benefits.Analysts
is actually quite beneficial for business and custom- estimatethatAmazon actually loses about $11 annu-
er alike. By identifying the factors that may cause ally for each Prime subscriber, but makes up for it in
customers to leave, you can customize a fee-based increased transaction frequency that would not have
loyalty program to address those specific barriers. otherwise happened without their exclusive benefits.
Clearly this system is most applicable to businesses
In 2011,ecommerce shopping cart abandonmenthit that thrive on frequent, repeat purchases. For an
a record high of 72%, and is still rising. This abandonment upfront fee, your customers are relieved of inconve-
is often caused by sticker shock after tax and ship- niences that could impede future purchases. Amazon
ping prices have been applied. Ecommerce giant Am- has mastered this for ecommerce, but this loyalty
azon found a way to combat this issue in their loyalty program model also has potential to work for B2B
program called Prime. For $79 annually, Prime users businesses who deliver products to businesses on a
get free 2-day shipping on millions of products with regular basis.
no minimum purchase, among other benefits.
06 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

STRUCTURE NON-MONETARY PROGRAMS AROUND YOUR CUSTOMERS VALUES

Really understanding your customer means

understanding their values and sense of worth.
And depending on your industry, your customers Threads Initiative. In it, they partnered with eBay to
may find more value in non-monetary or discount- help customers to resell their highly-durable Patago-
ed rewards. Every company can offer promotional nia clothing online through the company website.
coupons and discount codes, but businesses that can
provide value to the customer in ways other than dol- This program builds on their brand of sustainability
lars and cents have an opportunity to really connect and creating a high-quality product, and it match-
with their audience. es perfectly with the companys customer persona
by providing a value that they really care about. So
Patagonia, an eco-friendly outdoor apparel company, before implementing a loyalty program of this nature,
realized that their customer needed more than just be sure youve researched and designed an in-depth
points and discounts from a loyalty program. Late customer persona!
last year, the company implemented its Common
07 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

PARTNER WITH ANOTHER COMPANY TO PROVIDE ALL-INCLUSIVE OFFERS

Strategic partnerships for customer loyalty, also known

as coalition programs, can be extremely effective for cus-
tomer retention and company growth.
Again, fully understanding your customers every-day For example, if youre a dog food company, partner
lives and their purchase process will help determine with a veterinary office or pet grooming facility to
which company is a good fit as a partner. offer co-branded deals for mutual benefits for your
company and your customer. The target audience
American Express has a huge partner base with com- obviously owns a dog, so any services that dog will
panies across the country. TheirTwitter Sync cam- require offer added value from your company. Pro-
paignrewards customers for tweeting about them by viding customers with value beyond even what your
syncing discounts and deals with Twitter #hashtags. company can offer will show that you understand
According toVisibli.com, cardholders have redeemed them, and grows your network to reach your part-
over $2,000,000 in rewards. Participating com- ners customers, as well.
panies that are benefitting from their coalition with
Amex include Whole Foods, Staples, and Zappos.
08 How to Use Customer Loyalty Programs for Your Business

CUSTOMER LOYALTY PROGRAM IDEAS FOR YOUR BUSINESS

MAKE A GAME OUT OF IT

Who doesnt love a good game, right?

Turning your loyalty program into a game is a fun Its important that customers understand youre not
way to encourage repeat customers and, depending duping them out of rewards, though.The odds should
on the type of game you choose, help solidify your be no lower than 25% and the purchase requirements to
brands image. play should be attainable.This type of loyalty program
has potential to backfire if customers feel like your
GrubHub, an online food ordering and delivery web- companys jerking them around to win business.
site, startedYummy Rummy. Once customers place Executed properly, however, this type of program
three unique orders through GrubHub, regardless of could work for almost any type of company, even an
price, they get to play a game for a chance of winning off-the-beaten-path B2B company. If your audience
free stuff. Players choose one of four cards and have enjoys having a little fun and purchases frequently,
a 25% chance of winning a free dessert, drink, gift this type of program can make the buying process
card or other cool stuff. fun and engaging.
09 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

Considering how many marketers are offering loyalty

programs (whether they are effective or not is another
story), one innovative idea is to nix the idea all-together.
Build loyalty by providing first-time users awesome This minimalist approach works best for companies
benefits, hooking them, and offering those benefits whose products or services are unlike any other. That
with every purchase. doesnt necessarily mean that you offer the lowest
price, or the best quality, or most convenience -- Im
The concept sounds simple, but one of the most talking about redefining a category. If, like Apple,
innovative companies on the planet implements this your company is pioneering a new product or service,
strategy: Apple. Even the most loyal Apple custom- a loyalty program may not be necessary. Customers
ers dont get special rewards or discounts ... because will be loyal because there are few other options as
they dont offer them toanybody. Apple enchants spectacular as you, and you have communicated that
customers by delighting them with a product or value from your first interaction.
service the first time. The loyalty is voluntary and
long-lasting,according to Apple evangelist Guy For a more defined approach to inspiring customer loyalty,
Kawasaki. Apple has plenty of supporters, both online without the programs, consider these 5 components to a
and off, ready and willing to rave about their product. customer-loyalty-friendly marketing initiative:
For them, loyalty happen organically.
10 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

ORIENTATION

If your customers are actively using your product or service

in the most advantageous ways from the very beginning,
its more likely they will stay with you for the long haul.
Consider the moment after purchase the honeymoon These principles should extend beyond the honey-
phase of your relationship -- they are excited about moon phase, too. If you have current customers who
your company and how it will help their organization. are inactive, wake them up! Dont abandon custom-
Use that momentum to ensure they actuallyuseyour ers, whether new or old, after the point of sale and
product or service, and use it in the way that will leave them to figure out how to use your products
make them the most successful. Active use that or services. Theyre new to this stuff...youre a pro!
drives results is the first step to making your compa- Share your knowledge so they can become pros, too.
ny a fixture in their organization.
11 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

ONGOING EDUCATION

Which brings us to the importance of education.

Be the company that continually provides value and chunks, but it also makes you look like the gift (or
shows youre invested in their success. When youre company) that keeps on giving.
first orienting customers, theres probably plenty of Create content that highlights new and underused
functionality about your product or features of your features of your product or service, or educates them
service from which they would benefit -- but its too about their industry. Videos, webinars, workshops,
early to overwhelm them witheverything. Education customer-centric blog content, and use cases are
should come in stages. It not only makes adoption particularly effective content formats for this type of
more likely when information comes in bite size information.
12 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

COMMUNICATION

Effective education goes hand in hand with great, open

communication. In fact, communication is one of the
most important components to customer loyalty,
and also one of the hardest to successfully execute. Provide forums and customer-focused social media
Remember, youre not communicating with one cus- accounts, and send out email surveys to solicit feed-
tomer -- its an entire organization of people that you back, and make sure employees are actively moder-
must continually impress. That means you need to com- ating and following up on these discussions so your
municate with not just your point of contact, but also the brands presence is felt.
influencers, decision makers, and other employees
involved in executing your solution -- with not all of Open communication of this sort not only helps
whom youll necessarily have a personal relationship. strengthen the ongoing education process as custom-
ers learn from one another, but it also gives you the
Keep communication channels open, and provide critical feedback you need to improve your product
multiple places for people to talk with one another and service offerings, and your sales and marketing
and provide feedback to you. The more opportunities processes. Marketers need to understand customer
for dialogue, the more likely youll hear from employ- preferences and buying habits so they can continue
ees of all levels -- especially those C-suite decision to deliver value in their pre- and post-sale marketing
makers you likely arent actively engaging with on a content. Youll also begin to identify patterns around
consistent basis. In fact,MarketingProfsreported the types of customers who stick around the longest
that after Oracle began actively engaging with decision so you can better target them in your lead generation
makers of a particular client, its customer retention rate efforts and prioritize them in the sales process.
was more than 20% greater.
13 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

COMMUNITY BUILDING

The dialogue that comes with this open communication

between your organization and your customers will build
a community thats crucial to illicit feelings of loyalty
from your customers. Active members of your Its important to build a strong community with your
community will be more active users of your product employees, too. They are on the front lines with your
or service. Encourage activity on forums and social customers every day, and as such, customer culture
media sites, host local, in-person events, and hold will inevitably overlap with employee culture. If your
workshops that let customers discuss how theyre employees show enthusiasm for your products and
leveraging your product or service in their company. services, those feelings will extend to your customers.
When customers have ownership over others success
with your product, they become far more invested in
your company, and are less likely to churn.
14 How to Use Customer Loyalty Programs for Your Business

OR SHOULD YOU SCRATCH THE PROGRAM COMPLETELY?

HOW TO INSPIRE CUSTOMER LOYALTY, WITH OR WITHOUT PROGRAMS

PRICING

To say pricing is a complicated beast is an understatement.

But if your organization is facing a pricing change, switching to a competitor that isnt tried-and-true
its crucial to execute it with tact to ensure you dont like you.
turn loyal customers into angry exes. All pricing
changes should be approached with clear, frequent, Ultimately, none of this will help you retain custom-
and gracious communication. If you have the au- ers if you dont already have an amazing product or
thority to do so, offer to grandfather in customers service backed by amazing service. Continue to invest
for a period of time on your old pricing structure. in acquiring top talentto manage the development of
There will sometimes be penny pinchers, sure, but if your product and service offerings, and hire amazing
youve effectively built the value of your product or front-line employees that serve as the helpful and
service to their organization, you should find youve intelligent face of your business to customers.
built enough value that those customers cant justify
15 How to Use Customer Loyalty Programs for Your Business

MEASURING THE EFFECTIVENESS OF YOUR LOYALTY PROGRAM

As with any initiative you implement, there needs to be a

way tomeasure your marketing success.
Customer loyalty programs should increase customer grams call for different analytics, but here are a few
happiness and retention; and thereareways to mea- of the most common metrics companies watch when
sure these things besides in rainbows and sunshine. A \rolling out loyalty programs.
lot of ways, actually. Different companies and pro-

CUSTOMER RETENTION RATE

Customer Retention Rate -This metric tells you how to the section titled Retention Rate for its formula
long your customers stay with you. Start by establish- and explanation.
ing this as a baseline metric so you know whether your
efforts are improving your retention rate over time. How There is such a thing as negative churn, too, which is
you calculate this number will depend on your business actually a good thing, despite the names implications.
model --CRM Trends provides a great breakdownof Negative churn is when a current customer upgrades
how to go about determining this number for your busi- or buys additional services from you, and it can offset
ness if you havent done so already;click hereand scroll any other churn you see from customers leaving.
16 How to Use Customer Loyalty Programs for Your Business

MEASURING THE EFFECTIVENESS OF YOUR LOYALTY PROGRAM

NEGATIVE CHURN

Churn is the rate at which customers leave your the natural churn that goes on in most businesses.
company; negative churn, therefore, is a measure- Depending on the nature of your business and loyalty
ment of customers who do the opposite -- upgrade, program, especially if you opt for a tiered loyalty
or purchase additional services. These help to offset program, this is an important metric to track.

NET PROMOTER SCORE(NPS)

- This is a customer loyalty metric that can be used Their answers get them placed into one of three
to gauge the loyalty of a companys customer rela- categories:Promoters(those who give a response of
tionships. On a scale of 0-10, customers respond to 9-10),Passives(those who give a response of 7-8),
the question How likely is it that you would rec- orDetractors(those who give a response of 0-6).
ommend [Company X] to a friend or colleague?

PROMOTERS

can be interpreted as customers who are your loyal cause damage to your brand.
enthusiasts, will keep buying from you, and will refer You can calculate your NPS score by taking the
others.Passivesare satisfied but unenthusiastic percentage of customers who are Promoters and
customers who are vulnerable to competitive offer- subtracting the percentage who are Detractors.
ings.Detractorsare unhappy customers who could
 17 How to Use Customer Loyalty Programs for Your Business

MEASURING THE EFFECTIVENESS OF YOUR LOYALTY PROGRAM

CUSTOMER EFFORT SCORE

Customer Effort Score:CES asks customers, How people.In this way, customer service impacts both
much effort did you personally have to put forth to customer acquisition and customer retention. If your
solve a problem with the company? Some compa- loyalty program addresses customer service issues,
nies are vying for this metric over NPS because it like expedited requests, personal contacts, or free
measures actual experience rather than the emo- shipping, this may be one way to measure its success.
tional delight of the customer. AHarvard Business To see what other businesses are doing to measure
Review studyfound that48% of customers who had customer loyalty, review this chart:
negative experiences with a company told 10 or more

EBOOK 5
METRICS COMPANIES USE TO MEASURE SUCCESS OF RETENTION EFFORTS

2% # of Programs Completed
4% Dont Know
8% #Customer Saves

10% Net Promoter Score

12% Up- or Cross-sell Leads

17% Revenue Targets

21% Attrition Rate
26% Customer Satisfaction
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