The following article outlines several major design considerations for developing effective customer loyalty programs:
1) Define the Purpose and Objectives of the Program
From the company perspective, loyalty programs should be designed not only to improve customer retention but also to improve the performance of customer acquisition, new customer engagement [or onbording], customer development, and customer winback. This end-to-end customer lifecycle approach will extend and multiply the impact of the program.
From the customer perspective, loyalty programs should offer customers an opportunity to benefit from enhanced product or service value propositions.
2) Design the Program to Attract the Right Customers
Loyalty programs should focus of attracting the “right” customers. High-value “secondary customers” will prove particularly attractive candidates for loyalty programs. These secondary customers divide their purchases in the category among two or more providers. They are also however the least likely to join the program.
3) Design the Program to Enhance the Value Proposition of the Product
Customers will ultimately base their “loyalty” decision first and foremost on relative value considerations. Loyalty programs that directly enhance the value proposition of the product or service will therefore prove more effective in influencing customers’ loyalty decisions.
4) Design the Program to Facilitate Incremental Customer Behaviors
Loyalty program should be designed to motivate customers to produce new or “incremental” behaviors. Loyalty Programs that rewards customers mostly for “mindlessly” producing the same natural customer-as-usual behaviors will have limited impact.
5) Develop a Strategy for Engaging Customers in the Program.
Companies should also develop an adjunct strategy for engaging customers in the program. The strategy should include customer participation, introduction, and engagement elements.
6) Develop a Strategy for Measuring and Improving the Effectiveness of the Program
Loyalty programs defy easy measurement. Companies need to particularly develop an approach to adjusting the measurement process for any “selection effect”. Loyal customers will find the program more attractive than less loyal customers. Customers who participate in the program will typically be more loyal than customers who do not partly because of the sheer selection effect.