It costs a business approximately 5-10 times more to find a new customer than it does to retain an existing customer and this is the fundamental premise behind loyalty programs. Loyalty programs are an excellent way for businesses to retain customers and encourage repeat business. In fact, 65 per cent of companies have implemented a loyalty program as part of their marketing strategy and about 75 per cent of these companies generate a return on investment from their loyalty program.

Canadians in particular respond positively to loyalty programs – 89 per cent of us belong to one compared to 85 per cent of global consumers. Unfortunately, not all loyalty programs are created equal. Although most of us are members of an average of 29 loyalty programs, we are active in only 12 of these . A loyalty program that goes unused is a waste of marketing dollars and consumer time. So what makes a loyalty program successful?

Loyalty programs that make consumer satisfaction the priority are most successful. A study by KiteWheel identified a disconnect between the loyalty program expectations of business owners and consumers. According to the study, “73 per cent of consumers say loyalty programs should be a way for brands to show how loyal they are to them, but 66 per cent of marketing executives say the programs should be a way for consumers to show how loyal they are to their business.”

The message here is clear. If the goal of your loyalty program is to show your appreciation to your consumers and expand your brand values, then you’re on the path to success. If your expectation is that consumers should prove their loyalty to you, then you’re setting yourself up for failure from the get go.

Businesses who create loyalty programs as a way to gain consumer data are also less likely to have their programs succeed. The Globe and Mail reports that “less than one in 10 of those surveyed in Canada actually felt they had received something of value in return for handing over information about themselves.” John Boynton, chief marketing officer for Aimia agrees. “I’m surprised marketers aren’t delivering on their part of the bargain…Why would people give you their data? … There’s an expectation. If all you’re doing is collecting data and your marketing programs are the same, you’re in trouble. And you may not get a second chance.”

Does your business really want to show appreciation to your customers? If so, then how should you do it? There are a variety of types of loyalty programs out there and each comes with pros and cons.

 

Type of loyalty program	Pros	Cons
Point systems – points are given for purchases and points can be redeemed for something.	If you keep it simple points can provide easy, tangible rewards to consumers who are already purchasing your products. Think of McDonald’s coffee stickers. Each coffee cup comes with one so if you regularly buy coffee and choose to collect the stickers you’ll eventually earn yourself a free cup.	It can take a while for consumers to collect enough points to earn a reward. Some point systems are notoriously confusing (Air Miles is a good example of this – you need to refer to a zone map which corresponds to earned points to redeem a flight).
Tier systems – rewards are given for joining the program and the value of the rewards are increased as the customer moves up the loyalty ladder.	A tier system is a good way to solve the problem of members forgetting about their points and not redeeming them. Shoppers Drug Mart’s Optimum Points are an example of a mix between a tier and point system. An initial bulk of points are given upon signing up and then points can be redeemed for in-store purchases once set point levels are reached. The more points, the higher the tier, the more value for redemption.	A long-term commitment is often required from the consumer to cash in on really valuable rewards, so this type of system will work better with companies whose consumers make frequent purchases or high cost purchases.
VIP benefits – consumers pay a fee to access rewards.	In rare cases it can be worth it to charge consumers a fee to bypass a common barrier that prevents consumers from completing a transaction. Amazon Prime does this successfully. They charge a yearly fee and consumers get free, two-day shipping. This program has helped Amazon’s customers who may otherwise not make a purchase because of the cost of shipping.	Most consumers aren’t interested in paying to be part of your loyalty program. You’ll need to provide a benefit that makes their membership really worth it.
Partnership programs – consumers receive rewards from the company’s partners.	HubSpot‘s Lindsay Kolowich points out that providing “your customers with value that’s relevant to them but goes beyond what your company alone can offer them [shows] you understand and care about their needs. Plus, it’ll help you grow your network to reach your partners’ consumers too.” Virgin mobile is a good example. They regularly offer consumers entertainment-themed rewards from their partners. Rewards include free movie passes or chances to win concert tickets.	You need to truly understand your consumers and pick the right partners for this to work.
Games – consumers earn the chance to play games and win prizes.	Games are often seasonal in nature which can provide a brief boost in sales at a slow time of the year, generating buzz and brand recognition.   Tim Horton’s Roll up the Rim is a great example of a successful loyalty-based game approach.	Because games are seasonal they don’t provide consistent rewards to consumers. The prizes are allocated randomly to consumers, so inevitably some consumers won’t win, despite their level of loyalty. The game needs to be simple and fun, otherwise people won’t buy into it.

 

It’s important to note that non-monetary, value based incentives are also very popular with consumers. Consider providing sustainable or charity-based incentives as part of your loyalty program. This is a great way to further your brand’s values and also hone in on what is important to your consumers.