<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=1402745963366197&amp;ev=PageView&amp;noscript=1">

How to Build a Customer Loyalty Programme That Really Works

Anna Marketing 18 Aug 2017


A quick survey of the RotaCloud office found that we have an average of 4.2 loyalty cards in our purses or wallets - and several loyalty apps on our smartphones, too.

Loyalty cards seem to multiply in wallets in the same way that carrier bags inevitably take over the cupboard under the kitchen sink.

We hoard loyalty cards (and bags) because one day they’ll come in handy and save us some cash. At least, that's the idea.

So why are they so often forgotten about?

Because our reaction to loyalty programmes is usually indifference. In most instances, we don't even make it half way through stamp cards before we end up losing them. And our points never seem to accumulate enough to be redemeed for anything worthwhile.

But our lukewarm attitude to loyalty cards as consumers shouldn't dissuade independent retailers from implementing loyalty programmes.

After all, the right loyalty programme can keep customers coming back with minimal extra cost to your business.

If you want to try out your own loyalty programme but don’t want your cards to be consigned to the depths of your customers’ wallets and never see the light of day, we’re here to show you how it’s done.

Know Your Goal (and Your Market)


picture of indoor arcade of shops
Before you even start thinking about the mechanics of your loyalty programme, you need to pin down exactly what you’re trying to achieve.

'Improve customer loyalty' won’t do. You need to be specific.

To help with this, think about your current problems with customer loyalty and their causes.

  • Are customers put off by your product?
  • Are customers put off by your service?
  • Why do your customers turn to your competitors?
  • What kind of discount does it take to tempt customers back?
  • How frequently do customers shop with you? How frequently would you like them to shop with you?

If you don’t work on the front lines of your business too often, ask your employees to help you answer these questions - you might not like the answers you hear, but without understanding your current loyalty problems you won’t be able to resolve them.

After this exercise, you should be able to draw up a specific goal for your loyalty programme. Here are a couple of examples:

  • For a highly seasonal retailer: encourage customers to return outside our busy periods.
  • For a cafe in a high-competition area: convert occasional buyers (once a month) into regular customers (multiple purchases a week)

Now that you know what you want your loyalty programme to achieve, it’s time to explore your options.

Types of Loyalty Programmes


looking at phone in cafe with coffee
Generally speaking, most loyalty reward schemes fall into three categories:
  1. Stamp/purchase based
  2. Points-based
  3. Membership/tiered

The first of the bunch is the simplest and oldest type of loyalty programme. Customers are handed a card with multiple empty boxes that are stamped or punched when a purchase is made. Once the card is completed, a reward is given - usually a free product or significant discount.

These cards can also come in digital form. The customer signs up to an app or website that records the number of ‘stamps’ they’ve received. In-store, more ‘stamps’ are added either by having a QR code on the customer's phone scanned, or directly via the point of sale system.

The vast majority of loyalty programmes offered by independent retailers involve loyalty stamp cards.

Pros:

  • Simple to manage
  • Easy for the customer to join and participate
  • Low cost

Cons:

  • Unless you use a digital loyalty scheme, you don’t receive any data about individuals’ purchasing habits
  • Cards are often lost or damaged, reducing uptake
  • May only have a limited impact on buying habits

Points-based systems are more complex, with retailers offering customers a number of points per pound spent in-store (or online). In most cases, points are later redeemed for money off.

This type of scheme always keeps track of points digitally, but usually customers receive a physical card that’s swiped or scanned at the point of sale.

In the UK, points schemes are typically used by larger businesses.

Pros:

  • Relatively low cost (in the medium-long term)
  • Collects data on purchasing habits
  • Extra points offers can be used as an incentive to buy certain products

Cons:

  • Rewards can often seem distant and abstract to the customer
  • Can be complicated to manage
  • Initial cost of cards is relatively high

The final type of loyalty programme is the least common. Membership or VIP loyalty schemes involve customers (usually) paying a monthly or annual fee in order to gain access to rewards, features, or products that non-members can’t get hold of, such as faster delivery, free delivery, previews of new product lines, or first dibs during a sale. Joining the scheme may involve paying a separate fee, or membership may trigger when the customer spends a certain amount within a certain timeframe.

These schemes are usually limited to e-commerce but their benefits may extend to physical shops.

Pros:

  • Can significantly increase annual spend per customer
  • Members feel part of an exclusive club
  • Directly generates revenue

Cons:

  • Expensive to set-up, VIP benefits likely to be expensive or time-consuming to deliver
  • If price and rewards are misjudged, your brand may be seen as greedy
  • Can turn non-members off

Choosing Rewards


customers using loyalty card online
One of the more difficult parts of building a loyalty programme is deciding on the rewards you offer participants.

Your choice will boil down to finding a balance between cost and the reward’s perceived worth to consumers.

Offering a 50% discount on a coffee after 10 stamps might be cheap for your business, but your customers will hardly feel motivated to get their stamps if a quid off is the best reward you can offer.

A free coffee is the standard for cafe loyalty stamp programmes - and it’s easy to see why. It costs the cafe a couple of pounds in lost revenue, but to the consumer, an entirely free coffee is a tangible, significant reward to work towards.

When you’re working out the cost of offering specific rewards, don’t forget to take into account the number of customers that will actually ‘cash out’. Most customers you give a loyalty card to won’t finish them - and some might take years to fill up their card.

Similarly, customers using points-based loyalty schemes might not get around to using their points before their loyalty account closes due to inactivity.

We recommend calculating the rough costs of your hypothetical rewards at various levels of uptake.

Potential Rewards for Stamp Card Programmes

  • Freebies. A free drink, a free main course or a free gift voucher are all common choices.
  • Discounts. These are often used as a ‘halfway’ reward to make later rewards appear more achievable. We don’t recommend offering a discount upon card completion.
  • Prize-draw entries. One complete card = one entry into a monthly prize draw. Prizes could include extremely generous discounts for extended periods of time, gift vouchers of £50 or £100, or maybe a free meal for the winner and three guests.

Potential Rewards for Points Programmes
You need to decide how many points to award per £ spent, the value of each point, and if there’s a minimum points total customers need before they can redeem them.

Essentially the value of points and the rate at which they are accumulated can be converted into a percentage discount.

For national points programmes like Nectar and Clubcard, these discount percentages range from 0.5% to 4%.

Potential Rewards for Membership-Based Loyalty Schemes
Membership loyalty programmes essentially aim to give customers temporary VIP status - for a price!

VIPs might receive:

  • Free delivery, weekend delivery, express delivery
  • Small discounts across the board
  • Early access to seasonal sales
  • Early access to new product lines
  • Invites to events
  • Double/triple points days
  • Event ‘pre-sales’

Remember: your rewards should also relate to your goal. If you want customers to increase their spend during quiet periods, you can limit discounts to those periods, for example.

How to Make Your Loyalty Programme a Success


group toast with glasses
You’ve drafted out the basics of how your loyalty programme will work: its structure, its rewards, and what you want to achieve with it. But that’s not all you need for a successful loyalty scheme. The way you implement, market, and manage it is also important.

Here’s what you need to think about:

  • The sign-up process. This needs to be as quick and easy as possible. Customers don’t want to fill in long forms for simple loyalty cards - only require an email address or phone number, at least to start off with. Using stamp cards eliminates the sign-up process entirely.
  • Reward relevance. You need the rewards you offer to appeal to a significant chunk of your market, or be able to personalise rewards so that participants are motivated to take part. Points and VIP programme rewards are easier to customise, as you have plenty of data to work with. You could customise stamp card rewards by giving participants a choice of reward upon card completion.
  • Train staff. Staff need to understand the ins and outs of your loyalty programme, and know how and when to ask customers for their loyalty cards or if they’d like to join. They should also have a copy of the programme’s terms and conditions at hand in case there’s a customer dispute.
  • Advertise it. You won’t get any benefit from your loyalty programme if none of your customers know it exists! Spread the word in-store and online, including on your social media channels.
  • Showcase happy customers. When a customer completes their loyalty card or purchases using points, ask them if you can share a photo of them and/or their purchase on your social media accounts. By showing real customers actually attaining rewards, you’ll encourage other customers to join your loyalty programme.
  • Get feedback. Ask staff to find out what customers think of your programme. A quick chat at the point of sale could help you pin down whether your rewards are too mean or too generous, or if there’s anything else that needs improvement.

Examples of UK Loyalty Programmes


top down view of shop floor
Now let’s look at some existing loyalty programmes and what makes them work (or not work). These examples may be a far larger scale than the scheme you’re planning, but we can still learn lessons from the choices these big businesses have made.

Tesco Clubcard

Arguably the first nationally successful points-based loyalty card was the Tesco Clubcard. Launched in 1995, the customer data collected by Clubcard was (and still is) incredibly valuable to the supermarket, giving Tesco near-complete insights into customers’ shopping habits - while also improving customer loyalty.

The scheme is still going strong today - chances are that someone in your household has a Clubcard. Other supermarkets have followed Tesco’s lead - most notably Sainsbury’s with the Nectar card.

For these supermarkets, it’s clear that the main goal of these schemes is data collection - and the more loyal the customer, the more complete the data.

Lessons:

  • Use loyalty data to offer personalised vouchers and online shopping experiences.
  • Partner with other businesses to give customers more ways to spend their points.

Amazon Prime

From a distance, the premise behind Amazon Prime can seem incredulous: paying a premium for improved service. Shouldn’t all customers be entitled to that service?

Yet the vast benefits offered by Prime make the cost palatable - and certainly encourage Amazon’s customers to do business with them more often.

At the scheme's inception, the main benefit of being a Prime member was the free next-day delivery service - a luxury compared with the 3-5 day free delivery window for other Amazon customers.

Even back then, Prime was an appealing prospect because it essentially removes one of the barriers that prevents customers from making Amazon purchases on a regular basis. One-day delivery not only means your item arrives quickly, but you also know for sure when it’ll arrive - reducing the chance of missing your delivery.

These days, Prime benefits also include free video streaming, exclusive sales, and discounted music streaming.

These benefits come at a cost to Amazon, but estimates suggest that Prime customers spend almost double that of non-Prime customers on Amazon each year.

Lessons:

  • Use membership schemes to lower barriers to repeat purchasing
  • Carefully track the costs and benefits of offering membership perks

Waitrose

Waitrose’s loyalty programme doesn’t really fit into the three categories we’ve used throughout this article. Instead, customers receive a membership card that entitles them to small free gifts as well as various discounts. The most notable of the scheme’s perks is the free tea or coffee - all customers need to do to claim their free hot drink is buy something else in-store. Waitrose also offers members their money back on a newspaper purchase if they spend over £10 in-store.

With this type of loyalty programme, Waitrose are focusing on instant gratification and tangible rewards. In return, they receive customer purchase data and a significant amount of goodwill.

They also offer customers the ability to pick their own offers, letting customers choose 10 products they’d like to always receive at 20% off - so long as they present their loyalty card at checkout. This personalised approach makes customers feel that they have more control over their groceries spend.

Lessons:

  • Find a way to instantly reward customers for signing up to your loyalty programme
  • Giving customers a choice (or at least the illusion of choice) of rewards can be extremely effective

GAME Elite

Now for an example of a loyalty programme that hasn’t been so well received (at least, not yet). Video game retailer Game are struggling in a shrinking market, with digital game sales posing a likely-to-be terminal threat to bricks-and-mortar game sales.

One way they’re attempting to keep customers coming back is with a leveled-up version of their existing free points programme: Game Elite.

Game Elite is a membership-based loyalty programme offering gamers extra loyalty points, exclusive discounts and a free birthday gift for the price of £36 a year. While the points boosts are generous, Eurogamer worked out that you’d need to buy 10 full price games a year to be able to get another game for free - but you’re still paying £36 for the chance to get your free game.

The programme was met with a hostile response, largely due to the lack of value offered by Elite, but also because gamers seem to view the retailer as being on the pricey side compared with its competitors. Many people saw the scheme as simply another way to squeeze cash out of customers rather than actively rewarding loyalty.

Lessons:

  • Starting a membership scheme isn’t a good idea if the market already thinks you aren’t offering good value for money
  • Points schemes work best for brands that attract frequent purchases

Final thoughts

Most businesses have tried out loyalty programmes in some shape or form, but only a small proportion make a success of it. By thinking carefully about the scheme’s type, rewards, and your own goals, you can craft a loyalty programme that works for your business.

We also recommend asking your network and other businesses in your local area of their experiences with loyalty programmes. They’ll be able to provide you with some locally-specific advice to help you refine your customer loyalty programme even further.

Want more ways of building your customer base? Take a look at more marketing tips for businesses like yours...