How to Create a Customer Loyalty Program

Popular among B2C and B2B brands, customer loyalty programs reward members for buying products or engaging with brands in other ways. For example, following your brand on social media, creating user generated content (UGC), referring a friend, or completing a survey.

Loyalty program rewards are as diverse as the brands that run them. Beyond simple discounts, popular rewards include:

• Cash prizes
• Free gifts
• Loyalty program points
• Access to exclusive events or experiences
• Branded merch

70% of U.S. consumers say customer loyalty programs are a key driver of brand loyalty. It’s a similar story in Europe, where 57% of consumers admit to modifying their purchasing habits to earn more benefits from their favorite brands.

With so much potential to influence customers, it’s not surprising that many brands are investing heavily in their loyalty programs.

The first thing to decide is the structure of your customer loyalty program. Should you choose a simple reward or point-based scheme? Or do you need a more sophisticated, tiered program?

Each program structure has specific advantages. Selecting the right one for your business depends on your goals and your customer’s buying habits. The four most common structures are:

1. Reward-based
2. Point-based
3. Subscription-based
4. Tiered

Once you’ve chosen a structure, you’re ready to create your customer loyalty program. To keep everything on track, we recommend following these six simple steps.

Step 1. Define Your Goals

The first step to creating a customer loyalty program is to define your goals. Do you want to encourage repeat purchases? Increase brand engagement? Unlock cross or upsell opportunities?

Setting clear goals keeps your program on track and aligned to your wider brand strategy. More than that, goals are crucial to measuring your success. If you don’t know what you’re trying to achieve, how do you know you've achieved them?

We recommend using the SMART framework to set your goals. This ensures they're:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

Step 2. Set the Entry Conditions

How will members earn points or rewards when they join your customer loyalty program? It might seem like an obvious question, but there are many ways to approach it.

Purchase-based activity, like a receipt upload promotion, is the most common entry condition. Members buy a certain product, a certain number of times, and get a reward. But it’s not the only one.

Customers engage with brands in different ways. Expanding your entry conditions beyond simple buy-to-earn mechanics makes your program more accessible and inclusive. Today’s channel-agnostic consumers appreciate this, especially during periods of economic uncertainty. When finances are tight, they’ll explore every avenue to cut costs.

Your customer loyalty program doesn’t have to include every entry method and channel. Focus on those that make the most sense for your brand and help you achieve your goals.

Popular entry conditions include:

• Creating an account
• Referring friends
• Following brand social media accounts
• Liking or sharing social media posts
• Commenting on a video
• Writing a review
• Signing up for your blog or newsletter
• Completing a survey

Step 3. Select Your Rewards

Rewards are the main reason people join customer loyalty programs.

A common mistake is to make your rewards seem unachievable and not worth the time or effort to redeem them. We see this frequently in points-based programs. Instead, focus on creating a simple redemption process that allows members to earn rewards quickly. Not only does this generate excitement but it also incentivizes members to participate regularly. Never underestimate the power of instant gratification.

There are multiple ways to drive participation. These include offering rebates, discounts on future purchases, and exclusive access to members-only products. Third-party products and services can also give your program a significant boost – ultimately, the goal is to provide a range of relevant and valuable rewards.

Value is subjective and isn’t always tied to price. For example, a $20 in-store gift card might not mean much to customers of a luxury jewelry brand who regularly spend thousands. Relevance similarly depends on your brand. Fast food restaurant vouchers won’t resonate with customers of an outdoor lifestyle brand as much as something like a free three-month gym membership.

Step 4. Create Your Reward Tiers

Tiering your customer loyalty program is an effective strategy for increasing average order value and purchase frequency. Whether you opt for a point or reward-based approach, splitting rewards into separate paid tiers adds an element of exclusivity some members can’t resist.

At the lower tiers, members earn small rewards, like discounts on their next purchase. VIP tiers allow members to win high-value prizes, such as all-expenses-paid holidays. The promise of increasingly valuable rewards encourages members to spend more as they work their way to the top tier.

With higher barriers to entry at the top member levels, tiered customer loyalty programs are ideal for B2B brands. However, they’re becoming increasingly popular in B2C. According to Deloitte, 53% of customers belong to a premium loyalty program – up 36% from 2021.

Step 5. Outline Additional Member Benefits

Beyond rewards, offering additional member benefits gives customers the nudge they need to join your loyalty program. Things like free shipping or extended return periods are powerful incentives. Alternatively, you could offer exclusive, tier-based benefits that scale in value as members progress through your program.

Other benefits to consider include:

• Access to exclusive promotions
• Sneak peeks at forthcoming products
• Early access to new services

Step 6. Program Design

There are many aspects to designing an effective customer loyalty program – from mapping the member journey to selecting the software you’ll use to manage it. Success depends on each one of these areas working in harmony.

Map the Member Journey

No matter how enticing your rewards are, people won’t engage with your program if it’s difficult to access them. Carefully map the member journey, removing unnecessary steps or friction to provide a seamless experience. Avoid overwhelming members with options when they log in to your program. Aim for a simple and intuitive user interface (UI) that’s easy to navigate.

Decide the Basic Reward-earning Mechanics

Aside from earn and burn mechanics, customer loyalty programs support various promotions, contests, and campaigns. Weaving them into your program keeps existing customers engaged and attracts new ones looking for the best deals.

As you create your customer loyalty program, consider which promotions are the right fit for your customers. Would they prefer the instant gratification of a gift-with-purchase promotion? Do they respond to personalized social media campaigns? Or do they prefer the thrill of instant win opportunities combined with a final grand prize sweepstakes?

Identify the Potential Integrations Required

List the systems that must connect to your loyalty program to function correctly. The exact makeup of your underlying tech stack depends on several factors, including your program structure, entry methods, and marketing channels.

Common technologies include:

• Point of sale (POS) systems
• Receipt processing tools
• Ecommerce apps
• Customer relationship management (CRM) solutions
• Customer data platform (CDP) solutions
• Enterprise resource planning (ERP) systems

Choose Your Customer Loyalty Platform

Choosing the right customer loyalty platform can make or break your program. Enterprise loyalty solutions enable you to customize and manage every facet of your program from one place. They allow you to layer earn-and-burn mechanics, tailor offers to different segments, measure progress against your KPIs, and more.

Finding the right customer loyalty platform for your program isn’t only a question of technology. While technical capabilities are important, the best vendors provide support through the design, implementation and steady state phases. From concept, strategy, design, and resource planning to implementation and activation, they work with you to create your ideal program.

Before committing to a platform or provider, there are some key things to consider.

• Technology: Is it an end-to-end solution? Does it harness automation to help you simplify and scale your program? Or are there technical limitations that could prevent you from creating and managing your program?
• Scale: Does your chosen platform support complex, enterprise-level customer loyalty programs? For example, programs that combine in-store and online experiences or cover multiple geographies.
• Expertise: Does your provider offer strategic guidance to help you fine-tune your customer loyalty program? Can you turn to them for technical support?
• Omnichannel activation: Does the platform allow you to run and market customer loyalty programs across channels and devices?
• Data: Does your platform allow you to collect and store customer data securely? Does it provide built-in analytics, so you can convert this data into strategic insights?
• Integration: How easy is it to integrate your customer loyalty platform with third-party systems and applications? For example, those belonging to third-party retailers, e-commerce platforms, or partner systems.
• Contests and promotions: How easy is it to set up, run, and scale contests and promotions via the platform? Can you get metrics and insights based on those campaigns? Does it support seasonal, repeating, and ad hoc campaigns?
  
  
  
  

The first rule to creating a successful customer loyalty program is to get company-wide buy-in.

Everyone should know you’re launching a program, understand how it works, and want to participate. If you can’t get staff interested in your program, how will you convince customers to join?

There are many ways to market a customer loyalty program. However, rather than concentrating on one avenue, an omnichannel approach that employs various tactics delivers the best results. Make it easy for customers to buy from you anywhere and on any device so they can engage with your program their way.

Common marketing channels include:

• Product packaging
• Website
• Email
• Social media
• Paid search
• Contests and promotions
• Above the line (ATL) marketing
• Influencer marketing

Once you’ve launched your program and collected some data, you can begin measuring performance against your goals.

It’s important to choose the right metrics. Your precise mix will depend on your goals, as well as the quality and quantity of the available data. However, common metrics include:

• Number of new members
• Purchase frequency
• Acquisition rate
• Program participation
• Churn rate
• Redemption rate
• Average basket size
• Customer lifetime value
• Active vs non-active members
• Net promoter score (NPS)

Monitoring your program helps you identify what is and isn’t working, so you can gauge your success and adjust your program accordingly.

Margins and Liabilities

Margins and liabilities are key to determining success in customer loyalty programs. When a customer redeems their points, they convert them into rewards which you then deduct from their account.

These points have a dollar value. Predicting and limiting how much your members cash out is a balancing act since you need to protect your margins and give members enough value to convince them to join your program.

Looking for inspiration to help you create the perfect customer loyalty program? Over the years, we’ve helped thousands of brands design and manage their programs.

Here are a few examples below: