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How to create a customer loyalty program in 9 steps

A customer loyalty program can help organizations better retain and understand their current customers and target audiences. These nine steps can lead to a successful program.

Customer loyalty can increase revenue, improve sales and enable business growth, so organizations have begun to focus more on retention strategies, such as customer loyalty programs.

Customer retention is an organization's ability to retain customers over time, determined by how many new customers it acquires, as well as customer churn. Organizations often spend more time developing marketing strategies focused on new customers, but a customer loyalty program can address their already engaged audience and make sales easier. If organizations maintain relationships with loyal customers, they can increase revenue and customers' lifetime value.

Why create a loyalty program?

Modern businesses use subscription-based models and measure monthly recurring revenue as a success metric, so a balance of customer retention and acquisition can lead to sustainable growth. For instance, if fewer customers cancel their subscriptions, organizations can more easily hit revenue targets for acquisition.

Any organization that wants to sell more products or services to existing customers should create a loyalty program. No matter the industry or business vertical, organizations can reward customers for their loyalty with exclusive benefits, which can help differentiate themselves from competition.

Explore the following nine steps to create a customer loyalty program.

1. Choose a program type that aligns with the brand

With myriad ways to incentivize existing customers -- like discounts, money back, freebies and more -- organizations should choose a loyalty program that aligns with their business offerings. Rewards should incentivize and appeal to customers.

Common examples of loyalty programs include the following:

  • Points-based loyalty programs, which reward customers based on actions like referrals, repeat purchases and subscriptions.
  • Tiered loyalty programs, which offer customers different benefits based on their spending.
  • Paid loyalty programs, which have customers pay a fee to receive specific benefits.
  • Value-based loyalty programs, which showcase a brand's values and donate a portion of sales to specific charities or causes.
  • Coalition loyalty programs, which is a loyalty card program that incentivizes customers of multiple businesses to share their data.
  • Gamified loyalty programs, which offer games or challenges to keep customers engaged.

2. Define the loyalty program's goals

Organizations should know the outcomes they want from a loyalty program, like increased revenue or engagement. For instance, a business may want to create more awareness around its brand or cause. If it engages with existing customers and donors who share their experiences on social media, the organization may bring in more business.

Organizations may also want to find ways to increase order volume or size, which they can set goals for through customer loyalty programs. Then they can measure against those goals.

3. Know the audience

If an organization understands its target audience and what motivates that audience to make purchases, it can understand how to incentivize customers in the future. Analysis of customer behavior and interactions can help organizations understand customers' worldviews or what they want from a brand. Proper data collection and storage can create closer customer relationships and reveal what fosters loyalty.

When CX teams research their target audience or existing customers, they should discuss what data to capture at various touchpoints. This information can help teams understand what products or services to communicate to the audience and create better customer experiences.

If an organization understands its target audience and what motivates that audience to make purchases, it can understand how to incentivize customers in the future.

4. Personalize the customer loyalty program

Organizations can use collected data to personalize future offers for existing customers. For example, if a SaaS company offers a service that different department types use, the company should know which departments the customers are from and how they use the tool. This knowledge enables organizations to tailor future offers and incentives around those use cases.

If a retail company stores data from past purchases, it can learn from a customer's previous interactions -- especially the volume of those interactions -- which makes future outreach more targeted and effective. Birthdays, anniversaries and other unique data points are also great details to use for timely outreach.

5. Create incentives through referrals

Organizations that use their customer base as a referral source can encourage new sales, growth and engagement. If customers have good experiences, then organizations can more easily request referrals from them, such as sharing content on social media, offering unique links or discount codes and requesting positive reviews.

In return for something easy for customers to do -- which they may have done, anyway -- the organization can reward them with gifts or offers, and it becomes a win-win for both sides.

A list of all nine steps for creating a customer loyalty program
When developed properly, customer loyalty programs can help organizations retain customers over time.

6. Promote the customer loyalty program 

If an organization's loyalty program is new, marketing teams should first promote the program to existing customers for early adoption. The incentives and program type should encourage customers to sign up.

Also, marketing teams can add information about the loyalty program to existing communications, so all new customers know about it. Promotions in thank-you emails or in customer onboarding enable organic mentions of the program, which can explain how to participate and rewards for joining. Email, social media and website real estate can help get the word out.

7. Measure success and adjust accordingly

With established goals, CX teams can implement success measurements for the loyalty program. Engagement data and revenue reporting can reveal the program's success and its potential gaps, so marketing teams can make adjustments.

For example, if an e-commerce company wanted the loyalty program to increase average order size, then it should identify if an existing customer makes repeat purchases and if the order size increases. If not, the company can adjust the program to offer a discount on a certain order size or value -- ideally above the company's average.

8. Regularly communicate and solicit feedback

In a competitive marketplace, organizations want to remind customers of their enrollments in loyalty programs. When customers have good relationships with a brand and actively participate in the program, they may respond more to social media posts, email outreach and special offers.

Organizations shouldn't only communicate offers, though; they should also reach out to solicit feedback from engaged audiences. Businesses benefit from feedback on the program, products, services and customer experiences. Surveys, customer events and directly asking for feedback can help organizations engage and optimize loyalty programs.

9. Be consistent

Overall, organizations should be consistent as they create loyalty programs and take time to plan and implement the right type of program. Sometimes, the program doesn't yield the intended results, so the organization must change tack. Still, consistency through changes can maintain positive CX.

If a business constantly changes how it engages with existing customers, it may confuse or frustrate that audience. Consistency can help customers incorporate brands into their lives.

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