Customer loyalty and reward programs are popular initiatives for everything from earning points towards flights to exchanging stamps for a free cup of coffee. Many businesses believe that they need to have a loyalty program to retain customers and increase profits, but loyalty programs and their potential benefits are not that simple. Implementing loyalty or rewards programs should be done with careful thought and consideration and as part of a larger business and/or marketing strategy. Loyalty is another customer touchpoint and should be done in a way that doesn’t upset or alienate customers.

Understanding Loyalty Programs

Loyalty programs take many forms, but most often involve receiving a benefit (perceived or real) from engaging with a product. The most successful programs tend to be reciprocal where the business is as loyal to the customer as the customer is to them. Airline and hotel programs often provide free seat and hotel upgrades and access to exclusive airport lounges. In exchange for these privileges customers will almost always use that particular hotel or airline.

American Express takes a lifestyle approach to their benefits and rewards and include them as part of the overall product experience. Benefits are a natural part of engaging with the product as opposed to the add on that many loyalty programs are. This is evidenced by their cardholder/brand promise:

We think the world is full of untapped potential. That’s why we’re here, to help make things happen. We’ll help you out 24/7 anywhere in the world; our customer service teams can go the extra mile so you don’t have to. We’ll help you treat yourself to something special with access to rewards and special offers. We’ll provide access to some of the hottest shows, dining and events. So get ready to enjoy life’s memorable moments.

American Express cardholders are first in line to purchase concert tickets, and titanium card holders skip lines and receive free table service at popular nightclubs. In addition to the tangible perks, American Express has created a sense of exclusivity and privilege that is associated with the use of the product.

Many loyalty programs are based on rewards and more transactional in nature where the customer needs to spend to receive points that can be redeemed for travel, cash or various other items. These tend to be the least effective loyalty programs in terms of increasing profits and building brand advocates. Successful programs, like American Express, have a blend of loyalty privileges, rewards, and prestige.

Know Your Audience

Programs should be well thought out by companies with a clear understanding around what motivates their customers and what the objective is for the loyalty program. Loyalty programs are an opportunity to introduce an additional touchpoint with your customers, but be careful that the program is not presented in a way that is more of a deterrent than a benefit. This can happen when a company applies a one size fits all approach to their loyalty programs.

Nordstrom introduced a successful rewards program in the US, but the same program does not translate well for Canadian customers. Previously in the US, rewards were only available to Nordstrom credit card holders which was often a deterrent for membership. Nordstrom restructured their program to create a rewards program available to everyone. In the US, customers receive 1 point for every $20 they spend and Nordstrom credit card holders receive 2 points for every $20. In addition to this, a Nordstrom credit card enables customers to open different tiers of memberships in correlation with spending. Benefits in these tiers include exclusive access to sales and pre-shopping, VIP rewards, alterations, and exclusive points events. This rewards program has the potential for high returns as millions of customers are expected to join and once they have will likely become motivated to apply for a credit card to unlock the next level(s) of membership.

In Canada, the Nordstrom’s Reward program is limited as the Nordstrom credit card is not available in Canada. Because of this, the program is 100% transactional in that its only function is to spend money and earn points. There are no opportunities to upgrade or access the different tiers of membership available to US customers. Also in Canada, on-line orders do not qualify for points. By not taking the time to understand the Canadian audience Nordstrom is delivering a Rewards Program in their Canadian stores that is limited and not a good fit, yet it is still costing them money to implement.

Considerations to Make

These are just a couple of many examples of loyalty and rewards programs. When looking at implementing a program be creative and think about what would add the most value to your business and to your customers. Develop a program that aligns with your brand promise, has a return on investment, and gives you an additional positive touchpoint with your customers. If you cannot meet all of these objectives a loyalty program might not be a right fit. In this case, there could be more damage in not doing it right than not doing it at all.