When to Start a Loyalty Program
By: Lia Grimberg
There are many reasons why loyalty programs fail to drive profitability, desired customer behavior, member satisfaction, or engagement.
Not every company needs a loyalty program to drive customer loyalty. Loyalty is an outcome, not a program. There are many mechanisms your organization could use instead. However, if you launch a loyalty program without truly understanding the reasons behind having the program or the commitment it takes, neither you nor your members will benefit from the program.
Here are the reasons why your organization needs a loyalty program.
1) You can afford the investment.
After the cost of goods sold, a loyalty program will likely be your second-highest expense in the business. You should forecast your base program to cost around 1–5% of sales among your members, plus the rest of the benefits and promotional costs. Of course, vendors and partners can also offset and subsidize the cost of this investment. Having an underfunded program will not allow you to be competitive in the marketplace, leaving your members disappointed.
[Related: Five Simple Business Strategies that Work Best for Startups]
2) You need the customer data.
If you run a pure-play e-commerce business, all your customer/brand interactions have been captured in one place and you likely have a single view of the customer. However, for hybrid businesses, your customer data may sit in siloes, disconnecting the customer interactions online vs. those in-store. In the latter case, a loyalty number will be an elegant solution to create a 360-degree view of all customer experiences with your brand, regardless of the channel.
[Related: Attention Retailers: Unleash the Power of Your Data]
3) The c-suite is aligned on the KPIs and the role of loyalty.
Lack of c-suite alignment is one of the leading causes of loyalty program failure. All departments, their heads, the c-suite, vendors, and partners should be clear, assign priority to, and be aligned on:
- What metrics the program should drive?
- What customer behavior do we need to move?
- What role does the program play (e.g., it needs to be independently profitable)?
- How does the program fit into our marketing, investment, operational plan, and every member interaction?
You have operational support throughout the organization. Loyalty programs live and die on the front lines. Your front-line associates are your brand ambassadors that need to be members, advocates, and teachers of the program to help your members understand it and get the most out of it.
You want to engage your existing customers. Your loyalty program is not a means to acquire new customers. It serves to reward, benefit, and engage existing customers to shop more with your brand.
Your company should start designing a loyalty program if, and only if, you can answer “yes” to every question above. Only then, if you design a program that is differentiated, appealing, and profitable, does it stand a chance to succeed.
[Related: More Than a Good Surprise: The Magic of Serendipity Enhances Consumer Satisfaction]
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Lia Grimberg is Principal and Consultant for Radicle Loyalty.
Originally published at https://www.ellevatenetwork.com on August 9, 2023.
