How to Build an Effective Customer Loyalty Program in 5 Simple Steps

A person taking advantage of a customer loyalty program.

Here’s the truth: customer loyalty will supercharge your business. If you can keep your current customers coming back time and again, your organization will grow. But how do you actually do this? An effective customer loyalty program can help!

Keep reading to learn what customer loyalty programs are, why they’re so beneficial, and how to build one for your company in five simple steps.

What is a Customer Loyalty Program?

According to CandyBar, a customer loyalty program is:

“A marketing strategy that rewards customers who make purchases and engage with the brand on a continued basis. These rewards can include discounts, points redeemable toward purchase, free products, or even exclusive access to new products. Customer rewards programs are designed to incentivize future purchases.”

Some of the biggest brands in the world like Amazon, Starbucks, Sephora, and United Airlines use loyalty programs to build better relationships with their customers.

Why Are Customer Loyalty Programs Effective?

So what can a customer loyalty program actually do for your business? The answer: a whole lot! For example, brands that use loyalty programs generally experience better customer retention, lower marketing costs, and higher company profits.

Let’s explore each of these important benefits in greater detail:

Boost Customer Retention

Customer loyalty programs incentivize customers to continue spending their hard-earned money on a brand’s products and services.

By rewarding your customers with points they can use to make future purchases, discount coupons, the chance to support worthy causes, etc., you’ll encourage your patrons to make repeat purchases on a regular basis.

This is important because repeat customers often spend more money per transaction than new customers. Additionally, a 5% bump in retention rate (the rate at which new customers make secondary purchases) can boost profits by 25% or more.

Reduce Marketing Costs

Did you know that it costs 5-25X as much to acquire a new customer than to retain an existing one? In other words, customer acquisition is expensive.

If you can keep your current customers happy, engaged, and spending money with your brand, you’ll be able to maintain (or even boost) current profits without having to spend gobs of money on marketing strategies aimed at generating new buyers.

Increase Company Profits

Let’s be logical about this…

If existing customers spend more money per transaction than new customers, as we learned above, and retaining customers is 5-25x less expensive than generating new buyers, aren’t increased company profits almost inevitable?

If you’re looking to put more green in your company’s bank account (and let’s be honest, who isn’t?) than a strong loyalty program is the way to go!

How to Build a Customer Loyalty Program

The benefits of a solid customer loyalty program is clear. Now the question is, how do you build one for your company? That’s what we’ll discuss in this section. Follow the five-step process below to learn the top ideas for customer loyalty programs.

1. Choose the Right Kind of Program

There isn’t a one-size-fits-all customer loyalty program. You need to choose the right program for your specific business and unique audience.

This means you need to have a deep understanding of your customers — their likes and dislikes, goals, challenges, etc. If you don’t, you won’t be able to provide your audience with enough value to keep them loyal to your brand.

Here are three popular customer loyalty program models:

  1. The Points Program: This is the most popular customer loyalty program and rewards consumers with points every time they take a desirable action with a brand. Like purchasing a product, for instance. The North Face uses this program model and allows customers to redeem their points for company products.
  2. The Paid Program: With this program, customers pay a monthly or annual fee to join a membership club and receive specific benefits. Barnes and Noble’s paid program is a great example. The program costs $25 a year and gives members access to special discounts, free shipping, and other perks.
  3. The Tier Program: Lastly, the tier customer loyalty programs gives customers access to better rewards when they spend more money. Take e.l.f., a popular beauty brand. The Beauty Squad gamifies customer loyalty by giving consumers more discounts and early access to sales when they reach a certain amount of points.

There are many other customer loyalty programs available. We encourage you to do your research and choose the perfect program for your company and customer base.

2. Offer Amazing Value to Your Customers

Next, you need to decide how you’ll reward your loyal customers.

Discounts are the easy choice. After all, who doesn’t want to save money on the goods they were already planning to buy? But your customer loyalty program won’t be as effective as it could be if discounts are the only perk buyers can achieve.

Look to offer experiential rewards such as early access to new products. Or let customers redeem their points to support charitable causes.

The key is to provide value. Always. If your customers couldn’t care less about the rewards your loyalty program offers, they won’t sign up. They might even frequent a competing brand who offers rewards they actually care about.

3. Market Your Loyalty Program Effectively

You can design the best customer loyalty program on the planet, but if nobody knows about it, it won’t benefit your business. Once your program is set, you need to start marketing.

We suggest promoting your customer loyalty program the same way you would a new product or service. This means you should use social media and email marketing strategies. You should also market your program in multiple locations on your website, via in-store signage, and, if you really want to give your program a boost, with online ads.

Another way to promote your loyalty program is to partner with another business. That way you can take advantage of their built-in audience and market reach.

Partner with a company that serves a similar customer base to yours, but isn’t a direct competitor. Then talk with them about how you can work together to increase customer loyalty. For example, you could offer your partner’s service to your customers for free when they purchase a certain amount of product from you.

T-Mobile uses this strategy by offering a Netflix subscription to any customer who buys two or more eligible phone lines from them. Great perk!

4. Invest in Customer Loyalty Program Software

If designing, implementing, and running customer loyalty programs leaves you feeling overwhelmed, don’t worry! There are tools that can help you manage the potential craziness.

Customer loyalty program software is designed to make your loyalty program easily accessible to customers and simple to run for you and your business personnel. This kind of solution is usually pretty cost-effective, too, which is obviously a huge plus.

Here are three customer loyalty program software options you might consider using:

  • Open Loyalty: This is a great solution for those looking to build a fully custom customer loyalty program. You’ll be able to easily analyze customer details, offer rewards, track referrals, and even gamify your program. Pricing for Open Loyalty will vary depending on the scope of your project, but the company does offer a free demo.
  • Yotpo: Yotpo is a complete customer success platform that includes loyalty and referral program features. Use this tool to run pre-built campaigns, design custom rewards, and access program analytics. Yotpo can be used for free with a limited feature set. For premium pricing, you’ll need to contact the company.
  • CandyBar: Then there’s CandyBar, a cloud-based customer loyalty program software that’s very intuitive. The tool acts as a digital punch card and allows businesses to collect and use customer contact details, reward patrons for their purchases, and view program analytics. CandyBar plans start at $45 a month after a 30-day free trial.

Choose the right customer loyalty program software and let it do a lot of the heavy lifting for you. Then sit back and enjoy the extra revenue your program generates.

5. Monitor and Optimize Your Program

You won’t know what customer loyalty program ideas work for your company until you analyze the result of your efforts. Take a look at your data to discover: 

  • How many people have signed up for your program?
  • Do your rewards encourage repeat purchases?
  • Have you received more referrals since starting your program?
  • Did your revenue numbers improve when you put your program in place?

Based on the answers to these questions (and others like them) you can determine how to improve your loyalty program efforts.

For example, if hardly anyone has signed up, you probably need to invest more time and energy into marketing your program. If folks sign up, but aren’t encouraged to make more purchases, you probably have a rewards problem.

Continually study the data of your customer loyalty program to determine how you can make it better and boost ROI numbers.

Wrapping Up

An effective customer loyalty program will help you boost customer retention, reduce marketing costs, and increase company profits. Fortunately, you can implement a winning program for your company by following the five-step process outlined in this article:

  1. Choose the Right Kind of Customer Loyalty Program
  2. Offer Amazing Value to Your Loyal Customers
  3. Market Your Customer Loyalty Program
  4. Invest in Customer Loyalty Program Software
  5. Monitor and Optimize Your Customer Loyalty Program

Have you tried building a loyalty program? What was your experience like? Share your insights with us in the comment section below!