How to encourage customer loyalty with rewards and incentive programs

Azar ChaturAugust 23, 2016

Many companies are investing in rewards and incentive programs to encourage customer loyalty—but do these strategies work? The answer is yes—if you do it right.

Of the 100 largest retailers in the U.S. (identified by the National Retail Federation), 51% have some form of customer loyalty program in place. These include savings cards, points programs, or credit cards that reward store credit. While an increasing number of retailers are introducing customer loyalty programs, most programs are unsuccessful.

Why Some Loyalty Programs Fail

Loyalty programs allow retailers to gather data on customer behavior in order to decipher trends, appropriately reward loyalty, and influence shopping behavior. But some retailers forget to consider the needs, preferences and intentions of individual consumers:

  • They offer rewards too infrequently
  • There are barriers to use
  • They fail to stay top of mind

The best retail rewards programs seek to create a partnership with the consumer by tailoring offerings and making the program easy to use. They also deliver added value beyond point redemption.

Understanding Your Customer

The best loyalty programs are based on a clear understanding of your customers’ values and sense of worth. Depending on the industry, some customers may find more value in non-monetary or discounted rewards. Businesses that can provide value to customers beyond dollars and cents have a unique opportunity to connect with their market.

Give an Initial Reward and Incentives to Continue Earning

A key challenge for many rewards programs is balancing attainable and desired rewards. One way of addressing this is to present small rewards as a base offering for joining a rewards program, and then increase the value of the rewards as the customer moves up the loyalty ladder through repeat purchases.

Make it Easy to Use

Did a customer forget their rewards card? Don't throw away their data and their loyalty. If you're using a physical stamp card, hand out new cards and allow customers to combine them. If you're using a more complex program with scannable membership cards, allow customers to accumulate points by manually looking them up in your system, or by allowing for retroactive points upon presentation of a valid receipt.

Checking point balances and redeeming rewards should also be simple and painless.

Align Rewards with Branding

Even if your company isn't the one delivering the rewards, your customers will expect them to be a fit with your brand. You might offer free products or a discount on merchandise. If you don't sell a physical product, consider offering a gift card as a reward. You can use the data you've collected through your program to determine which retailers would be a good fit for your customers and are aligned with your brand.

Partnering with another company allows a retailer to create exclusive offers and related rewards. Some examples are airlines with hotels or pet food companies with veterinarians.

While retailer reward programs are spreading fast, all rewards programs are not created equal. Retailers that tailor their rewards programs to individual customers and incorporate features such as tiered reward levels are much more likely to build customer loyalty and increase retention.

Looking for inspiration? Check out four brands with amazing loyalty and rewards programs.