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Customer loyalty programmes: How to set up best loyalty programmes 2021

The ultimate guide to creating a rewards scheme that keeps your customers coming back.

The importance of customer loyalty can’t be underestimated. It is customer loyalty that drives repeat business and keeps acquisition costs low, and it can even increase average order value, with existing customers likely to spend 31 per cent more than new ones.

And there are myriad ways to encourage repeat business; customer loyalty programmes can range from the simple – such as classic coffee stamp cards – to the sophisticated, like exclusive VIP lists.

But not all loyalty programmes are equal – and, if mismanaged, rewards programmes can end up costing your business rather than growing it.

What is a customer loyalty programme (and why you need one)

Customer loyalty is what motivates your customers to choose your brand over the competition – a customer loyalty programme should incentivise that sense of loyalty by rewarding customers for shopping with you. 

Why implement a customer loyalty programme? Because they work. Studies show that loyalty programmes increase spending, plus:

  • Loyalty programmes decrease your cost of sale: Acquiring a new customer can cost five times more than retaining an existing customer. 
  • Customer loyalty is infectious: Research shows that 70 per cent of happy, satisfied customers who’ve had a positive experience will spread the word about your business by recommending you to others. Those people, in turn, are 83 per cent more likely to listen to a referral than any other form of marketing. Reportedly, referrals generate two times the sales of paid advertising.
  • Loyalty programmes double as marketing research: If designed and implemented correctly, customer loyalty programmes can provide valuable insights into your customers. Thanks to increasingly sophisticated digital marketing software, businesses can now track and discover customer buying habits along with what incentivises them most (and least). This data can be used to improve your customer loyalty programme and inform your wider marketing strategy.

How to create a customer loyalty programme

1. Set your objective

As with any successful strategy, it’s important to get clear on what you’re trying to achieve – and why – before investing time and resources implementing it. 

Are you a new business trying to attract new customers? Your primary objective might be referrals.

Are you trying to increase overall spend? If so, your objective may be increased average order value (AOV).

Other objectives include increasing purchase frequency (to help reduce turnover) or increasing brand advocacy (to generate word-of-mouth marketing).

2. Understand your customers

To create a truly successful customer loyalty programme it’s important to understand who your customers are and what motivates them.

Examining data around what your customers buy, how much they spend, how satisfied they are with your company, how much profit you make from their purchases, and what other products or services they buy is an important place to start. If your business doesn’t have such data readily available, there are various ways to get to know your customers. These include:

  • Social media:  Social media is an incredible resource for candid customer opinions and market research. Consider using surveys or polls on platforms such as LinkedIn, Facebook and Instagram to find out more about your customers and what motivates them.
  • Tracking customer behaviour: Customer relationship management (CRM) software or even raw purchase data can help you understand your customer and which types of rewards might motivate them.
  • Email lists: Monitoring click-through rates and bounce rates will deliver insights into what interests your customers (and what switches them off).

3. Determine your loyalty collection approach

Loyalty programmes come in all shapes and sizes, but studies show that 90 per cent of brands fall into three categories

These are:

  • Points-based – where customers receive points for every dollar they spend.
  • Tiered – where shoppers are segmented into different tiers according to how much they spend
  • Value – where shoppers can ‘earn’ points and distribute them to a charity of their choice. 


Find out more about types of loyalty programmes here. 

Other loyalty programme models include:

  • Mission-driven programmes: Customer loyalty programmes for organisations with a strong social mission, such as Ben & Jerry’s, which donates a percentage of profits to social causes.
  • Game-based programmes: A strategy that involves gamifying the purchase of a product or service to encourage repeat spending, such as McDonald’s Monopoly game.[HMH1]  
  • Subscription programmes: Loyalty incentives that reward subscribed customers, like Amazon Prime’s First Reads programme.
  • Referral programmes: Growth-driven strategies that reward customers for attracting new buyers with referrals, such as HelloFresh.

Many brands utilise a combination of customer loyalty programmes, but it’s important not to overcomplicate your strategy.

4.Decide how customers will collect rewards

Next, you need to identify the rewards offered to your customers. For example:

  • Product-based loyalty approach: Coffee stamp cards are an example of a product-based loyalty system, where customers receive a free item once they’ve bought a product a certain number of times. For example, customers might receive a free coffee once they’ve bought five coffees.
  • Points towards products: Under a points system, shoppers receive points in return for spending – these points can be used to redeem products.
  • Points towards cashback: Under this points system, shoppers receive points in return for spending, but the points provide a discount when they next spend.

5. Choose your loyalty programme software

Once you’ve determined what your customer loyalty programme is trying to achieve and which model you’ll use, it’s time to decide the best software to bring it to life. There are a number of different platforms available, depending on your budget and objectives. They include, but aren’t limited to:

Yotpo: Built specifically for e-commerce businesses, Yotpo is a cloud-based customer loyalty platform that offers highly customisable loyalty programmes. Whether you’re designing a referral, tier-based, points system or more, Yotpo offers multiple campaign choices and a variety of pricing options.

Best for: e-commerce businesses from start-up to enterprise

£11 to £36/ month

Smile.io: With programmes designed to suit any business phase from start-ups right through to established businesses looking to scale, Smile.io is one of the most popular loyalty software platforms. It offers three rewards programmes including points, referral and VIP, which can be run individually, in pairs or all together.

Best for: small businesses

£36, £146 or £441/ month

Referrizer: This software boosts retention by identifying your most loyal customers and using a points-based programme to reward them for every repeat purchase. It also rewards customers every time they recommend your business to someone they know.

Best for: local businesses

There’s a free option, then £220 or £294/ month 

Guusto: A favourite for small businesses on a budget, Guusto is a free rewards and incentives platform that provides solutions for both customers and employees.

Best for: small businesses

Free option, then member pricing ranging from £1.10/ month to £1.85/ month

Candybar: A modern spin on the coffee stamp classic, Candybar has digitised the punch card loyalty programme. The software allows customers to input their mobile number in order to receive a digital ‘stamp’ each time they make a purchase. Business owners can also use the program to contact loyal customers.

Best for: a range of businesses

£33 to £2945/ month

Physical loyalty cards vs digital loyalty apps

Brands are increasingly turning to digital loyalty apps instead of (or as well as) physical loyalty cards. For consumers, this means having to carry around fewer loyalty cards and not worrying about forgetting their card if they indulge in some impulse shopping. 

Popular digital loyalty apps include Stocard and Imfree.

Tips for success 

  1. Do your research: A common mistake many marketers make is not doing enough customer research before implementing a loyalty programme. It’s easy to underestimate the importance of this step, but if you don’t know what your business actually needs or what your customers want, your loyalty programme will never fulfil its potential.
  2. Make it personal: Personalisation is an increasingly important part of every step of the customer journey, including customer loyalty. Making personalised recommendations for loyal customers, sending exclusive offers or birthday discounts all help to create an emotional connection and fortify brand loyalty.
  3. Keep it simple: While it may be tempting to add endless incentives and rewards to your customer loyalty programme, the most simple strategies are often the most effective. Your customers don’t want to jump through hoops to be rewarded – confuse and you’ll lose.
  4. Test, test and test again: Before setting the go-live date, ensure you’ve allocated enough time to test the functionality of your programme. Between different software programs and smartphone and desktop proficiency, there are plenty of opportunities for things to slip through the cracks, and mismanaging customer loyalty data can be extremely damaging. Once you’re up and running, it’s equally important to test if your programme is working by assessing your purchase rate or even requesting a satisfaction survey.
  5. Don’t forget omnichannel: If your business spans both in-store retail and e‑commerce, it’s worth ensuring that your loyalty programme offers a ‘single view’ of your customer, so that they can use the programme and collect rewards both in-store and online.

CASE STUDY

Fashion brand Dancing Leopard has been offering stylish, colourful pieces and power prints since 2009. Despite growing to be a team of 20 since then, nurturing customer loyalty has always been extremely important to the brand, says marketing director Rosie Middleton.

The loyalty programme: “Our loyalty programme revolves around a three-tier system. Tier 1 is where a customer begins their loyalty; these customers are called our Loyalty Leopards[HMH2] . Tier 2 is made up of our Print Poppers; and our top tier is made up of our Leading Leopards, who are essentially our VIP customers.

“Customers begin their loyalty journey as a Loyal Leopard and for every pound they spend they earn five style points. Customers are also able to complete further activities, such as following us on social media and telling us [the date of] their birthday, to earn additional loyalty points.”

Why it works: Dancing Leopard’s tier-based loyalty programme is geared for long-term engagement. Rosie explains: “We incentivise our customers to continually interact with our programme and move up the tier system.

“We’ve used our loyalty programme to further enhance our brand ethos by giving customers access to exclusive rewards. Each tier rewards the customer differently. Tier 2 customers are given early access to sales and the ability to earn double points, whereas customers in Tier 3 are our VIPs and have access to more exclusive rewards. Within Tier 3, customers can gain invitations to Dancing Leopard fit sessions, choose styles to go into production and are given the opportunity to make charity donations funded by us.”

The team conducted a great deal of research prior to implementing the programme, both into their competitor’s loyalty models and the different types of software available.

The team conducted a great deal of research prior to implementing the programme, both into their competitor’s loyalty models and the different types of software available.

What was learned: “The loyalty programme needs nurturing itself. As people move into higher tiers, it’s important that all stages of their behaviour are recognised. Our biggest learning has been the underestimation of time management – we need to ensure we’re not missing commitments we promised our customers [and that takes time].

“A lot of brands are now utilising a points and rewards-based system. Our advice would be to tailor the platform to enhance your unique selling points (USPs). For example, giving back to charity is close to our hearts and a big part of what we do at Dancing Leopard. So, we use the points system to share this unique element of our brand by donating £5 to charity for everybody who reaches the top tier.”

All references to any registered trademarks are the property of their respective owners. Clearpay does not endorse or recommend any one particular supplier and the information provided is for educational purposes only.

As a retailer that has integrated with Clearpay, you will need to make sure that all your marketing is in line with the rules on financial promotions and Advertising Standards Agency Guidance on Advertising BNPL (“ASA Guidance”).

To help you get comfortable with how to talk about Clearpay, we’ve put together a Merchant Guide to Financial Promotions and ASA Guidance for all retailers on what you need to do with your messaging to customers.

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Written by
Lizzie Mulherin
Lizzie Mulherin is a content marketer and copywriter.
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