A loyalty program is a marketing tactic designed by a company to promote and encourage future purchases from customers. A very simple example of this is punch cards that many retailers offer. A local fast food chain offers a punch card and every time you buy a lunch buffet, you get a punch. When your card has 10 punches, then you get a free buffet. Effectively, you buy 10 meals to get an 11th one free.
Unfortunately, these type of programs don’t build loyalty to the brand, they build loyalty to the offer.
Here’s why: what the company views as a reward, the customer views as a purchase incentive. While the company views each punch of the card as a reward, the customer knows that the reward is actually the free meal that comes after the card has 10 punches. The customer sees that each punch is an incentive, and each punch brings the customer closer to filling the card, which also makes them more likely to want to eat more meals at this retailer in order to complete the card.
But what happens to that customer’s loyalty level when the card is full? Then they get their free meal, and a new card. In other words, they now have to start over. Which effectively means the customer’s loyalty level toward the offer resets as well, to a much lower level.
In order to build loyalty to the brand you need to offer rewards that come after the purchase but are not dependent on a particular purchase. And it helps if the reward is unexpected.
For example, let’s say that you ate lunch at the same fast food chain in the above example, but you didn’t have a punch card. In fact, let’s say you ate there 3 times over the next 2 weeks. On the 4th visit when you went to pay for the meal the owner says ‘This one’s on the house, thanks for your business!’ That reward was totally unexpected and it helps build loyalty to the brand. Which means your chances of eating there more often just increased.
So if you want to create more loyal customers, here’s your cheat sheet:
1 – Don’t offer incentives. Incentives don’t increase loyalty to the brand they increase loyalty to the offer to which they are attached.
2 – Offer rewards after the purchase that the customer does not expect. The customer views this as your brand showing its appreciation for the customer’s business.
3 – Recognize the people that are helping to build your business and say thank you. These people don’t need incentives because they are already loyal to your brand. Say ‘Thank you!’ (and mean it) and you’ll create more loyal customers.
PS: Kathy has a fabulous comment on this topic from earlier this year, it’s worth a read as well.