Blog / Building Next-Generation Loyalty Programs

Blog - Building Next-Generation Loyalty Programs

Building Next-Generation Loyalty Programs

It sometimes seems that loyalty programs have been around forever. Long before the first airline frequent flier mileage program took off in the late 1970s, merchants were offering special tokens that repeat customers could redeem for goods. In the 1850s, a soap maker put special “trade marks” on its packaging, which customers could cut out and return to the company in exchange for special premiums. Today, stamps and punch cards have largely been replaced by apps and digital methods of tracking customer engagement. And while the core value proposition of loyalty programs remains the same, the ways they function have evolved – and continue to shift.

Brands are borrowing inspiration from other industries and changing the way customers rack up points and redeem rewards in an effort to create loyalty programs that drive substantial revenue and safeguard customer retention. Ongoing user experience testing is critical for companies that want to make sure their loyalty programs stand out — and stand the test of time. Explore some of the crucial questions businesses must consider when creating or changing their loyalty programs.

Do your customers value the rewards your program provides?

If not, they’ll definitely switch to another program. As competition intensifies, it’s more important than ever to understand what types of incentives your customers really want and will use. Whether members can get free guacamole, priority boarding, samples of luxury skin care products or discounts at their favorite stores, your loyalty program needs to offer a good perceived value.

Sometimes creativity and partnerships with other brands can help create an enticing incentive – for example, Mastercard and Expedia recently launched a program that allows Mastercard users to redeem their rewards points for travel bookings via Expedia. You can use Discover cash back and American Express membership rewards when shopping on Amazon. Collaborations between gas stations and grocery stores for points and discounts have been popular for years.

And the power of partnerships isn’t limited to large brands — a number of organizations have formed that allow smaller businesses, such as independent hotels or small regional credit unions, to offer more compelling rewards packages. For example, Love My Credit Union is a program that allows credit unions to take advantage of partnerships to offer customers choices about where they want to redeem their rewards.

Part of the value equation needs to assess whether rewards accrue quickly enough for customers to use them – one major hotel chain used to make rooms available for around 25,000 points, which worked well for me. When the hotel changed its program so rooms required more than double that number of points, (probably a calculated move to focus more on business travelers) I couldn’t accumulate enough points within a reasonable timeframe to take advantage of that benefit.

To keep loyalty programs performing well, companies need to regularly collect data and member feedback on the types of rewards they offer and how customers feel about those offerings.

Do loyalty program members clearly understand how to accrue and apply rewards?

If your rewards program isn’t intuitive, you can rest assured that customers will find another one that better meets their needs. When a major airline wanted to update its loyalty program app and website, the company worked with Applause to learn how customers felt about both the program itself as well as the user interface. Gathering input from members of the airline’s rewards programs, as well as competitors’ programs, allowed the airline to understand where it could adjust language or visual components to more effectively communicate how the program worked.

Ensuring customers can easily redeem rewards may be more complex for organizations that have partnership programs in place. For example, If my bank offers me a discount at Starbucks for using online bill pay, the bank needs to ensure that discount works, whether they’re mailing me a physical gift card or providing a coupon code in my online banking app.

It’s also crucial to test whether rewards benefits accrue properly. Credit cards often offer extra points or rewards or a cash back percentage on certain types of purchases — gas, groceries, restaurant meals, or some other category. If rewards aren’t calculated correctly, customers get frustrated and they’ll either overwhelm your customer support systems trying to get those issues resolved, or abandon your program.

Testing how rewards accrue ahead of time can help ensure that you’re looking at those categories through the same lens as your customers. When one credit card provider decided to add cash back on travel and transportation expenditures for loyalty members, the company had Applause test in a few different cities to see what types of transactions cardholders expected to earn rewards. In addition to things like flights, trains, taxis and rideshares, travelers also expected the discount on things like parking meters, tolls, bike shares and scooter rentals. The card network was able to make sure that it had correctly categorized those merchants so that customers using nontraditional methods of transit would get their rewards.

Does the customer journey flow smoothly?

There are several different considerations here: When do you offer customers the opportunity to join your rewards program? How easy is it for them to join? And once they’ve joined, how do you keep them engaged without overwhelming them ? Inviting customers to join a loyalty program at an awkward point in the purchasing process can derail them from actually buying. Sign-up needs to happen at a logical point – which may vary depending on your industry or the region where you’re operating – and allow customers to complete the task that brought them to your website or app in the first place.

Make sure that you’re identifying sources of friction and addressing them to get customers to join – and engage with – your loyalty program. Ideally, you can then use data you collect from the loyalty program to create personalized offers and drive more value for each member, such as analyzing purchase patterns and offering a discounted autoship for products a customer buys at a regular interval.

Loyalty programs need regular testing to make sure they’re effective – both payment testing to ensure members can accrue and apply rewards, and UX testing to understand customer perceptions. Partner with Applause today to learn how you can evolve your offering to deliver a next-generation loyalty experience.

Published: August 2, 2023
Reading time: 6 min

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