The Beginner's Guide to Building a Customer Loyalty Program

Loyalty. 

It's what you hope to get from your beloved house pet and your paying customers.

I'm no expert when it comes to the first, but when it comes to customer loyalty, I have some insights to share that can help you create a loyalty program that grows your business.

(For more information about animal loyalty, please refer to the 1963 classic film, The Incredible Journey.)

Before we talk about loyalty programs, let's examine how your company can attract loyal customers to your business.

Need a TLDR (Too Long Didn’t Read) directory? Here's a table of contents.

• How to Build Customer Loyalty
• What is a customer loyalty program?
• Benefits of a Customer Loyalty Program
• How to Create a Customer Loyalty Program
• Customer Loyalty Programs for Small Businesses

Customers are driven by their goals, and they’ll be loyal to the company that helps them achieve them. Even if they have a positive history with your brand, a competitor with a better offer can still win them over. Because of this, customer loyalty isn’t earned easily or even guaranteed — the steps below will help you build a following of loyal customers. 

1. Adopt a multi-channel customer service system.

Building customer loyalty begins with being in tune with your customers’ needs. A multi-channel service system is one of the best ways to connect with your customers, especially when they need help. Customers will have more access to your service team, creating more customer interactions, and the more you interact with them, the more often you can influence their experience. 

Multiple channels also allow you to offer an omnichannel experience, where customers have a consistent experience across channels, platforms, and devices. This increases customer satisfaction as your customer service is more accessible, which is exactly what you want for frustrated customers who need support.

Consider adoptinghelp desk and live chat tools to help your customer service team cover multiple channels. For smaller teams, AI software like chatbots can relieve the workload of organizing and distributing incoming requests without having to hire more employees.

2. Provide exceptional customer service.

Going above and beyond customer expectations to provide exceptional service doesn't mean giving away free products, discounts, and perks. It's quite the opposite. Customers want solutions to their problems, not a free sample. Giveaways and discounts simply put a bandage on the problem.

Instead, challenge your team to listen to what the customer is saying and process the feedback. More often than not, your customer will be happier with the solution than they would be with a replacement or perk — although those can help sweeten the deal.

3. Focus on the customer, not the competition.

There's a time and place to scope out competitors, but it's not as beneficial as you might think, as mirroring them to win over their customers doesn’t guarantee the same results. To be the best in the eyes of your customers, you'll need to know what your competitors do, then get even more creative than they are.

Big gains in customer loyalty are the sum of several small decisions. What that means is this: Your success isn't riding on one breakthrough. Every customer interaction, product purchase, and referral by a devout customer contributes to brand loyalty every day.

So when you're tempted to see if the grass is greener on the other side, know it's probably watered with a different sprinkler.

4. Be consistent.

Franchises like McDonald's are so successful mainly because of consistency. Customers know what they can expect from these businesses when they go, no matter where they are in the world. On the surface, that doesn't seem like a contributing factor toward customer loyalty but it is — here's why.

When brands provide consistency through their products and service, their customers can easily incorporate them into their lives. For instance, imagine wanting ice cream, and all you can think about is your favorite cone from McDonald’s. You can count on them to be open and deliver exactly what you had in mind. After enough visits, you'll begin to trust it because it's proven time and time again that it can consistently deliver on its promise (and ice cream!).

5. Build credibility through meaningful customer interactions.

Nearly three out of five consumers report that good customer service is key to feeling loyalty toward a brand. Additionally, 76% of customers say they would stop doing business with a company after one bad experience.

Every business makes mistakes, but the key to retaining customers is acknowledging mistakes and correcting them when they happen. 

Loyal customers expect a positive experience from your brand every time they interact with it. They want to feel like you value them as much — if not more — than they value you. If they sense their business isn't appreciated, you might lose them to competitors.

A CRM can come in handy here as it records the past experiences that a customer has with your brand. It stores messages like emails and calls, as well as customized notes that relay specific information about a customer. This creates a more personalized experience as employees can leverage important historical data regarding past interactions with a customer.

6. Deliver added value.

You're not the only one vying for your customers' attention — your competitors are too. Everyone races to show their customers that they can best fulfill their needs. So, how do you edge them out? Go above and beyond their expectations.

Research shows that one in four customers is willing to pay 10% more in almost every industry if there’s a guaranteed good experience. Other than offering a loyalty program — which we'll talk about soon — you can do this by building a relationship with your customers that extends beyond the moment of purchase to demonstrate that you’re invested in their lifestyle, not just their money. 

One way that your company can add value to the customer experience is to host events or contests that your target audience would be interested in. For example, the energy drink brand, Red Bull, has built a massive customer following by sponsoring extreme sporting events and teams.

Another way to add value is to create a customer community. This could be something simple like a knowledge base or ideas forum, or it could be complex and include a devout network of loyal advocates.

Take Harley Davidson, for example. It founded a community of brand evangelists who advocate for Harley Davidson at different dealerships throughout the U.S. These communities make customers feel like they're part of an in-crowd with a social status exclusive to the group members. 

7. Share positive customer experiences.

If you're doing a good job generating positive customer experiences, why not let people know? Gather customer feedback and share reviews to inform others about the benefits your company brings and broadcast these stories across your different channels. Customers tend to trust other customers more than your advertising, so it's important to leverage positive interactions to maximize customer value.

If you’re unsure where to find feedback, third-party review sites like Yelp give you access to a lot of customer feedback in one place. You could also consider adopting NPS® and other feedback tools to gather qualitative information about your brand or encourage customers to share testimonials that you can share on your site. 

8. Reward your customers.

Customers loyal to your brand are also the most valuable to your business. In fact, customers who have an emotional connection to your brand tend to have a lifetime value higher than your average customer. These customers spend more with your business and should be rewarded for it — this is where a loyalty program becomes essential to building customer loyalty.

What is a customer loyalty program?

A customer loyalty program is a program your business offers that rewards customers for their continuous purchases from you. 

Rewards can be free products, early and exclusive access to new products or events, point systems, awards, exclusive merch — anything you want to do to share your appreciation with them for their business. 

68% of loyal customers will join a loyalty program if offered, and the rewards and unique offers are additional incentives for them to continue their purchases. Customers who join these programs tend to spend more money because they receive benefits for their business. They already enjoy buying from your company, so why not give them another reason to do so?

An easy retort to that question would be that it costs too much to offer incentives without getting anything directly in return. This does appear to be true when you look at an individual purchase. However, loyalty programs benefit your business in ways that extend beyond just one or two transactions.

If you question whether they're cost-effective, below are some key benefits that customer loyalty programs can provide to your business. But first, let’s take a moment to give examples of platforms that make rewarding your clients easy.

Xoxoday Plum

Xoxoday Plum is a powerful customer loyalty rewards platform that helps businesses engage and retain their customers through personalized reward programs. With Xoxoday Plum, businesses can easily create and manage reward campaigns that are tailored to their specific customer base, offering rewards that are both meaningful and relevant.

Yotpo is an incentive marketing platform that helps you build a custom loyalty program, whether tier-based, a point system, or referrals, to engage your existing customers and reach new ones. 

LoyaltyLion

LoyaltyLion helps you create a loyalty program to help your customers feel valued, as opposed to being another number. You can customize a program based on points, rewards, and tiers that customers can access anywhere along their journey, whether you’re re-engaging at-risk customers or saying thank you to an extremely loyal customer. 

Now we’ll discuss why customer loyalty programs are important for businesses.

What are the benefits of a customer loyalty program?

All businesses can benefit from building a customer loyalty program and rewarding customers with additional, exclusive benefits. You might already be a member of some programs, like a frequent flier miles program or a referral bonus program. 

In an increasingly competitive and crowded market, loyalty programs can differentiate you from your competitors and keep your customers around. While loyal customers are more likely to make repeat purchases, that’s not the only reason to start a program. Below we’ll go over the benefits of a customer loyalty program for your business. 

1. Better Customer Retention

Nowadays, customers are making purchase decisions based on more than just price. They make buying decisions based on shared values, engagement, and emotional connections with a brand. Customer loyalty programs are a great way to engage customers beyond just the point of purchase, to interface on shared values, and to provide even more value to customers — making them happier and more likely to keep purchasing from you. You can also work with customers for recurring exchanges. For example, with home service companies, you could create a maintenance plan with homeowners where you come back on a weekly or monthly plan. This keeps the customer engaged and enrolled repetitively. 

And 88% of customers that feel appreciated plan to stay loyal to brands, and 83% plan to spend more. 

2. More Customer Referrals

If your customers enjoy the benefits of your customer loyalty program, they’ll tell their friends and family about it. This word-of-mouth marketing draws in new customers at no acquisition cost and can generate even more revenue for your business. In fact, word-of-mouth marketing drives $6 trillion of annual consumer spending, and people are 90% more likely to trust and buy from a brand recommended by a friend. 

3. Cost-Efficacy

It's more cost-effective for your business to retain happy customers than acquire new ones. Acquiring a new customer is 5-25X more expensive than retaining a current one.

4. User-Generated Content and Reviews

Online customer reviews are almost as trustworthy as recommendations from friends and family. Customer loyalty programs that incentivize reviews and ratings on websites and social media will result in authentic user-generated content from customers singing your praises so you don't have to.

So, now that you're on board with the value of customer loyalty programs, how do you start one? Let’s go over how to create a loyalty program.

1. Choose a great name.

The first step to a successful customer loyalty program is choosing a great name. It should incite curiosity and interest and urge customers to participate. Most importantly, you must distinguish it from the myriad of other loyalty programs they might already be part of. 

The name should go beyond explaining that the customer will get a discount or will get rewards — it needs to make customers feel excited to be a part of it.

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Some of my favorite customer loyalty program names include beauty brand Sephora's Beauty INSIDER program and vegan supplement brand Vega's Rad(ish) Rewards. These clever, unique names hint at benefits but don't give them away — making customers curious to learn more and join.

2. Create a deeper meaning.

Some customers are cynical about customer loyalty programs and think they're just a clever ploy to get them to spend more with businesses. Even if that’s one of your goals, it should be about more than just the money. 

To get customers excited, tap into the "why" behind your product or service to make your customer loyalty program as compelling as possible.

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Briogeo is a customizable hair care product line. With just a few answers to a quiz, customers will have a shampoo and conditioner crafted just for their hair on their doorstep.

Its rewards program is just as customer-centric as its product. For every $1 customers spend, they earn three points toward a savings discount on their next purchase. With no frills or distractions, customers know that this loyalty program is getting them closer to even more affordable hair care products. It's a win-win.

3. Reward a variety of customer actions.

Another way to demonstrate your commitment to customer loyalty beyond just purchases? Reward non-purchasing customer actions.

Customers watching product videos, engaging in your mobile app, sharing social media content, and subscribing to your blog are still valuable signs that a customer is engaging with your brand — so reward them for it.

4. Offer a variety of rewards.

Discounts aren't the only way to provide more value to your customers.

Those who spend at a certain threshold or earn enough loyalty points could turn them in for free tickets to events and entertainment, free subscriptions to additional products and services, or even donations in their name to the charity of their choice.

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Lyft does a fantastic job of this with its LyftUp program. Riders can round up the cost of their ride to the next dollar and donate the change to the charitable organization of their choice — making it easy and rewarding for them to make an impact while using the service as they normally do.

5. Make "points" valuable.

If you’re asking customers to enroll in your customer loyalty program, make it worth their while and offer something valuable in return. 

For example, if you're offering cashback rewards as part of your customer loyalty program, assign a monetary value to your points so customers can visualize what they can earn (and spend) by continuing to purchase from you.

Credit cards do an excellent job of this by illuminating dollar-for-dollar how people use points — just watch any commercial offering points in exchange for dollars, airline miles, groceries, or gas.

6. Structure non-monetary benefits around your customers' values.

Values are important to customers — in fact, two-thirds of customers are more willing to spend money with brands that take stances on social and political issues they care about.

So, make sure you tap into those values as part of your rewards program, too.

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TOMS Shoes donate a pair of shoes to a child in need for every purchase its customers make. Knowing that providing resources to the developing world is important to its customers, TOMS takes it a step further by launching new products that help other important causes — like animal welfare, maternal health, clean water access, and eye care — to get customers excited about helping in other ways.

7. Provide multiple opportunities for customers to enroll.

Once you've launched your customer loyalty program, make sure you're promoting the benefits of joining.

If customers get rewards from purchasing from your online store, next to the price, share the points they could earn from spending that much.

You might have experienced this when flying on an airline that offers a loyalty rewards credit card. The flight attendants might announce that you could earn 30,000 miles toward your next flight — if you apply for the airline's credit card.

Other ways to do this include promoting the program on social media channels and adding on-site push notifications when customers complete an activity that earns them points.

8. Explore partnerships to provide even more compelling offers.

What's better than one reward? Two rewards, of course.

Co-branding rewards programs are a great way to expose your brand to new potential customers and to provide even more value to your existing, loyal ones.

Brands might offer loyal customers free access to co-branded partnerships — like T-Mobile's offer of a Netflix subscription with the purchase of two or more phone lines.

9. Make it a game.

Everyone loves games and competition — so use that winning spirit to get your customers interacting with your brand more frequently.

Lots of brands gamify their customer loyalty programs to earn valuable engagements within an app, website, or at point-of-purchase.

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Points are easily translatable for gamification. Take Treehouse, which teaches coding and app development, and rewards engaged users with more and more points leading up to a badge — which users can then display on their websites and social profiles to impress colleagues and potential employers with their skills.

If you're operating with a growing business, you may not have much flexibility when it comes to your budget. However, you can still offer an attractive rewards program that fosters customer loyalty.

Customer Loyalty Programs for Small Business

While growing businesses don't have the same financial influence as bigger companies, these organizations can still create incentives that motivate customers to return to their stores. When developing their rewards program, small businesses need to be creative and develop a unique system that mutually benefits both the company and the customer.

Take a look at a few common ways that growing companies leverage rewards programs to build customer loyalty.

1. Punch Cards

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Punch cards are a common reward program for B2C companies. With it, customers get a business card that gets a hole punched after every purchase. Once customers fill up the card with punches, they receive perks and rewards. The benefit of this system is that customers are guaranteed to return a certain amount of time to receive the reward, making repeat purchases and driving revenue. 

Nothing Bundt Cakes has a popular punch card loyalty program that offers customers a free personal cake when they buy 12 of them.

2. Opt-in Email

Opt-in email solicits the customer's email address for communication with your brand. Once the customer opts in, your company can email them offers or promotions.

Emails are cheap to compose and distribute and can be sent at almost any frequency. You can also use email automation tools to deliver emails efficiently.

3. Free Trials

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Free trials are typically thought of as incentives used to convert potential leads, but you can also utilize them in rewards programs too. For example, say you have a new product or service that's about to launch. You can release a free trial to members of your loyalty program. This not only acts as a reward for customer loyalty but also works as a marketing tactic that primes your customers for a future sales call.

4. Partner Programs

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One way to add value is to look externally at businesses to partner with. By combining your resources, you can create an offer that benefits both you, your partner, and your shared customers.

Credit card companies like Visa and MasterCard do this all the time by offering cards sponsored by a specific brand. While having a credit giant on your side is nice, start by looking for local, non-competitive businesses you can partner with to add more to your offer.

5. Referral Programs

Why track down new leads all by yourself when your customers can help do that for you?

You can incentivize loyal customers to become advocates by offering them an attractive reward for customer referrals. If your offer is good enough, customers will be happy to take the time to network your business with other potential leads.

6. Points Systems

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Tracking points is a tried and true method of tracking customer loyalty. The two keys to making these programs successful are a worthwhile incentive and a reasonable timeline to earn the incentive.

Point-based loyalty programs find the sweet spot between the two so customers don’t get frustrated. For example, if you sell workout gear, people might make purchases fairly often, and there are many different businesses to choose from. 

Your incentive would need to be valuable — like a free t-shirt — and the buyer would need to be able to earn it quickly enough to keep them striving toward it, but not so quickly that the reward loses value.

Assigning a point value per dollar is a smart way to find this balance, but you’ll need to make sure it's fair. If it takes 100 points to earn a free t-shirt that usually costs $20, a $10:100 point ratio may not be feasible for your profit margin, while a $1:1 point ratio might discourage customers before they even sign up.

7. Loyalty Discounts

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Loyalty discounts come with a bonus to the traditional customer loyalty programs we've covered so far. These types of programs allow you to give back to the customer while also collecting data that can help you personalize their buying experience. Kroger's Community Rewards program is a great example of loyalty discounts in action.

To employ this type of program, you'd offer consistent, predictable discounts to customers every time they display an identification marker that associates them with the program. This might be a QR code, a card, or a phone number.

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On the back end, your business captures data about what the customer purchased. Over time, you'll understand your customers' trends, patterns, and habits so you can improve their experience, making them even more brand loyal.

These types of programs are so strong because the incentive is consistent and predictable, which gives the customer a reason to come back again and again.

8. VIP Memberships

Similar to the idea of a loyalty program, there’s an added sense of luxury or exclusivity when a business introduces VIP perks.

By introducing a VIP membership program, customers can subscribe to your company’s email or SMS in exchange for better product selection or ease of use. Not only will they be more interested in your new offerings, but they’ll get notifications each time they check their email or phone messages.

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9. Mission-Driven Programs

Giving back to the community is good for the world and business. A great way to foster customer loyalty is to offer added benefits for shopping with your company — like doing something for the greater good.

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Baron Fig makes office materials, a broad market to sell in, but has a program dedicated to planting trees for every item sold. Conscious consumers will think highly of your small business and spread the word about these programs because of their selfless nature.

10. Community Programs

Community programs are highly effective for small businesses as they can attract customers in your area or from computer screens.

In the last year, it’s plain to see how a business can impact its audience when it positions itself as a way to connect with others. Some examples are family-owned gyms offering Zoom classes to make customers feel more included, or having bakeries pop up in local flea markets. These are all steps small businesses can take to build customer loyalty and social bonding as well.

Start Your Customer Loyalty Program Today

To get started with building your customer loyalty program, you have to prioritize the customer experience.

A loyalty program won’t magically solve all your customer's issues — it's simply a more interactive way to say, "thank you, come again." Once your customers trust you, they'll be vying for the chance to earn rewards for doing business with your brand. After all, don’t they deserve the royal treatment for being loyal customers?

Editor's note: This post was originally published in July 2019 and has been updated for comprehensiveness.