There’s a lot more to a loyalty scheme than simply discounts and offers. It’s about establishing a long-lasting relationship by rewarding customers for engaging with your business. That means you have to craft a loyalty scheme that your customers want and need. This requires thought, careful planning and execution, and continuous refinement based on data and feedback.

Whether you’re looking to implement a loyalty programme or improve one you already have in place, then this guide is for you. Below, we’ll explore everything a retail business needs to know about getting the most out of a loyalty programme, including why they’re important, how to set one up and how to use data to your advantage.

What are loyalty programmes in retail?

Loyalty programmes are a marketing strategy specifically designed to turn customers into loyal, high-value customers by ensuring they keep coming back to your business whenever they need products your retail business sells. Whether this is car parts, pet supplies, furniture, plants, food or anything else, a scheme provides your customers with incentives so they don’t turn to one of your competitors.

There are several key elements of a loyalty programme that makes them so attractive to customers:

• Rewards and incentives, which provide customers with discounts, promotions, offers and other benefits that aren’t accessible to non-programme customers
• Tiers, which offer different offers based on customers’ behaviours and spending habits
• Points, which are accrued as customers spend and can be exchanged for discounts or other rewards
• Personalisation, which ensures that customers are provided with incentives that appeal directly to them, their goals and their pain points

Which elements you include in your business’ loyalty programme will entirely depend on your goals, industry and customers.

Why are they so important for retail businesses?

There are plenty of reasons why loyalty schemes are so important for a retail business. Customers have lots of choices when it comes to retailers. It’s highly unlikely that your business is the only one out there that provides them with the exact products, prices and services they need, no matter how high the quality is. Customers need reassurance and incentive to stay loyal, which is exactly what a loyalty scheme provides.

Here are seven reasons why it’s important to have a loyalty programme as a retailer:

1. Builds customer retention which increases customer lifetime value and reduces churn
2. Ensures revenue growth by incentivising customers to spend more money more regularly
3. Improves customer engagement which encourages communication and builds trust and loyalty
4. Gives you the competitive advantage
5. Provides you with useful data and information to continue offering unique and personalised offers and making continuous improvements
6. Allows you to market more effectively by producing highly targeted campaigns that resonate with your target audience in a cost-effective way
7. Builds brand advocacy and improves word-of-mouth

How should you set up your loyalty programme?

Setting up a loyalty programme must be done with careful planning and execution to ensure it provides customers with value and has a return on investment for your business. It depends on the type of loyalty programme you want to implement, your goals and your customers.

Points-based loyalty programmes

A points-based loyalty programme rewards customers by giving them points following specific actions. This could be points for every pound they spend, referring friends, leaving reviews and more. Points can accumulate and be redeemed for a reward, such as discounts, free products and exclusive services. This increases loyalty by encouraging customers to complete these actions because it’s perceived as good value and their loyalty will be rewarded.

Implementing a points-based programme

Your retail business can implement a points-based loyalty programme by following these steps:

1. Outline your goals and objectives

What are the main goals and objectives that you want to achieve? This could be customer retention, higher order value, decreased churn, higher average customer value or something else. You should also identify the metrics you’ll use to measure the success of your programme.

2. Know your customers

Use data to learn all about your customers to understand their wants, needs, pain points and behaviours. When you know what will resonate with your customers you can build a programme around that.

3. Decide how customers will earn points

Depending on the behaviours and spending patterns of your customers, you’ll want to decide how customers will earn their points. This can be tricky, as you’ll need to strike a balance between ensuring the customer feels like the points are good value while still making sure you’re not losing money.

For example, you could say that for every £1 a customer spends, they’ll receive 1 point. You can also encourage customers to achieve bonus points for additional actions, such as encouraging friends or family to sign up or filling in a feedback form.

4. Define how customers will redeem their points

Outline what customers can redeem their points for. This might be discounts, freebies, early access, experiences and more.

You will also need to decide whether or not points expire and what limitations there are when it comes to redeeming points so your business doesn’t lose out.

5. Choose the technology your programme requires

Choose how your customers sign up and access the programme. This might be via an in-store form, website or app. Will customers have a physical card? Whatever technology you choose must integrate with your point-of-sale (POS) and eCommerce systems and provide a strong customer experience.

6. Spread the word about your programme

Promote your loyalty programme in-store, through email, on social media and beyond, and shout about the benefits of signing up. Ensure your staff are fully trained on the programme to work as ambassadors.

7. Monitor the performance

Refer back to the goals and objectives you outlined at the start of the process to make sure your programme performs well. You may need to refer to data and feedback to make tweaks to ensure it provides customers with value and has a return on investment for your business.

8. Ensure you’re compliant at all time

When collecting customer data you must comply with privacy and data protection regulations and let customers know exactly how their data will be used.

Tiered loyalty programmes

Tiered loyalty programmes offer different rewards and benefits to individual customers based on their level of spend and engagement. The more loyal a customer is, the better the rewards and benefits offered to them are. This helps keep them as high-value customers by ensuring they feel like they and their business are appreciated. Which, of course, they are.

Implementing a tiered loyalty programme

You can implement a tiered loyalty programme at your retail business with the following steps:

1. Outline your goals and objectives

Before implementing anything you must outline the goals and objectives of the programme. With a tiered loyalty programme, this may be something like increased retention, higher spending or greater engagement. You also need to understand how you’ll measure the success of the scheme by identifying metrics and determining what success looks like.

2. Understand your customers

Use data and feedback to understand more about what your customers want, how they feel, what their pain points are and how they act. This helps you put them in segments so you can tailor your scheme around what appeals most to them.

3. Design the tiers

First, you’ll need to decide on how many tiers your scheme will have. This could be bronze, silver, gold and platinum. There needs to be several tiers so customers have a sense of progression.

You’ll then need to determine how customers move into the next tier, which could be based on spend, points, engagement or a combination. For example, customers could move from bronze to silver if they spend over £500 in a year. They may also move up through tiers for additional actions such as referrals and feedback.

4. Set the rewards and benefits

Decide what benefits customers will receive when they reach each tier. The higher the tier, the more appealing and the higher value the benefits will generally be. This can include discounts, offers, exclusive products and services, personalised promotions, free shipping and more.

It’s important to ensure that you offer customers enough value and appeal to make it worth them progressing through the tiers while still ensuring those customers remain high-value and profitable.

5. Points and progression

Determine how customers will earn points and move between each tier. This includes how long a customer stays in a higher tier before moving down if they no longer meet the set criteria.

6. Ensure you have the right technology

The technology you bring in to manage your tiered loyalty programme must integrate with your existing POS and eCommerce systems. You may also want to consider how customers will access the scheme, such as a website or app. The experience must be user-friendly for customers and staff and not be a hassle for them to use in any way – otherwise, it simply won’t be used.

7. Promote the programme

Launch the programme with an announcement in-store, on social media, via email marketing and through your other marketing channels. Communicate the benefits of signing up and how it provides the customer with value. Make sure your staff receive full training so they can encourage sign-ups and help customers overcome any problems.

8. Monitor performance

Even with thorough research and careful implementation, your scheme might not be an immediate roaring success. However, if you track metrics and listen to feedback you can continue to make refinements to provide value to customers.

9. Ensure constant compliance

Setting up the scheme means you’re gathering customer data, which you must use with privacy and data protection laws in mind. Tell customers how their data will be used and make sure you remain compliant.

Designing the benefits for your programme members

One of the most important aspects of designing your loyalty programme is offering customers benefits that they find appealing. The more appealing the benefits are, the more likely they are to sign up. However, you also need to ensure you remain profitable and aren’t taking a big hit by offering benefits that cost you more than it’s worth to keep the customer.

One of the easiest ways to give customers benefits they’d engage with is by asking them. If you have an email list, send out a survey to specific segments asking for feedback about what they consider important.

You’ll likely want to establish a core set of benefits, but ensure the most appealing ones are reserved for your most loyal and valuable customers, which is easier to implement with a tiered system.

Personalising offers and rewards

A broad set of benefits is a great place to start, but you’re likely to have a huge variety of customers who each have different beliefs, budgets, behaviours, goals and problems. That means you should use your data to provide customers with personalised offers that are more likely to appeal to them.

For example, Tesco sends Clubcard subscribers personalised offers based on their purchase history. This level of personalisation keeps customers coming back by helping them save money on the products they have a history of buying.

Offering timely gifts to members

A great way to help make customers feel valued is by marking specific occasions with gifts or offers that are valid for a limited time. This might be a free gift for their birthday, discounts at Christmas or Halloween, or offers to mark milestones. Gifts should be redeemable within a certain time period to give a sense of urgency and help you track and monitor engagement.

Offering discounts to members

One of the most appealing benefits of a loyalty scheme is member discounts. It offers a sense of exclusivity and increases value, and makes non-members convert to members because they feel like they’re missing out. These discounts don’t need to be huge, but during a time when every customer is watching their budget far more closely, any type of saving is often worth it.

Ensure these discounts are communicated as far and wide as you can, whether it’s online or in-store. Make sure non-members are fully aware that they won’t have access to specific discounts unless they sign up and become members.

How should you utilise your loyalty programme data?

After launching your loyalty programme, you’ll gain a lot of useful data related to your customers. As we’ve already highlighted, it’s important to use this data legally and ethically, but so long as your customers opt-in, you can use it to ensure a strong customer experience that encourages their loyalty.

Promotions

No single promotion is going to appeal to your entire customer base. However, you can use data to segment your customers based on purchase history, behaviours and preferences to send them personalised promotions they’re more likely to engage with.

Reminders

Sending reminders is a useful way to keep members engaged and informed. There are several different types of reminders you could send, based on the data you collate.

• Points balance: Alert customers of their points balance and share how they can redeem them
• Upcoming rewards: Let customers know when they’re close to unlocking a reward
• Expiration reminders: Keep customers informed when their points are going to expire or they’re close to dropping down a reward tier
• Events: Remind customers about upcoming special events and promotions that are exclusive to them

Analysing your loyalty scheme

Once your loyalty scheme has launched and your customers have started to sign up and take advantage of the benefits, it’s vital that you analyse your data. No matter how well your customers engage with it, there will always be improvements you can make to make it even more effective at retaining customers.

Make sure you always refer back to your goals and objectives and those KPIs outlined at the start of the process. Also ensure you consider the following and how they compare to your targets:

• Enrolment rate
• Retention rate
• Redemption rate
• Average order value
• Customer lifetime value

You should also refer to your customer segments to see if some are performing better than others and what you can do to appeal to those segments that are underperforming. 

You can also ask your customers for feedback to see what they like and what they think would make your loyalty scheme better. It’s a two-way street, so they need to feel like they’re getting value and being listened to. If they don’t, then they’re more likely to go elsewhere.