Beginner's Guide to Starting a Rewards Program

What is a loyalty program, and how does it work?

A lot of merchants are rather reluctant when it comes to rewarding brand loyalty. The reason for this is two-fold. First, the merchant does not understand the true value that the returning customer brings them. That wealth of information and a solid basis on which to build a business we talked about in the intro is not to be undervalued.

Second, the merchant who is reluctant to reward returning customers fails to appreciate the value of the returning shopper—value that must be nurtured, curated, and earned.

A loyalty program is about earning the value of existing customers by rewarding them. It's about recognizing that the return trip is more valuable than the initial trip and doing what it takes to deserve that additional value.

It is a tangible way to tell your customer that their return visit means a great deal to you. It's a way to say thank you for choosing your brand a second time. After all, they do have options, and they opted to shop with you twice.

Loyalty programs recognize the return shopper. They offer monetary rewards, gifts, invitations, discounts, and/or recognition. They are more than just a simple thank you, they are about returning some of the immense value of the return purchase.

It's about curating lasting customer relationships and triggering good word-of-mouth advertising and referral programs.

But more than anything else, rewards programs are about building a foundation of returning customers that is firm and reliable. When you pass your business down to your children, the real, lasting value will be the built-in customer base that you will have created.

The benefits of a customer loyalty program

As anyone who knows much about business and commerce will tell you, value has to be created. While we can make our money work for us, we first have to earn the money we put to work. This is what a rewards program is about—earning the value of the returning customer. It makes it possible to truly connect with customers, and the rewards are tremendous.

The best customer rewards programs have many benefits, that include, but are not limited to:

Customer loyalty

We've already gone on about this quite a bit. But this benefit deserves some extra attention. After all, the returning customer is a self-perpetuating generator of value. With return visits, they grow your bottom line. With their positive word-of-mouth, happy customers advertise for you, and with their active use of your products, they become a living example of how the things you sell provide real value to real people.

To build customer loyalty is no easy feat, so creating a program that does so can in turn see more benefits for the business down the line as it encourages customers to make repeat purchases.

Higher cart value

Returning customers tend to bring with them higher cart value. That is to say that they usually buy more on any given single visit than most one-time shoppers. The reason for this is simple. They are already sold on your products and services. They know they will get what they want and so there will be less reservation on their part. That's just one reason why a returning customer is more valuable than a first-timer.

Reward programs are designed to reward returning customers, thereby making return shopping more likely to occur.

Improved satisfaction

The whole point of a rewards program is to offer customers extra value in return for their loyalty. That means you give back more value in return for the value of loyalty. When customers get more and earn rewards or rewards points, they become more satisfied with their experience of your brand.

This, in turn, makes them even more likely to return yet again. As you might imagine, the ideal result is an upward spiraling feedback loop of purchases, rewards, and continued subsequent purchases. It's really no wonder why rewards programs go back to the early 1900s.

Get ahead of competitors

Many, maybe even most, of your competitors are going to be reluctant to engage in any serious rewards programs. They will look at the cost of the rewards and the additional marketing they would be investing in and consider just keeping that money. That's understandable, and it's common, but it is also short-sighted.

By investing in the loyalty of your valued customers, you will outpace the competition in ways that your more miserly competitors will likely fail to understand.

Access advanced metrics

We've already mentioned the value of the additional information that comes with subsequent sales. But with loyalty comes trust.

They will have more patience with your opinion polls. They will give you feedback with the knowledge that on their next return shopping trip, their feedback may result in the change to your products or service that they wanted.

People love to be listened to, and they love having a real effect on the world even more. In this way, your rewards program gives the returning customer the power to improve your brand for everyone, and that benefits everyone involved.

Tips for creating a loyalty program

To create a loyalty program that works well takes effort and care. You need to invest the right amount in outreach materials, in time spent, and in tangible rewards. Invest the right amount, and the money you spend on curating loyalty will be less than the value that your customers give back.

Invest too much, and expectations could get out of control. However, the real risk is in not having a rewards program at all, because then your revenue can only grow based on new conversions.

Know your customer

Knowing what your customer values is critical. What are their needs? What are their desires, and what will bring them back even when the competition offers the same products or services that you offer?

These days, the marketing industry spends billions on top of billions of dollars for even the most superficial data about customer interactions with various brands. Every time you give your zip code to the cashier at the hardware store, you are giving away free value—which is something for all of us to think about.

Create a point system

Building a point system will quickly lose its meaning if points don't translate into real rewards. So keep that in mind. But a point system is a tidy (and inexpensive) way to track how much loyalty customers have shown and how much reward value you can afford to give back to them. There have been lots of point systems throughout the last century. The trick is to make them memorable.

Encourage engagement

Recognition is one of the least costly rewards you can offer. This can come in the form of a placard on a wall recognizing a valued customer. It can also come in the form of gamified interactive features on a website.

Publishing the rewards customers have earned gives incentive to other customers to prove their loyalty by shopping with you more often. Simply advertising rewards does all of these things in one efficient move.

Set a target

Giving customers a target to shoot for eliminates the feeling of uncertainty. If the customer does not know how much spending it takes to get a reward, they won't try. They also won't try if the target is too high.

Finding the sweet spot that's not too expensive for you and is still alluring to them is where you want to aim. It may take some work, but getting the balance right will pay off.

Improve customer loyalty with a customer reward program

Here at Mailchimp, curating customer loyalty is at the heart of everything we do. The history of modern commerce has proven the value of these systems again and again. We can help you develop a winning loyalty program with advanced tools, accurate metrics, and advice based on real experience.

Retaining customers isn’t always something that is easy to do, but a rewards program is one way to increase how many people return to your business.