Loyalty programs have evolved over the years from simple stamp cards to sophisticated systems based on analytics, personalization and communication. As a result, the dynamics of working with the program have changed. In the past, the appeal of the program was based on the material reward. The marketers’ job was primarily to refresh the rewards catalog and execute timely shipments. Today, a loyalty program is a seamless composition of benefits that helps meet current company goals and effectively respond to the actions of competitors. It consists of the base mechanics of the loyalty program, special offers available to club members, additional occasional activations and a whole range of emotional benefits. The question arises, however, to what extent this nimble approach to the value proposition to club members translates into the actual attractiveness of the loyalty program.

Companies often focus on the short-term costs of loyalty programs rather than the long-term value they create. To understand the business impact of a loyalty program, it is essential to establish clear methods for the entire organization to measure the activities carried out. This will help the company know whether the proposed benefit mix is valuable to the consumer and profitable for the company at the same time.

The Right Composition of Benefits

The base mechanics are the fixed part of a loyalty program. If a participant in the program completes the task we set before him – purchases another product, uses a service again – he gets a certain benefit – most often points, cashback or moves closer to his next membership status. These different ways of gratification boil down to one thing: the customer collects something in order to collect a reward in the future. From the organizer’s perspective, the mechanism plays the role of the underlying motivation for the consumer to identify during the transaction. The base mechanism first and foremost is simply to build an impression of the speed and quantity of the reward. Usually, the first points are received at the start, and even one transaction is enough to receive the first benefit. In this way, the brand builds the perception of the benefit offered.

Standing at the checkout, we don’t wonder what the actual value of the points that will appear in the account is. In turn, we don’t want to miss the chance to get something “for free” – after all, we are shopping anyway. The base mechanics also influence the initiation of desired behavior. By offering additional points for purchases on a certain day or for buying specific products, club members are motivated to take action and use the loyalty program more actively. The actual value of the “instant reward” usually hovers around 0.5-2% of the transaction amount, yet a customer who does not participate in the program feels a loss.

Club Member Always Has It Better

A complementary element to the base mechanics are special offers. In a mature loyalty program, all promotions and discounts are available exclusively to club members. In this way, the company keeps its promise that the club member always gets better. The challenge is to find offers that will result in an increase in customer value over time on the one hand, and a financial gain on the other – important for the company. Marketers are trying to understand how individual discounts affect the attractiveness and profitability of a loyalty program.

One possible approach is to reduce the price of the high-yield assortment that usually ends up in the shopping cart. Since the customer buys it anyway, why not join the program to have it cheaper? The second look puts a premium on promotions of items that are purchased much less frequently. In this way, discount offers increase the availability of the assortment and serve to boost the value of the shopping cart. Of course, using one approach does not preclude the introduction of the other. It is important to match the type of promotion to a specific group of consumers. Sometimes a few percent discount on everyday products can be more attractive than a much higher discount on premium products, which will not interest the customer at all. The variety of offers makes the program attractive to different groups of consumers.

Dynamics of the Loyalty Program

A good loyalty program, in addition to the fixed gratification part, should offer club members new activations from time to time. Contests, sweepstakes, challenges or other gamification elements are triggers to take certain actions, giving more dynamism to the loyalty program. Nowadays, it is not only clear criteria and rules for participation that count anymore, but also the element of surprise. A loyalty program is also a space for building an emotional bond. Often it is emotions that make us stay with a brand and participate in the program. Supporting social, environmental, or charitable activities allows us to build deeper, non-transactional relationships with customers.

Mechanics and dynamics as components of a loyalty program have different, but no less significant, tasks. The first carries basic information about what actions are expected of the participant, what are rewarded, and is responsible for developing a routine. The second, increases the attractiveness of the program, making it more interesting by offering innovation.

Loyalty Program Value Barometer

Different groups of consumers interact differently with a brand and its loyalty program. At different stages of their journey, customers value different things. For some, the loyalty program is the cornerstone of their daily shopping experience, while others are only interested in individual actions. The team in charge of the loyalty program strives to offer even more and better every day, so that customers want to identify themselves when they shop. However, this involves increasing expenses. The better one works with the program and the larger the base of regular customers becomes, the higher the costs of communication, or the costs of implemented promotions, become. This can generate unnecessary conflicts within the company between loyalty specialists and the finance department. After all, another promotion in a loyalty program at first glance hinders sales margin and profit targets. In the short term, all loyalty benefits mean an additional cost.

If there are no well-defined ways to measure the effects of running a loyalty program, it may seem that the solution is only generating more and more financial needs. Over time, a loyalty program should create incremental value, even if overall costs increase. Companies that can quantify the trade-off between costs and profits know if their marketing efforts are successful. A well-run loyalty program generates up to a dozen percent of additional turnover for the brand.

One of the most common mistakes marketers make is focusing on short-term costs. In practice, this means the difficulty of quantifying the return on investment of a loyalty program. Fortunately, most companies already have the necessary data to be able to measure and optimize such an indicator. Combining the know-how of Loyalty Point specialists with the right arsenal of historical data and current consumer behavior makes it possible to monitor changes in the perception of the program’s appeal. This objective measure makes it possible to understand how, working with all the different elements of gratification, the value of the loyalty program and the willingness to participate in it changes.

Loyalty programs have come a long way, evolving with advances in technology and consumer preferences. The first mass solutions of this kind worked on the basis of cards, stamp collection and material rewards. The organizers’ main task was to refresh the prize catalog, make timely shipments, secure inventory and process complaints efficiently. Things have become more dynamic in recent years, and the loyalty landscape itself has become much more complicated. We have moved away from a focus on administration and logistics to a focus on analytics and constant work with communications to provide personalized experiences. Today, a loyalty program is almost an IT project based on continuous learning of consumer needs and an offer-communication response to those needs. What competencies and tools do you need to secure to nimbly manage a loyalty program in 2024?

Challenges – Past and Present

Over the years, the approach to measuring the effectiveness of a loyalty program has changed, in particular. In the past, the loyalty program was analyzed using simple and generic groupings. Attractiveness was evaluated based on the popularity of rewards and the lowest possible number of complaints. In the era of customer centricity, we look at the loyalty program in much more detail, analyzing and trying to understand and predict the behavior of each individual customer. Today, it is metrics such as LTV or NPS that are used to measure club member engagement on a daily basis. The values of these parameters can change even from day to day, depending on what both we and our competitors are offering. The marketer must understand where these changes and trends are coming from.

We remember well the days when brands simply wanted an overall increase in sales. Customers were simply expected to buy more and more often. Companies did not do detailed analysis of what drove a particular customer to make such a purchase decision and not another. Nowadays, both the quantity and value of transactions continue to matter, but companies are trying to understand customer behavior.

Those who buy only on weekends – encourage them to visit stores during the week. Those who buy only stationary – they invite them to visit the online store. Similar examples could be multiplied. In this way, brands are trying to target more precisely and influence customers’ purchasing decisions by mapping additional purchase paths. Not only have the challenges of running a loyalty program changed over the years, but there are many more. Brands need expanded loyalty teams with new competencies and tools to improve the daily battle for customer attention and wallet.

Competencies in Loyalty Teams

Nowadays, it is increasingly difficult to imagine a loyalty program that would be the responsibility of a few people handling only the logistics of shipping rewards and handling complaints. Running a loyalty project is becoming a large, ever-changing IT project. An effective loyalty program is a collaboration of multiple departments, using a variety of tools to achieve common goals. The complexity of today’s systems for handling loyalty programs and their numerous connections with other tools used in the company, such as the cash register system, call center, e-commerce, among others, make it necessary for loyalty teams to aggregate a wide range of skills.

It is increasingly necessary to react in real time to the market situation and the actions of competitors. It is essential to have people on the team with analytical skills who understand technology, campaign management specialists to handle communications or managers to manage CRM processes. Competencies that a good loyalty team is distinguished by include the ability to work with data at a much more advanced level than in the past. Analysts must be able not only to create reports, but also to interpret them, draw conclusions and share any recommendations based on them that will improve the effectiveness of the loyalty program. It is essential to combine statistical analysis skills with a deep understanding of the business in one person, which allows for comprehensive data management and the generation of accurate recommendations.

In the case of projects such as loyalty programs, where administrators, managers and consultants have to work together on a daily basis to create, and introduce new offers, and campaigns, the use of modern, and interrelated tools is crucial. If a program participant receives an email with a special offer, it must be visible in the mobile app and redeemable in the checkout system no matter where the club member makes his or her purchases. The traditional manual handling of loyalty programs by the hands of developers and technical changes in the code of the loyalty program application are giving way to faster and more agile solutions.

UP TO DATE Tools

In the loyalty program market, we already have a sizable array of tools in the no-code model, which are designed so that project managers can create the necessary processes such as defining mechanics, creating promotions or configuring special actions without having programming skills or having to code.

The project manager goes from being the person who prepares the brief for the developer to being the operator of the tool, and needs to know how to most effectively achieve the goals set with the capabilities of the system. His role is already rubbing up against the analyst, who, knowing what capabilities we have available, conditions, but also barriers, tries to combine business needs with functionalities.

What is needed is an excellent understanding of how the tools work and, more importantly, their limitations. In the past, campaign implementation required time and updates in distributed tools. Somewhere else the base for communication was exposed, somewhere else the offer was prepared. And all of this had to be plugged into distributed checkout systems so that the promotion could charge while the club member was shopping. On top of that, the online store was a separate system. Today, this has to be done quickly, using as few systems as possible.

This modern direction in technology facilitates the effective management of loyalty programs, eliminating the barrier of limited developer team capacity and the erroneousness that results from the need for several teams to perform a single task in several different systems.

Cohesive Ecosystem

Connecting a loyalty program application to all the business systems in use is not just a matter of technological compatibility. It’s about creating a cohesive ecosystem where data, processes and customer interactions are seamlessly connected. The degree of integration between marketing automation tools and loyalty program tools is tightening. In the past, syncing email addresses and withdrawn marketing consents was enough. Now, wanting to work agilely with micro-segments, a two-way flow of all operations taking place is necessary.

When marketing automation feeds information to the database about the click-through rate of emails or time spent on the site, the loyalty program can build subsequent better-tailored action paths with greater accuracy. In turn, information from the loyalty program, marketing automation can use to plan subsequent mailings. The number of possibilities for targeting offers and communications seems endless with this. Increasingly, the ongoing work with offers and communications is supported by artificial intelligence algorithms. An example of such a solution is Ariadne AI, Loyalty Point’s proprietary solution. Ariadne AI analyzes issues of matching offers while estimating the customer’s level of openness to communication. The manager receives recommendations on how to target the offer to maximize engagement with a specific customer. This enables more strategic allocation of time and resources and maximizes the chances of closing more deals.

Summary

The dynamic nature of the market, evolving customer expectations and developing technologies mean that loyalty programs require increasingly sophisticated knowledge and skills in many areas. What is needed are “renaissance people” who have both an entrepreneurial and business analyst’s sense, competence in statistics and programming, and at the same time excel in communication and creativity. For good measure, a loyalty program can be implemented by any company. The real challenge becomes managing it. Efficiency can be ensured by the support of an experienced partner. Loyalty Point distinguishes itself by operating under the One Stop Shop model. What does this mean? We combine strategy and consulting with our own loyalty tools under one roof, offering a unique mix of competencies. We cover all the key areas necessary to implement and maintain loyalty solutions, while helping to develop competencies within the client’s organization.