Your all-encompassing guide to loyalty programs

A designated channel for brands to offer personalized rewards and incentives to repeat customers, loyalty programs are a staple in brand marketing.

We’ve laid out everything you need to know about this marketing channel, including its benefits, innovative tips to strengthen your loyalty program and more.

Want to get right down to business? Here are links to each layer we’ll be uncovering:

1. What is a loyalty program?

2. The history of loyalty programs

3. Why they work: The psychology behind loyalty points

4. What it adds up to: The benefits of loyalty programs

5. What they look like: Loyalty program examples from leading brands

6. How to strengthen your loyalty program

7. How to get more loyalty program members

8. How to increase loyalty program participation

9. How to engage inactive loyalty program members

10. The future of loyalty programs

If there's anything else you'd like to see in this guide, please feel free to send it our way.

1. What is a loyalty program?

For the purpose of this guide, we would define loyalty programs as a marketing strategy designed to reward customers for, and motivate them around, continued loyalty. This guide was written to help marketers at consumer-facing brands acquire and retain repeat customers who transition into loyal brand advocates.

2. The history of loyalty programs

Before we get into the nitty gritty of loyalty programs, let’s first talk about how they got their start. 

We met up with Zsuzsa Kecsmar, co-founder, CMO and head of partnerships at Antavo, a loyalty program technology for omnichannel and ecommerce brands, who led us through the history of loyalty programs.

Since their inception, loyalty programs have evolved to better serve customers. In fact, Kecsmar categorizes the history of loyalty programs into three different versions: Loyalty 1.0, Loyalty 2.0 and Loyalty 3.0.

Loyalty 1.0 included a variety of stamp cards — a small token of appreciation to be used at every visit that would add up to a small price cut. That is, until the stamp cards were exercised by every business and there was nothing left to create excitement after the last stamp. Loyalty 1.0 was unsustainable and soon replaced. 

Loyalty 2.0 took place from the mid-2000s to the early 2010s and tried to help brands stand out. It focused on creating excitement in customers by providing them more rewards that leveraged modern technology. The issue with this version of loyalty programs, however, was the lack of synergy between loyalty features and loyalty technology. 

Loyalty 3.0 is the current state of things. It utilizes plenty of loyalty program elements: personalization, gamification, experiential rewards, VIP benefits, tiers, etc. The trick to successfully manage this iteration of loyalty programs is to pick tools that best fit your custom-tailored loyalty program. 

You can also leverage any of the tips below. 

(Learn more about the history of loyalty programs.)

3. Why they work: The psychology behind loyalty points

Why not give up on loyalty programs after Loyalty 1.0? Because clearly there is something that is engaging to consumers.

To help us uncover the psychology behind this engagement, we reached out to John F. Tholen, PhD, licensed psychologist and author of "Focused Positivity: The Path to Success and Peace of Mind," and Gregory Yong, Chief Experience Officer at Convincely. They helped us uncover why consumers respond positively to forms of progress tracking such as that seen within loyalty programs.

And we learned that it all starts with a desire that's been with humans since existence. 

“The innate human desire for progress has spanned for as long as our existence," said Yong. "People want to be farther than they were yesterday, and it's this primal drive to be better which has since carried over into consumers' purchasing habits and decisions. Marketers and consumer psychologists have since recognized this and adapted progress into their campaigns for greater success."

In other words, humans are constantly looking to improve. Loyalty points are an example of something that gives us a tangible measurement of progress.

For consumers, that progress incentivizes forward movement in the shopping process. 

“If people feel as though making a purchase is helping them move toward something — such as a discounted or free product in the future — then they will almost always rationalize the purchase as an investment," said Yong. "In an effort to complete the progress bar or make use of their loyalty points, consumers will come back again and again. This technique can fast-track your ability to build brand advocates and entirely discourage shopping with competitors. The takeaway is to always give your customers something to work toward."

(Read more about the psychology behind loyalty points.) 

4. What it adds up to: The benefits of loyalty programs

So aside from motivating consumers, what does it all add up to? We asked Philip Pasma, marketing expert and founder of real estate marketing agency Asterisk Marketing, to define the top benefits of loyalty programs. Here's what he shared:

Brand advocates

Loyalty programs are specifically designed to enhance the experience customers have with the brands they know and love. Through these programs, functionalities are created to make the shopping experience easier, more personalized and highly enjoyable for consumers.

Customers who are happy with the service they receive when patronizing a brand are more likely to share stories of their positive experiences with others, leading to customer acquisition and higher revenue. They're also more likely to stick around themselves.

Customer retention

We brought up the importance of happy customers just a few sentences ago… we’re bringing it up again because there’s no limit to this benefit.

And we can’t emphasize this enough: Good loyalty programs are made with customers’ happiness in mind. 

When customers are given countless opportunities to enjoy their experience with a brand, like receiving points and being able to receive the benefits that come with collecting said points, they enjoy those moments enough to want them again and again.

Consumer data and insights

What better way to meet the needs of your customers than by having an inside look into their minds?

Loyalty programs help brands gain important consumer data and insights. New loyalty program members provide crucial information that brands can use to elevate their services. This information can help brands cater to the specific needs of loyalty program members and tailor content to their individual needs and preferences.

Of course, these are only a few of the benefits loyalty programs offer. Next, let's get into how some top brands are trying to achieve these benefits.

(Learn more about the benefits of loyalty programs.) 

5. What they look like: Loyalty program examples from leading brands

While it’s nice to know that there are lots of different benefits of a well-performing loyalty program, there’s something special about being able to see one in real time. It’s even nicer to see four. 

So here are the highlights of how four-top consumer-facing brands have structured theirs:

Starbucks

• Rewards program members with “Stars” or points that can be redeemed in store or on the Starbucks app
• Offers in-app payment options
• Partners with grocery stores and retailers to give customers even more opportunities to shop

DSW

• Rewards customers with points for every purchase
• Offers 20% off on a consumer's first purchase as a VIP member
• Gives $5 off on VIP birthdays
• Offers exclusive access to upcoming promotions, events, announcements, etc.

Chili's

• Offers free chips and salsa (or a non-alcoholic drink) on every visit
• Gives free birthday treats
• Offers personalized rewards (free kids meals, free appetizers, free delivery, etc.)
• Offers rewards that can be used when ordering to-go, curbside or delivery 

Sephora 

• Practices personalization that includes referring to customers by name
• Recommends products based on purchase history 
• Offers multiple opportunities for customers to create a more personalized experience during their journey

(Learn more about these loyalty program examples.)

6. How to strengthen your loyalty program

The examples above come from strong loyalty programs. Here are some tips on how you can strengthen yours and see some of those benefits we've already mentioned:

Personalize your brand's loyalty experience

Customers respond positively to content that is tailored to their personal interests. Having an individualized shopping journey prevents them from feeling like “just another customer” and helps to create a bond between the brand and the consumer.

Here are three ways you can offer personalized experiences to customers:

1. Use data received from customers to make their shopping experience easier

2. Refer to customers by name (as you saw in the Sephora example above)

3. Only send customers information that is relevant to them

Prioritize customer feedback

If there’s anything we want you to take from your time with us, it’s this: Listen to your customers, and you’ll see the benefits every time. When customer feedback is treated with respect and care, customer loyalty for your brand will grow — and so will the success of your program.

Designing personalized programs and prioritizing customer feedback will allow you to strengthen your loyalty program in unprecedented ways.

Have a thorough understanding of your program

Remember those benefits we talked about? It's important to understand them thoroughly and then go a level deeper into completely understanding the benefits of your brand's specific loyalty program. If you want customers to sign up for your loyalty program, you have to know the reasons why it’d be beneficial for them to do so — and you have to know those reasons well enough to communicate them clearly (more on this in the next section).

(Find out more about how to strengthen customer loyalty and how to get the most out of your loyalty program.)

7. How to get more loyalty program members

A loyalty program is only as successful as its ability to make positive strides with consumers. When customers are interested in your loyalty program, and like it enough to become a member, you have a higher chance of serving them in ways that benefit both them and your brand.

These six tips can help increase your loyalty program acquisition numbers:

Start with a quality offering

When a customer chooses to shop with you, they are doing so because they are interested in purchasing a product or service of value. They are coming to your brand with a specific need in mind, and it is up to your brand to fulfill that request; your ability to do so will determine your value in the eyes of your customers.

The same goes for your loyalty program. If a customer is going to register for your program it should deliver a standard of quality that cannot be found elsewhere. 

Clearly articulate the value of your loyalty program to customers

In our last section, we discussed the importance of really understanding the value of your specific loyalty program. When you're promoting it, make sure to illustrate that the program was developed specifically for the individual to whom you're promoting it. Use this as an opportunity to show customers that you prioritize their business and want to make them happy throughout their customer experience.

This can be done online through e-commerce or other functionalities, or while customers are physically inside one of your locations. It should also be done consistently, for both new and existing customers.

Lean on social proof with referrals from current loyalty members

Marketing psychology is a great tool for attracting consumers to your business. It can even be used to influence consumers to follow the lead of other customers who are already well-acquainted with your brand.

Social proof is a psychology principle stating that humans are psychologically inclined to engage in similar behavior as people they know and trust or to whom they feel some sort of connection.

You can leverage social proof in your marketing campaigns by encouraging your existing program members to refer friends to join your loyalty program. You can offer them perks in exchange for their assistance. Their help might even lead you to lookalike personas (new members who match your ideal buyer).

Offer quality incentives for loyalty sign-ups

You can implement this loyalty program acquisition strategy in the form of:

1. Discounts and deals

2. Special offers for VIP members

3. Early access to new product releases/giveaways

4. Redeemable loyalty points

Add urgency into loyalty program promotions

Chances are if you want loyalty program sign-ups, you want as many as you can get as quickly as you can get them. Urgency marketing can help you drive an immediate response from consumers. Try offering things that will illicit a fast response, like limited-time promotions, competitions, reward-driven campaigns and other brand-related events to promote quick movement from customers.

(Check out how Casey's General Stores leveraged urgency marketing to get 20,000 new loyalty program members in one week.)

Keep your eyes on loyalty program quality 

Not only should there be a focus on program quality when you’re first establishing your loyalty strategy, but it should be a consistent matter of importance as you’re continuing to grow your program. 

Program members, new and old, should be able to rely on your service over and over again. Your delivery and ability to serve should never lower in value.

(Learn more about how to acquire loyalty program members.) 

8. How to increase loyalty program participation

You have a designated loyalty program, you have loyalty program members, but your engagement rates just aren’t where you want them to be.

While this may feel like an insurmountable issue, these solutions can help:

Ask customers to help you shape your loyalty program

We talked earlier about the importance of listening to customers, and it's important to call out again here. Collect customer feedback as often as possible. Encourage them to tell you about the areas of your loyalty program that they love and new additions they’d like to see in the future.

Keep it simple

There’s no need to create a complicated loyalty program that takes more time to figure out than it’s worth. People are looking for brands to help them reach an end goal, and brands that can achieve that goal while keeping things simple are all the more attractive.

Remind program participants about loyalty promotions

What good is a loyalty promotion if your members don’t know about it?

When you’re reaching out to consumers on your different marketing channels, don’t be afraid to let them know about upcoming promotions that they might be interested in. Your reminder might be just the notice that will motivate them to pick up that product they keep thinking of or to purchase that service they've had their eye on.

Allow customers to see their progress

Allow your customers to see all the accomplishments they’ve made while shopping with your brand. This includes the points they’ve collected, the amount of time they’ve been a loyalty program member, and the wonderful experiences they've had while purchasing products from you.

Giving them an inside look into their time with your brand will give them insight into how many more points they’ll need to accomplish a certain goal and encourage them to make more purchases in order to get there. It'll also tap into that innate human desire for progress that you read about above.

Be generous with loyalty program points

Be as generous as you can with loyalty points.

A sign that you appreciate your customers, giving out free points will increase loyalty and customer satisfaction. It will also provide customers with the opportunity to redeem those points for products in the future.

(Learn more about increasing loyalty program participation.) 

9. How to engage inactive loyalty program members

So what about reestablishing engagement in your inactive loyalty members?

We again called on Antavo's Zsuzsa Kecsmar to help offer insights around tips and tricks for reactivation. And we started by breaking down why this happens in the first place.

Why do loyalty program members go dormant?

Kecsmar says it may be an issue of partial interest. If consumers are only interested in your brand when it's time to make a purchase, chances are they won’t be looking to spend any additional time with your loyalty program. 

She also mentioned that if a customer doesn't shop frequently, they can become bored with the loyalty program, forget their password and stop interacting with your brand.

Here's what you can do about it:

Tip 1: Again, leverage personalization to craft relevant content

If you've read this guide from the beginning, you've already seen multiple mentions of personalization. It makes a difference in your efforts to engage inactive loyalty program members, too. Personalized content feels relevant, thereby customers feel appreciated. It also drives exclusivity and helps to build an emotional bond between you and your customers. 

Tip 2: Cultivate an emotional connection with your brand

Emotional connectivity can also help you to earn the attention of inactive loyalty members.

One tactical way to build this connectivity, Kecsmar says, is to offer experiential rewards. These can include:

• Enhanced customer service or member-exclusive service

• Priority access to products or buying clubs

• Early access to sales and VIP events

• Access to partner experiences

• Behind-the-scenes events

Rewarding customers through experiential means can allow you to create an emotional link between dormant loyalty program members and your brand, which Kecsmar says will result in a strong impulse that makes them feel obliged to shop with you. In addition to whatever logical reasons they might have for engaging with your brand (price point, product necessities, etc.) they will also interact with you because it promotes positive emotions.

(Check out more on how to engage inactive loyalty program members.)

10. The future of loyalty programs

So what's ahead for loyalty programs? 

Much of it may come back to relationships. In fact, Kecsmar said many loyalty programs planned to launch in the next three years will focus on the emotional aspect of loyalty.

“This would mean that in the near future, many new loyalty programs would tailor their reward strategies to incentivize brand love and build a long-lasting relationship with customers, instead of trying to buy people’s loyalty with coupons and benefits,” Kecsmar said.

And the key to effectively keeping up with this trend is truly knowing your customers. 

“Knowing what customers actually want is key to being relevant. Loyalty programs have a huge built-in advantage…they can offer incentives [that] encourage members to be open with the brand. Secondly, the way customers interact with the loyalty program provides plenty of insight. Data about the most frequently claimed reward, for instance, gives businesses an indication of what kind of incentive they should focus on the most," Kecsmar said.

(Learn more about the future of loyalty programs.) 

Loyalty programs have proven to be an effective means of garnering repeat customers and brand advocacy, and you can achieve those same results using this guide as your blueprint for success. Here's to a successful loyalty journey.