Discover the strategies and tactics that propel some of the retail industry’s most successful loyalty programs.
- Retailers are under pressure to create loyalty programs that set their brand apart
- Consumers are more likely to shop with a brand that offers a loyalty program
- A compelling rewards structure is an effective way to entice and retain customers
- A balance of hard and soft benefits is critical to building member engagement while managing ROI
- Meaningful tiers are a best-in-class loyalty program feature
The battle for customers is hotter than ever, and for retail marketers to succeed, it’s crucial to stand out from the competition, differentiate your brand — and adapt to evolving technologies and customer behaviors. That includes taking a close look at your loyalty program to ensure it’s doing all it can to increase customer engagement and sales. Reviewing the best-in-class loyalty program features we’re showcasing here can help.
Loyalty Factors Lead Consumers to Choose Some Retailers Over Others
Research from CCG’s 2021 Retail Customer Brand Loyalty Study found that customer loyalty took a slight step back in 2021, with fewer customers reporting that they prefer to consistently shop with the same retailer. In addition, research shows that while price is an important factor affecting customer loyalty, receiving a good value and ease in making purchases actually have greater impact for the majority of consumers.
Those insights increase the pressure on retail marketers to create customer loyalty programs that place their brands at the top of the pack. The key question is: What are the best-in-class loyalty program features that drive loyalty, engagement and sales? It’s one of the most common questions we’re asked by our retail marketing clients. The answer, however, isn’t as simple — or as easy — as you might think.
To put it in perspective, nearly 100 major retailers have taken our Loyalty Marketing Assessment quiz since its introduction in mid-2016. The Assessment grades customer loyalty programs to help retailers understand where their program stands in relation to other retailers. Levels include Challenged and Middle of the Pack, with the highest rating reserved only for outstanding loyalty programs: Best-in-Class.
Of those retailers who have taken the assessment thus far, only 22% received a Best-in-Class rating.
From those Assessments and our own four decades of experience developing and refining retail loyalty programs, we’ve learned that there are some common elements of success. But there isn’t a single customer loyalty program or package of features that will work for every retailer and every customer base.
That said, every retailer can certainly consider how features from best-in-class loyalty programs — along with some key characteristics that make the best retail rewards programs — might work into your plans for 2021 and beyond. Here are some top ideas to think about.
Improve Your Customer Loyalty Programs by Being Inclusive
Simply put, being inclusive is good for your customers and your data. Women’s fashion retailer Talbots found this out in terms of payment method inclusivity.
Talbots launched Classic Awards in 2001. It was an integral part of the retailer’s customer retention and growth strategy, specifically targeting Talbots credit card customers. Over the years, though, consumers became more reluctant to use store credit. And as competition from Visa and MasterCard has increased, Talbots has changed and expanded its loyalty program to include customers using all forms of payment.
Talbots expanded its strategy earlier than many other retailers. The move not only drove more brand loyalty, but just as importantly, expanded the profile of customer data collected. This gives Talbots a better chance of garnering a 360-degree view of their customers’ buying patterns, as well as capturing data from those customers who do not carry a Talbots card.
Additionally, the loyalty program is well-integrated with Talbots’ ecommerce efforts. As a result, Talbots tracks an extremely high percentage of overall transactions at the customer level. This data and insight is shared and used throughout the organization, not just in the marketing department.
Many retailers get “stuck” with program constructs that limit customer engagement, thereby limiting the quality of data collected. By expanding its program early on, Talbots got a huge head-start on collecting customer data that has become a rich source of organizational customer insight.
Create a Compelling Customer Loyalty Rewards Structure
Numerous studies show that consumers are more likely to stick with a brand that offers a loyalty program, and Shopify notes that 66% of customers say the ability to earn rewards changes their spending behavior. One of the most effective ways to get customers to stick with a brand — and entice them to keep coming back —is to create a compelling rewards structure.
ULTA’s Ultamate Rewards® program boasts nearly 32 million active members, and those members make up more than 95% of the company’s sales, both online and in store.1 Members earn one point for every dollar spent on products and services, and can redeem points on more than 20,000 products. More points earned equals more dollars off a future purchase.
In addition to perks like free birthday gifts and free shipping, members can reach platinum or diamond tiers when they reach certain spending thresholds — to unlock even more perks. As an added incentive, members can earn two points per dollar spent at Ulta when they pay using an Ultamate Rewards credit card.
Focus Customer Loyalty Features on Customer Engagement — While Building Brand Affinity
Outdoor enthusiast retailer REI is an example of thinking outside the box when it comes to engaging shoppers. REI moves the focus away from getting customers to spend more and, instead, focuses on creating more value for the customer while building brand loyalty.
For $20, customers can become lifetime members of the REI Co-op. Membership not only grants access to special discounts on clothing and gear, but also to experiences like adventure classes, events and shop services. As an added bonus, members receive an annual dividend based on how much they spent during the previous year.
Offer Unique Ways for Customers to Earn and Burn Their Loyalty Program Rewards
Providing members with distinct ways to amass and use loyalty rewards points can not only help your program stand out from a crowded playing field, but also drive growth and retention.
Sephora’s Beauty Insider rewards program boasts more than 25 million members. What’s unique are the many ways customers can use their reward points. From savings to product samples to experiences, members enjoy the flexibility to choose the rewards they want.
Improve Loyalty Program Features by Offering a Balanced Mix of Benefits
Talbots Classic Awards program incorporates both financial, or “hard,” benefits and non-financial, or “soft,” benefits. Members earn points for purchases, and when they hit a threshold, they earn a $25 Style Reward.
Talbots has carefully constructed Classic Awards in a way that balances the percentage of members who earn this reward. However, when stores were temporarily closed during the pandemic, Talbots gave a bonus $25 Style Reward to Classic Award members whose normal shopping cycle had lapsed. This was the retailer’s way of reminding customers that they are valued members of the Talbots family.
Talbots uses soft benefits to broaden the appeal of the program, without expanding the program’s cost. These include preview days, bonus points for shopping during a member’s anniversary month and members-only discount shopping parties, complete with refreshments.
There is a science to constructing financial benefits that motivate customers to consolidate their category purchases with a single retailer while at the same time promoting incremental spend. In other words, you need to offer the right mix of enticing benefits that customers want to earn, that also get them to spend a bit more.
It’s imperative that retailers carefully create financial models for hard benefits so that the right number of customers earn them.
- Too many customers earning a rich benefit will lower program return on investment and beat up margins because there is not enough incremental spending occurring to offset the cost of the benefit.
- Too few members earning a hard benefit can signal a lack of engagement in the program.
For instance, years ago a major automotive retailer required customers to spend $1,000 to earn a free oil change. Most customers found that unachievable and disengaged themselves from the rewards program.
Soft benefits allow retailers to hedge their bets by offering less costly program benefits that more customers can earn. One reason Talbots earned a Best-in-Class rating as one of the best loyalty programs in retail is because they strive to maintain that crucial balance in their program benefit offerings.
Create a Successful Loyalty Program by Offering Variety
Best Buy is an example of a company that has differentiated itself amidst the challenge of selling one of the most commoditized products in the marketplace today — electronics using the latest technology. Best Buy has been using My Best Buy Rewards to offer something for everyone.
In addition to earning points on every purchase, members are given early access to new products, special sales and offers. Best Buy also offers customer perks like price-matching and free shipping to help differentiate the retailer from online competitors like Amazon, while also offering help and expertise from a live person.
Create a Personalized Experience for Loyalty Program Members
While its program has been around for a while, DSW continues to keep customers engaged with its DSW VIP Rewards program. Active campaigns remind members about the rewards program. Personalized emails include current deals, information about recent purchases, point status and how much they’ve saved — as well as how many points a member needs to get their next reward certificate. By leveraging their customer data, DSW creates a deeper level of personalization that increases the relevancy of their communications.
Make Your Loyalty Program so Easy, Customers Don’t Know They’re Using It
There’s no denying that Kohl’s has done a lot of things right with its loyalty program. One of the most appealing aspects is how easy the program is to use. Kohl’s recently combined its three most popular perks into one easy-to-use program on a single platform that’s simple and convenient, and focuses on providing the most value to customers.
Create Loyalty Program Tiers to Increase Engagement and Reward Higher Spending Customers
Designing unique, compelling benefits for program tiers is a challenge, but not an impossible one. Start by understanding your customers and your competitors. Then ask yourself this: “How does our loyalty program support our brand?”
Sophisticated, targeted tiers should not simply provide a specific reward when a spending threshold is met. They should deliver benefits and features that allow you to deliver a unique loyalty program that helps maintain your brand’s individual attributes.
Don’t be afraid to push yourself out of your comfort zone as you take a unique approach to loyalty program tiers. Look for perks that will make customers not only jump at the chance to join your loyalty program, but also stay engaged for the long term. Here are a couple of examples.
Talbots Classic Awards
This loyalty program has three tiers: Loyalty Card, Talbots credit card and Premier credit card. The more commitment the customer makes in terms of taking out a Talbots credit card or spending more of her wardrobe budget at Talbots, the more rewards she earns. The very best customers earn the best rewards, and Talbots utilizes the program to identify and recognize best customers in store. The Loyalty Card tier provides non-cardholder customers with a membership option that does not require a Talbots credit card.
Over time, Talbots has been very intentional about which benefits are offered at different levels of their program, so that customers are motivated to engage and spend more to achieve them. This is what we call “aspirational momentum,” a very important customer loyalty program design strategy to consider incorporating into your loyalty program design if you haven’t already.
Nordstrom’s The Nordy Club
Customers who feel known and valued are more likely to become brand advocates. Retailer Nordstrom recently revamped its loyalty program, The Nordy Club, to incorporate a traditional points system, popular customer benefits, and enhanced services and experiences for its highest spending customers. The top-tier shopper status, known as Ambassador, rewards shoppers who spend $5,000 annually with perks like personal double point days, invite-only events and even an in-home stylist.
Online and brick-and-mortar clothing company Moosejaw uses reward tiers to successfully differentiate itself amidst the crowded field of apparel brands. At its most basic level, Moosejaw offers one of the most generous rewards programs — 10% back on every regular item purchase and 2.5% back on every discounted item purchase in the form of Moosejaw Reward Dollars. Top spenders can move into the High Altitude program, which has four tiers based on previous year spend and offers progressively more benefits.
Do you have one of the best customer loyalty programs? Compare yours to the competition with CCG’s interactive, 5-minute Loyalty Assessment Tool and gain recommendations to help push your program to new heights.
Improve Your Customer Loyalty Program Performance by Communicating Rewards Status and Benefits Early and Often
Shockingly, customers are not thinking about your loyalty program all the time! Most consumers are members of at least a dozen or more rewards programs at any given time, so it’s easy for your program to get lost in the crowd. Regular communications can help keep your program top of mind.
Many retailers make the mistake of only passively communicating rewards status and the program value proposition. They may provide information online, but expect customers to take the time to fire up their devices, go to the retailer’s website, find the program microsite and remember a password and login to obtain program and membership details.
Talbots Classic Awards, though, earns Best-in-Class points by updating members on their rewards and membership status with monthly e-newsletters. Additionally, members may access their current rewards status online at any time. By providing members with their status and reminding them what’s in it for them, Talbots actively drives their loyalty program’s performance.
The retailer also puts loyalty members in the driver’s seat by giving them direct control over the communications they receive. A preference center allows them to choose their preferred channel of communication as well as set how often they get updates.
In addition, the retailer includes the Classic Awards value proposition in most of its customer-facing communications.
To understand whether your communications plan is effective, evaluate whether customers are actively engaged in your program. To do this, calculate your percentage of member transactions compared to overall transactions. If the result is not where you think it should be, consider additional ways to promote the program (at least a simple description) through customer-facing communications — such as FSIs, promotional emails and social media. The point is that you always want to reinforce to customers that if they do X (e.g., spend $200), they will get Y (earn a $10 reward and receive invitations to members-only sales events).
Create Your Own Best-in-Class Loyalty Program
As you can see, there’s more than one successful loyalty program example to emulate. These best-in-class loyalty programs represent just a few models of how you can offer your customers unique ways to not only earn and use their rewards, but also remain loyal to your brand. Maybe not every best-in-class program feature will work with your program — and that’s okay. Focus on the loyalty features that your customers will use and appreciate. With out-of-the box thinking, you can create a best-in-class loyalty program that’s compelling for your customers — and difficult for your competitors to duplicate.
If you’re ready to take your loyalty program to the next level, we can help. Our mission at CCG is focused on helping our clients build stronger, longer, more profitable customer relationships. Our retail marketing services and solutions include loyalty program development, refinement and management, Statistical Loyalty Program Optimization™ and retention program development. Schedule a free consultation or call us at 303.986.3000 today to see how we can help you.
1 “Ulta Loyalty Members Drive 95% of Sales,” Stephanie Crets, digitalcommerce360.com, posted Jan. 18, 2021, https://www.digitalcommerce360.com/2021/01/18/ulta-loyalty-members-drive-95-of-sales/, accessed Aug. 24, 2021