Retail Loyalty Strategies: How to Get Started

For many customers, retail loyalty strategies play a principal part in the ecommerce shopping experience. Companies like DSW or Sephora believe customer loyalty programs play a large role in deciding whether a customer will return. Take Sephora, for example. For every $1 the customer spends, they gain 1 point, which in exchange can provide future discounts or even free products. By earning 12 points on their $12 mascara purchase, customers are more likely to return to the site to cash in on those points and even build up a larger cart to gain more points on their order. 

However, there are certain criteria that must be met for creating and maintaining a retail loyalty strategy. 

In this article, we will discuss how to get started in creating and perfecting your retail loyalty strategy.

Before Getting Started With Digital Retail Loyalty Strategies

While retail loyalty strategies are a great solution to building customer loyalty practices, it’s not the only way you could achieve these goals. For that reason, before you invest any amount of resources into building and deploying a digital retail loyalty strategy or program, it’s important to assess the value in which it could provide to your organization's goals. The end results of the assessment could end up shifting your campaign focus or even proving a loyalty strategy to not be the most efficient process for your specific use case. To determine whether a loyalty strategy would be advantageous for your needs, a cost-benefit analysis may be beneficial. This helps retailers look at the bottom line, is a loyalty program worth the investment? If the cost-benefit analysis proves that building a loyalty strategy is the most beneficial process for your needs, then you may look into ways to start designing and optimizing.

Designing and Optimizing Your Retail Loyalty Strategy

Retail loyalty strategies can strengthen the retailer-to-customer relationship by helping to provide a better user experience, all while optimizing productivity. The Better Business Bureau states that in some instances, 20% of customers can be responsible for 80% of a company’s revenue and that acquiring a new customer can be up to 25 times more expensive than retaining an existing customer. Since loyal customers are more willing to purchase than new customers, retaining these customers through loyalty strategies can help increase recurring revenue, which is a significant factor in determining future finances and financial-based commitments.

Whether your organization is looking to build a digital loyalty program from scratch or optimize an older campaign, it’s important to note that loyalty programs are most successful when the technology aligns with your strategy. It's critical to prioritize the right strategy spanning your internal teams, processes, workflows, and marketing systems. Only then can you select the technology foundation to make your loyalty program come to life.

To build and optimize the strategy behind the loyalty program, there are some key considerations to assess. 

Key Consideration #1: Assess The Proper Questions Prior to The Build

What kind of loyalty drives your business?

Between transactional loyalty, engagement loyalty, advocacy loyalty, social loyalty, and more, each business defines ‘loyalty’ differently. This definition of loyalty can provide valuable insight into what the operation of acquiring said loyalty would look like. 

Are customers likely to come back based on the good(s)/service(s) your business provides?

Considering the product, is the demographic of customers likely to purchase more than once? If the product is a one-time purchase, then loyalty programs that incentivize customers with future discounts may not be the best method. Although, a customer who purchases a one-time fee software license may be incentivized with a referral-based program that provides a free class teaching customers how to utilize certain aspects of the software when a friend purchases through their link. 

It’s also important to consider the ‘shelf-life’ of the product. This can make the distinction between what kind of loyalty your company acquires. After all, a very expensive online furniture store is not going to have the average loyal customer purchasing three to seven pieces of furniture every week, but the average loyal customer for a well-known coffee shop might.

What is the goal in building/re-optimizing your retail loyalty strategy?

Loyalty programs will ultimately be helpful to at least one of three main objectives:

1. Add brand value
2. Create more orders
3. Get more customers

While certain loyalty programs chose to focus on one of the above objectives more so than the others, building one should prove beneficial to the others as well.  

Key Consideration #2: The Business & The Customer’s Needs

How you utilize a loyalty program should be in accordance with what the customers want as well as what your business needs. Not all customers have the same priorities. 

Consider building a customer persona to visualize the target audience. Then, the customer's needs can be analyzed using customer identity, engagement, behavioral, and attitudinal data. 

Examine key performance indicators (KPIs) to measure internal workflow gaps. These gaps may represent the various needs of your organization that have effects on the provided levels of customer service. By improving productivity, customer satisfaction and retention may also increase significantly, playing a prominent role in the strategy of retail loyalty programs. 

Key Consideration #3: The Type of Loyalty Program to Target

With answers to the above questions and the correct metrics evaluated, your goals for a loyalty program should start to align realistically. Based on those goals, which loyalty program looks most beneficial for your customers and your organization?

Each type of loyalty program incentivizes customers to perform a specific action (whether it be purchasing, sharing, signing up, etc.) in exchange for rewards such as discounts, free products, or other specialized benefits. 

Key Consideration #4: The Technology Behind The Program

The previous considerations are important to assess before selecting a platform. All technology supporting loyalty programs will offer different features and elements. Selecting a platform is the last of the considerations because the strategy must be assessed first. The strategies to promote customer satisfaction, organization growth, and seamless internal workflows will be different for different companies.

Maintaining Your Retail Loyalty Strategy and Platform

Maintaining customer loyalty is another significant part of the retail loyalty strategy. Once the system is in place, it is imperative to implement maintenance procedures that preserve data integrity while keeping customers informed on updates. Customers appreciate transparency, and while this doesn’t mean they need to know everything behind the scenes, it’s important that customers are aware of expiration dates on discounts and other important information that could impact them directly. Setting up a notification system through email updates, portal updates, or both can preserve that transparency and customer relationship that much more.

Data analytics will be lifesavers through the process of loyalty campaigns. Metrics, such as engagement rates, provide valuable insights into what aspects of campaigns affect your direct customer base more. Some campaigns may not work as well as others, but thankfully data analytics can keep you from repeating the same mistakes in later campaigns. 

Ongoing cost-benefit analysis is essential for optimizing campaign finances. The goal presented at the beginning may change throughout the campaign/program. Cost-benefit analysis and other loyalty program audits can help identify necessary changes in the strategy. During these audits, it’s important to identify:

• Conversion rates & sales trends
• Active members & not active members
• Gaps in service & provided features
• Customer feedback

A recency, frequency, monetary (RFM) analysis can help during these audits to identify, as the name suggests, customers' recency, frequency, and monetary values. Those three attributes can help identify what your specific customer base is likely looking for in services, and these can be accredited to your loyalty program. 

Automation, artificial intelligence (AI), and scripting can help lessen the workload for your teams when maintaining the loyalty strategy. 

The Best Retail Loyalty & Rewards Programs

Starbucks Rewards provides their customers with a hybrid-based loyalty program that presents stars to reach different VIP levels. For every $1 spent at Starbucks, customers who are part of the loyalty program are rewarded with 1 ‘star’ that can be redeemed as discounts, free products, and more in different quantities. Starbucks also offers ways for their loyal members to earn two stars per $1 spent. This loyalty program is considered one of the best retail loyalty programs because Starbucks has utilized its digital environment to cater to its customer's needs and entice them to become loyal customers. 

DSW VIP is another hybrid-based loyalty program that combines a point-based system, a tier-based system, and a value-based system. VIP members are provided free shipping, birthday discounts, and opportunities to donate shoes for points. This VIP program is considered one of the best retail loyalty programs because DSW has truly optimized its customers' needs by providing multiple offers as rewards in return for purchases. 

A Case Study

A major retailer's loyalty program set out to create the best retail loyalty and rewards program by optimizing its already existing architecture and system. The existing program was based entirely on paper in-store coupons that were pushed to the consumers once a month. They wanted to upgrade to digital coupons while generating real-time offers and rewards. To use their already existing system, they needed to re-platform. The new infrastructure had to reach across two data centers and support the new digital platform. By considering their needs as well as their customers' needs, they enhanced the loyalty program with digitized coupons and moved towards real-time rewards. Customer satisfaction immediately increased, and the cost-benefit analysis showed that this method was more effective to service and maintain. 

How to Get Started Today 

A successful retail loyalty strategy requires consistent maintenance and thorough data analytics. Although, the best way to gain a competitive edge over other ecommerce retailers is to start building the customer experience as soon as possible. Start by looking into the key considerations mentioned above. 

Specialty tech consultants will also provide a faster solution to getting the right kind of loyalty you need. By picking apart your business model in correspondence to technical architecture, specialty tech consultants can optimize the most efficient loyalty strategy for success, all while providing suggestions and recommendations for future opportunities.

Getting Started

Concord USA is a leading technology consulting and digital transformation firm based in Minneapolis, MN, with supporting operations in Eastern Europe, India, and Latin America. With a unique combination of industry expertise, technology know-how, and project execution reliability, Concord helps its customers unlock business value by solving their most complex data and technology problems.

Contact us today to learn more about how to build a customer experience strategy in retail, our Technology and Data Integration Services, and how we can help your business thrive.