Five Customer Loyalty Strategies That Really Work

Written by Ed Higdon on . Posted in Insight

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All retailers know that it costs up to ten times more to capture a new customer than it does to increase the spending of existing customers. That’s one of the reasons why almost everyone, from the neighborhood bakery to multinational retailers, offers some sort of rewards program. The only sure-fire way to develop a loyalty rewards program that strengthens relationships and keeps customers coming back is to learn what drives a retailer’s unique base. Deploying a comprehensive analytics initiative helps to distill objective data that reveals customers’ true preferences and lends insight into their needs. Remarkably, however, almost one third of all rewards programs fail to increase loyalty and retention.

So what are some of the companies in the top two-thirds doing right?

My Best Buy: Agile Response to Customer Needs

The Best Buy Reward Zone was created during a massive online shift in consumer electronics purchases. The program is designed to keep long-term customers engaged while attracting younger, more tech-savvy consumers.

The concept is straightforward. Earn a point for each dollar spent. Every time a customer collects 250 points, they receive a $5 gift card. Customers who spend $1,500 in one year achieve Elite status, and customers who spend $3,500 in a calendar year achieve Elite Plus status. These status bumps lead to rewards: free shipping online, their own customer service department, extended return policies and merchandise discounts. Customers are encouraged to visit the site regularly to track rewards, locate member-exclusive offers and redeem points.

Why it works: The evolution of the program was a direct result of the company learning what customers wanted from a membership, and Best Buy’s expansion of benefits in the last several years solidified its commitment to responding to shoppers’ needs.

Patagonia Common Threads: Tapping into Customer Values

Not all of the best customer rewards programs are about monetary bonuses. Patagonia, an eco-friendly apparel company, dug deep into the ways they could build stronger relationships by reinforcing the idea that their values are in line with those of their customers.

Thus, they created Common Threads, which is a multi-tier program that provides guidance for customers to mend ripped, torn, or otherwise damaged items of clothing. If the customer cannot fix the clothing on their own, they can ship it to Patagonia for repair. Finally, if they have an item of clothing they no longer want or need, the customer can sell it to someone who needs it via the Patagonia website. Items that are too damaged for resale can also be sent back to the company for recycling.

Why it Works: Patagonia is committed to sustainability, as are the customers who shop there. The program reinforces the fact that they sell high quality merchandise and creates an avenue for sustainable clothing practices—a value that their customers care deeply about.

My Starbucks Rewards: Proportional Rewards

Customers in the My Starbucks Rewards program earn “stars” when they use their loyalty card to purchase a drink at Starbucks, Teavana or La Boulogne. They can also earn stars by completing incentivized actions, both offline and online, and engaging with product promotions. As stars are earned, they may be redeemed for future purchases. To incentivize customers to spend, Starbucks throws a bit of gamification into the mix. As customers accumulate stars, they are able to move up to Green and Gold levels, which offer more benefits, including free refills.

Why it works: Starbucks created this program with its customers in mind. The system is simple and easily accessible through multiple platforms. Customers can earn points simply by engaging—it’s not always about the purchase, which gives them more options to achieve rewards.

Plenti: One Card, Multiple Retailers

In May of 2015, American Express launched a coalition program with several of its strategic retail partners. Called Plenti, the program allows members to earn rewards at many national retailers and service providers, such as Macy’s, Rite Aid, Exxon, AT&T and Nationwide. Points earned for qualified purchases at each participating retailer accumulate in a single bucket. Those points can be redeemed at any participating partner, no matter where the points were earned.

Why it works: Plenti is new and flexible. The program lets customers eliminate the number of cards they carry, and gives them the ability to use their points in a way that benefits them the most. Retailers save money on their own loyalty programs and they gain access to the customer bases of other member partners.

Apple: No Loyalty Program Required

Some retailers have strategically avoided adopting a customer loyalty program. Instead, they focus on providing exceptional merchandise and exceptional service using the customer experience as their loyalty hook. The most visible company that adopts this strategy is Apple. They have never incentivized customers with a loyalty program, and likely never will.

Why it works: Apple prides itself on redefining technology. They offer unique products that are exclusive to the brand. You can’t, for example, charge an Android phone with an Apple cord. Apple has built such a community of evangelists that loyalty has become organic. Rarely do Apple enthusiasts “cross over” into PC or Android territory.

What Is The Best Rewards Program For Customer Retention?

These five customer rewards strategies work because they speak to unique needs of unique customer bases. Through analytics, retailers can develop a program that enhances the customer experience and improves retention. They can also take it one step further: Through continuous monitoring and analysis, retailers can also measure the success of a rewards program over time, guiding retailers as they refine the program to create base of loyal, satisfied customers.