Loyalty beyond discounts

To maximise satisfaction, brands need to consider both rational and emotional customer desires. Here, we define four key approaches to benefits that should underpin every loyalty programme (AKQA)2:

1. Reward
   Reward-based strategies focus on making shopping more financially beneficial to the customer - for example with discounts or free products offered, often increasing in proportion to how much the customer spends. Examples include the ubiquitous ‘buy 9 get the 10^th free’ stamp card from your local coffeeshop. But good reward strategies don’t just compensate customers for spending money, but also for engaging with or representing your brand.
   
   Starbucks is an industry-leading example. Customers order and pay with their app, which centralises transactions. Depending on how much they spend, they can access different levels of privileges – from a one-off free coffee to extras on the house on a regular basis.
   
   
2. Recognition
   Adding a recognition element to your loyalty program takes it up a level by stoking the interests that first led your customers to engage with your brand. Recognition doesn’t have to involve a financial investment – it might just be a communication that acknowledges that it’s the customer’s birthday, or that they’ve had your product for a certain length of time. But a recognition-based approach requires personalisation and the data to support this.”
   
   For example, Nespresso has a tier-based program, providing customers with access to greater benefits depending on how long they’ve owned a machine. Another approach is to offer your most loyal customers early access to products or services. For example, when a market-leader international beer brand launched a new beer, they sent out a newsletter to their highest tier of customers, offering them the opportunity to buy the new product at an earlier date than everyone else. The loyal customer segment that received the early-bird newsletter had a four-times higher conversion rate than the rest of the similarly loyal customers that were sent the standard communication a few days later, even though the product was offered at the same price.
   
   
3. Connection & Community
   A good connection strategy encourages customers to network with each other around something bigger than the brand. By creating an online portal or community, brands cannot only offer their customers additional value, but also leverage access to a vast amount of data. Some of the best examples here include sports apps, such as Nike, Strava and Fitbit.
   
   Another example is the Body Shop, whose loyalty program empowers customers with the choice of spending their rewards on good causes, such as money towards their favorite charity. Customer decisions are increasingly driven by social and environmental considerations. The ability to redirect benefits to good causes fulfills their social needs and makes the customer feel good.
   
   
4. Empowerment
   Empowerment is the highest level of loyalty program approaches, and can involve letting the customer get involved in brand decisions. For example, British snack manufacturer Walkers asked customers to vote on which new flavour of crisp it should release, and Lego encourages customers to share ideas and even allows them to profit from their innovations.
   
   Another form of empowerment is to offer customers knowledge. A market-leader skincare and cosmetics brand, for example, has a virtual assistant that guides customers through their ideal skincare routine, based on their responses to a series of questions. Using AI, the brand gives the customer knowledge and confidence, while encouraging them to invest in their products. Similarly, department store John Lewis offers its members a ‘Style Edit’, using AI as a virtual shopper to make clothing suggestions.

The best loyalty programs don’t just utilise one of these approaches – they combine all four to appeal to each customer and cater to a variety of needs. Through experimentation, brands can identify the most effective and engaging benefits and mechanisms for their loyalty program, but it’s worth bearing in mind that these are unlikely to remain static. To build strong long-term relationships, retailers must continuously evaluate and evolve their loyalty program data so they stay aligned with customers and their needs in today’s rapidly changing market.”