How to Create Effective Incentive Programs to Increase Customer Loyalty

How to Create Effective Incentive Programs to Increase Customer Loyalty

In this post, we'll discuss 4 critical factors to consider while creating an effective incentive programs to boost customer loyalty.

With customer loyalty considered one of the most important investments a business can make, here are 4 important factors to assess in developing your program - By Tyler Bishop, CMO at Ezoic

Increasing customer advocacy, including developing rewards programs with educated tie-ins, has a strong case for being the single most important investment a business can spend money on. Improving customer retention by a mere 5% can help increase a business’ future profits by an eye-popping 25–95% (in fact, up to 80% of future profits are likely to come from just 20% of your most loyal customers).

Multiple studies have shown loyal customers are far more likely to repurchase, be more forgiving, refer clients, and buy new products. And research indicates that while traffic in stores has declined by 57% in the last few years, consumer spending has also increased during this period.

82% of customers seek the internet's opinion about purchases they are about to make in-store. That means your customers are globally available to advocate for you.

On the other hand, acquiring new customers is notoriously expensive and riddled with risk. Customer acquisition cost (CAC) can fluctuate wildly, especially if you’re trying to outspend larger competitors. I worked for a former partner at Edward Jones.

We started a company together, and he was loved by customers and his attitude permeated our business. He used to say, “We put the sign up on the door asking for their business; so, if we don’t deliver, someone else will, and we won’t ever get the chance again!”

I’ve both started companies and worked for some of the largest in the world. No matter the size of a business, all are susceptible to the same mistakes. Trying to make decisions about your business based on what others are doing is a recipe for waste and no guarantee of success. Look at Lyft.

They were sure that Uber’s spending was going to give them a big lead, so they spent too. At the time of this writing, they both are in a deep hole, as their businesses decline and their valuations have been cut in half. 

You never know the motivations for spending. If a competitor is a big bureaucratic mess, it’s likely someone in marketing is spending their allotted budget to make sure the budget is bigger next year. If you’re looking for ROI, that wouldn’t be a model to follow.

That’s why weaponizing customers to be loyal fans of your business has such a high value. The returns offer the potential to extend exponentially beyond an annual budget.

There’s a few simple ways to do this, no matter what you’re spending.

1. Providing incentives customers want

There are countless examples of failed incentive and reward programs companies have implemented, resulting in significant profit losses and damage to their reputation. We can place these incentive programs into three basic categories: “confusing,” “who-cares,” and “highly-restricted.”

Confusing Programs

First, there’s the “confusing” category; these incentive and reward programs might seem as though they would require a doctorate to decipher, rendering them pointless and completely unappealing for 99% of customers…or worse they could ruin future programs if they come off as inauthentic. 

Think about every checkout process — online or in-person — you're almost certainly going to be offered to join or sign-up for some kind of ongoing-contact program. Most of us give answers by default. If someone is barely paying attention, do you expect them to comprehend a pitch filled with graphs and charts?

In 2021, Old Navy rolled out a new rewards program that sounded like a good idea, but in execution proved to be a jumbled mess that customers didn’t understand and many, even, resented. With Old Navy blurring the lines between free membership and credit card holders in this program, the actual big spenders felt they weren’t getting any exclusive benefits (even though they were  —  it was just too complicated to understand!). 

The result was a negative experience for Old Navy’s most loyal customers, decreasing interest and trust in the company.

“Who-Cares” Programs

Then there’s the “who-cares” category, encapsulating incentive programs that have little value for the vast majority of customers. 

How many times have you been in a hurry at a grocery store or pharmacy and someone asked you during checkout, "Are you a rewards member?" You may be like many, including myself, who simply say "no" just to save the extra time. That's how little perceived value some of these programs have.

Dillard’s, a national department store, recently boasted a rewards program that gave customers a $10 voucher for every $750 spent. $10 for every $750 spent? It’s a poor, essentially meaningless incentive for almost every customer shopping at the store. The reward is incongruous with the work required to earn it.

Highly-Restricted Programs

Finally, we have the “highly-restricted” rewards program, where there are endless qualifying factors that prevent almost every customer from accessing the rewards. Uber is available across 80 countries around the world, yet the company only offers rewards programs in six countries.

When over 90% of your user base can’t even vault through the first qualifying hoop to enjoy rewards, companies may risk more than customer loyalty; they may also risk their reputations. As Sun Tzu wrote in “The Art of War,” “Tactics without strategy is the noise before defeat.”

Want an engaged customer base? Create easy-to-understand programs they can actually use and benefit from and implement incentives that motivate them to stick around. 

Yes, creating this type of program will take a long time to research, build, and roll out. But companies that are willing to experiment to find the right rewards program for their brands will reap the benefits. 

2. Make your affiliate program one of the best in your industry 

If you have a good business, there’s a good chance there’s room in your profits or reinvestments for something that can be positioned so that your program will be seen as “taking advantage of you”. That’s what you want.

Often, the cash amount can seem small, but what about an experience, opportunity, product, service, or something of the same value with greater thoughtfulness given to the customer’s motivations.

When speaking on customer relationships Jeff Bezos said, “The strategy is fixed and the details are flexible.” Jeff has a pretty good track record of building great customer relationships and incentive programs. He listened to customers. That’s where you start.

Why guess what someone wants if they’re willing to tell you?

You’ll never believe the millions of dollars in advertising that can be saved by loyal, raving fans. Not to mention their role in boosting your brand awareness, creating more social proof, and reaching audiences you were never able to reach before.

What’s more, studies suggest the returns on these loyal customers can be much larger as well. In fact, 82% of consumers claim they would spend more for better experiences. The best advertising for those seeking the best services or products is by making existing customers billboards.

3. Talk to customers to build trust and loyalty

I shared above how important I think it is to actually talk to customers, I also briefly mentioned how critical it is to start with what they want and to work backwards from there. I can’t tell you how many businesses brush these things aside in favor of structuring something that aligns with business objectives but not customer motivations.

The National Basketball Association (NBA) has been around for 75 years, and until recently, this organization was the sole decider for every major piece of the sport. Despite tens of millions of fans around the world, only a couple hundred decision-makers had any say in how the game worked and operated.

But a few years ago, the NBA realized they were sitting in a goldmine; their most loyal fans were begging to be more involved. So, the NBA made the first-ever decision in professional sports to let their fans have a major stake in the voting in the All-Star selection process; 50% of the vote is decided not by sports pundits or billionaire team owners, but the fans themselves. 

This past year, millions of fans joined the voting process. It not only helped improve the monotony of each year’s voting process (by leading to some surprising, controversial fan-favorites making the cut, inspiring more discourse and interest in the NBA), but increased the involvement of the NBA’s most loyal fans. To vote, you have to download an app or sign up through the NBA. How would you like millions of new followers and subscribers in predictable, reliable signups for your product each year?

4. You leave money on the table if you ignore negative reviews 

It’s best to review past mistakes before making new ones.”  -  Warren Buffet, Chair of The Board, Berkshire Hathaway

According to a 2022 Statista study, “trustworthy reviews” now supersedes brand reputation, search engine results, and even the testimonials of friends and family when it comes to making a purchase decision. It’s more important than ever to have proof from real people that your company is legit and your product works.

stats showing customer reviews

Source: Statista

But as any successful company knows, you’ll always have disgruntled customers who leave bad reviews. They might be totally fake spam; they might even be a joke by a witty customer mad at the quality of your memes on social media…but they’ll always be there.

the wolf of wall street negative review

It’s natural for companies to fear these reviews, but some do everything in their power to stop them, even suing(!) their critics to silence them. Not a good look and a silly way to avoid areas you can improve. When companies behave in this manner it demonstrates a fundamental lack of understanding of negative feedback; it’s not about trying to avoid this inevitable situation, but rather using it to show customers your company truly cares about being better.

Ironically, many companies with horrendous reviews have gained even more influence and income by choosing to study and use these reviews  —  to show real human empathy with unsatisfied customers, and by actually improving on their company’s real shortcomings.

A select few brand-name companies have employed similar measures to use negative feedback against very real issues to highlight the fact that the company is willing to admit fault, own its mistakes, and listen to feedback to provide better services. They understand the power of negative reviews, and how to use them as fuel to grow.

Customers, employees, affiliate marketers, social media followers, and even just your surrounding community pay more attention to how your company responds to criticism than you think. 

Ask yourself, “Is this negative feedback accurate from any perspective? If not, what led to someone feeling this way about my business?”

How many politicians have committed egregious errors and given into corruption, only to vehemently deny and attack their critics once confronted with the truth? This is obviously inauthentic behavior and in the digital era, it is the ultimate sin.

Denying negative feedback not only hurts your business, but it risks breaking trust with future potential customers, making it far more expensive to stay in business.

Show your customers and employees you’re willing to not only admit fault, but to use it to be better. That’s what gets you the kind of customer loyalty money can’t buy… and if it could, I can promise the cost would be much higher than the time and resources taken to do it right.

Final thoughts

Growing customer loyalty — and a sense of partnership — is an important aspect of doing good business and can be manifested in countless ways. Although the market and algorithms will always change, companies can always rely on real human connection to build trust and goodwill with customers.

Brands that choose to put in this work will be in a much better position to create real incentive programs and relationships that motivate customers and employees alike to continue returning and supporting their businesses.

Tyler Bishop is a digital publishing influencer and the CMO of Ezoic. His company provides AI technology for online publishers and websites to monetize content with display ads, through streamlining implementation, optimization, and testing of ads; optimizing site speed, SEO, and much more

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