In this post, we'll discuss four critical factors to consider while creating an effective incentive program to boost customer loyalty.
With customer loyalty considered one of the most important investments a business can make, here are four critical factors to consider when developing your program.
Increasing customer advocacy, including developing rewards programs with educated tie-ins, is a strong case for being the most critical investment a business can make. Improving customer retention by a mere 5% can help increase a business's future profits by an eye-popping 25–95% (up to 80% of future profits are likely to come from just 20% of your most loyal customers).
Alt Text: How Customer Incentive Programs Boost Profit
Multiple studies have shown that loyal customers are far more likely to repurchase, be more forgiving, refer clients, and buy new products. Research indicates that while store traffic 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.
Alt Text: Digital Influence
On the other hand, acquiring new customers is notoriously expensive and risky. Customer acquisition cost (CAC) can fluctuate wildly, especially if you're trying to outspend more prominent competitors. I worked for a former partner at Edward Jones.
We started a company together, and customers loved him. 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 business size, all are susceptible to the same mistakes. Making 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 would give them a big lead, so they spent too. Unfortunately, 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, someone in marketing will likely spend their allotted budget to ensure the budget is more extensive 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 is highly valued. The returns offer the potential to extend exponentially beyond an annual budget.
Benefits of Customer Incentive Programs
Customer incentive programs are an innovative way to achieve strategic benefits that help drive business success. The customer incentive programs will attract and retain customers through special rewards, discounts, and financial benefits that encourage engagement and loyalty. Here are the key benefits, along with real-life examples and use cases:
Increased Customer Loyalty
Customer incentive programs engender a strong relationship with your audience through multiple purchases and long-term dedication.
Starbucks Rewards allows customers to earn stars on every purchase, which they can redeem for free drinks and food. This program has been highly instrumental in maintaining customer loyalty towards the brand.
Competitive Advantage
Offering personalized incentives can make businesses unique in a crowded marketplace. Amazon Prime members enjoy exclusive privileges such as free shipping, access to Prime Video, and special discounts, which create a competitive advantage in the e-commerce and streaming industries.
Increased Brand Recognition
Incentives like referral programs will help customers share your brand with their networks. Dropbox incentivizes its referral program by giving extra space for every friend a user invites. This promotion brought in a lot of new users for Dropbox during its initial days.
Improved Customer Engagement
Offering financial rewards or discounts creates a compulsion for customers to engage with your brand more frequently. Sephora's Beauty Insider engages consumers through a multi-tiered rewards system, early access, and exclusive discounts, creating a very engaging shopping experience.
Valuable Customer Data
Incentive programs pinpoint customer preferences and purchasing behaviors. Target's Circle Rewards amasses information on consumer shopping behavior that, in turn, helps the company with personalization offers and inventory management, among many other functions.
Effective Rebate Management
A rebate management company can smooth the process of administering financial incentives by partnering with it.
Flexibility of Reward Options
A well-designed loyalty program would include loyalty points, financial awards, discounts, and referral incentives-customer choices that can appeal to one or many. With Uber Rewards, riders earn points on trips and food orders, unlocking priority support, cash rewards, and discounts on future rides.
By integrating such elements, a company can maximize the full powers of customer incentive programs regarding driving sales, ensuring sustained growth, and maintaining long-term customer satisfaction.
No matter your spending, there are a few simple ways to do this.
What are effective incentive programs to increase customer loyalty
1. Providing incentives customers want
There are countless examples of failed incentive and reward programs that companies have implemented, resulting in significant profit losses and damage to their reputations. These incentive programs can be divided 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 like they would require a doctorate to decipher, rendering them pointless and completely unappealing for 99% of customers… Worse, they could ruin future programs if they come off as inauthentic.
Think about every checkout process — online or in-person — you will almost certainly be offered to join or sign up for some ongoing contact program. Most of us give answers by default. If someone barely pays 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. Moreover, with Old Navy blurring the lines between free membership and credit card holders in this program, the 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 with little value for most customers.
How often 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 say "no" to save the extra time. But unfortunately, that's how little perceived value some of these programs have.
Dillard's, a national department store, recently introduced a rewards program that gave customers a $10 voucher for every $750 spent. But $10 for every $750 spent is a poor, essentially meaningless incentive for almost every customer shopping at the store. Moreover, the reward is inconsistent with the work required to earn it.
Highly-Restricted Programs
Finally, we have the "highly restricted" rewards program, which has endless qualifying factors that prevent almost every customer from accessing the rewards. For example, Uber is available in 80 countries worldwide, yet the company only offers rewards programs in six countries.
When more than 90% of your user base can't jump through the first qualifying hoop to enjoy rewards, companies may risk more than customer loyalty and their reputations. As Sun Tzu wrote in The Art of War," Tactics without strategy are the noise before defeat."
Want an engaged customer base? Create easy-to-understand programs they can use and benefit from and implement incentives that motivate them to stick around.
Creating this program type 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 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 more extraordinary thoughtfulness given to the customer's motivations?
When speaking about customer relationships, Jeff Bezos said, "The strategy is fixed, and the details are flexible." Jeff has a 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 loyal, raving fans can save. Not to mention their role in boosting your brand awareness, creating more social proof, and reaching audiences you were never able to get.
Studies suggest that the returns on these loyal customers can be much more prominent. 82% of consumers claim they would spend more for better experiences. The best advertising for those seeking the best services or products is making existing customers billboards.
3. Talk to customers to build trust and loyalty
I shared above how important I think it is to talk to customers. I also briefly mentioned how critical it is to start with what they want and work backward from there. Unfortunately, I can't tell you how many businesses ignore these things in favor of structuring something that aligns with business objectives but not customer motivations.
The National Basketball Association (NBA) has existed for 75 years, and until recently, this organization was the sole decider for every significant aspect of the sport. Yet, despite tens of millions of fans worldwide, only a couple hundred decision-makers had any say in how the game worked and operated.
But a few years ago, the NBA realized it was sitting on a goldmine; its most loyal fans were begging to be more involved. So, the NBA made the first-ever decision in professional sports to let its fans have a significant stake in the All-Star selection process. Now, 50% of the vote is decided not by sports pundits or billionaire team owners but by 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 cutting, inspiring more discourse and interest in the NBA) but also 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 supersede brand reputation, search engine results, and even the testimonials of friends and family when 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.
But as any successful company knows, you'll always have disgruntled customers who leave bad reviews. They might be 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.
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. It's 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 instead 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 studying and using these reviews — to show genuine human empathy with unsatisfied customers and improve on their company's shortcomings.
A few brand-name companies have employed similar measures to use negative feedback against genuine issues to highlight 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 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 inauthentic behavior, an ultimate sin in the digital era.
Denying negative feedback hurts your business and 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 admit fault and 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 to do it right.
Best Practices for Customer Incentive Programs
Running a successful customer incentive program requires a thoughtful approach to ensure it effectively boosts customer loyalty, engagement, and retention. Below are key best practices to help maximize the impact of your incentive program:
1. Clear Communication
Transparency is key to ensuring that customers understand how the incentive program works and how they can benefit. All program details, including terms and conditions, should be communicated clearly across all touchpoints.
2. Tracking Performance
Track the performance of your incentive program; know its impact. Using the KPIs- the client's retention rate, level of participation, or sales growth- you track the success of that initiative.
3. Awarded Relevant Rewards
Engage customers by tailoring the reward to their preferences. Customer behavior tracking and segmentation can be used to offer rewards that resonate with individual needs and desires. Netflix may offer a personalized discount or exclusive content based on what a customer is viewing, making the incentive more appealing.
4. Integrate into Customer Experience
Such programs should be integrated into the overall customer experience. This can be done seamlessly so they feel natural as part of a shopping or service journey instead of an afterthought. For example, a hotel chain might automatically enroll guests in a loyalty program upon booking and offer them rewards as part of the check-in process, enhancing the customer experience.
5. Multichannel Promotion
To make it widely known, distribute the incentive program across various distribution channels, such as email, social media, and in-store. The more your program is exposed, the more likely it will be to influence customer engagement. To reach a wide audience, a brand may promote its loyalty program through Instagram posts, email newsletters, and in-store signage.
With these best practices, businesses can create better customer incentive programs that increase customer satisfaction, drive long-term loyalty, and ultimately enhance sales.
Final thoughts
Growing customer loyalty and a sense of partnership is essential to doing good business and can be manifested in countless ways. Although the market and algorithms will always change, companies can rely on authentic human connections to build customer trust and goodwill.
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 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