Neal Freeland

Engineering/marketing manager, family guy. My personal blog with a few work thoughts mixed in.

6 tips to build a strong loyalty program

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Acquiring customers is expensive, and they often don’t stick around very long. Figuring out ways to keep existing customers loyal to your business can be a great marketing investment, and a loyalty program is one way to do this. At Platrium, a casual gaming site, we’ve seen a positive return on our modest investment in a points based rewards program. We know that the more games people play, the more frequently they come back to our site and therefore the more value we drive from our advertising model. By giving our program members points for each game played, and the ability to redeem them for prizes or a donation to a charity, we’ve been able to extend our investment in customer acquisition and improve revenue.

Based on our experience at Platrium, here are 6 tips to consider when creating your loyalty program (not that we’ve done all these yet, but we’re getting there):

1. Reward members for things they value, not just what you value

If you’re a data-focused marketer, you already know what drives value for your organization. Just make sure the activities you reward are also interesting for your members. For example, renewing a subscription certainly drives revenue, but that doesn’t necessarily mean you should give rewards for renewal. Instead, try to find activities that emphasize your value proposition and make it more likely members will do things that drive business results. Netflix should reward people for adding movies to their queue, not for just paying each month. Remember, your program is not about you, it’s about your members.

2. Offer lots of rewards, but think carefully about what you’re offering

People are motivated by different rewards, so a broad selection increases the likelihood that each person will find something that appeals to them. Typically, rewards are offered through a standard shopping catalog, but it’s also possible to make it more fun by allowing members to bid on select items in an auction.

Think carefully as well about the reward items. Look for items that members value far more than it costs you to provide. To promote Live Search, for example, Microsoft gives copies of Office which list at retail for over $300, though the manufacturing cost is only $6 for the CD. Online sites also benefit from awarding digital goods to save on shipping costs. Finally, try to offer items that are consistent with the values of your target audience. For example, giving members the option to donate to charities can be a powerful way to reinforce your brand promise.

3. Motivate through badges and levels, not just rewards

Members aren’t simply mercenaries, taking actions solely for the rewards you offer. They can also be motivated through positive reinforcement. This can be done by displaying the total rewards points earned to the community, similar to "member since" badge on American Express credit cards. It can also be done by creating program tiers, like American Airlines Gold, Platinum, and Executive Platinum programs, that encourage continued effort to reach new levels. For this to work, though, the program needs to have enough features and benefits to meaningfully differentiate the tiers.

4. Start small, and grow

A successful loyalty program requires continued effort to stay successful. It’s like a conversation: if you stop talking, eventually your best members will stop listening. Once or twice a year, you should introduce new features and benefits to keep the program active and your existing program members engaged: expand the ways to earn rewards, add new reward items, and create new tier levels. Get creative and get moving.

5. Don’t forget the stick

Loyalty programs are mostly about carrots, but it’s also possible to use a stick. If activity drops, program members may lose status and drop down tier levels, or even lose their points all together. Finding appropriate ways to remind members about this possible outcome can help encourage more activity.

6. Make lots of members winners

"Let’s offer $1 million grand prize for trying our offering." Sounds like a great idea for a promotion, except that there will be only one winner. Everyone else is a loser. This is why it’s often far better to offer 1 million people a $1 prize: not only do you get more participation, you also create a lot more happy winners, which is great for your brand and word of mouth marketing.

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Written by nealfreeland

April 21, 2009 at 3:03 pm

Posted in Uncategorized

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