5 Questions to Ask Before Launching a Retail Loyalty Program

December 15, 2014 Linda Clasen

Retail loyalty programMyLowe’s, PowerUp Rewards by GameStop, My Best Buy—you’ve heard about lots of successful retail loyalty programs, and you may even belong to one of them yourself. And you may be thinking, “Hey, we need a program like that!”

But not so fast. Although loyalty programs are still embraced by consumers and key initiatives for marketers, that doesn’t necessarily mean that you automatically want to launch one for your business. There are a few BIG questions you must be able to answer to find out whether you should green light your program–or if you should but the brakes on.

1. What business problem would a loyalty program solve?

This is the absolute hardest thing to nail down. Many organizations want the loyalty program to be the silver bullet—to get customer data, to solve a sales crisis, to increase retention, to increase margin rate, etc.

While loyalty certainly can do any of these, the key is to hone in on a SINGLE vision for the program. This single vision is then how you construct the program elements. If you want to decrease coupon expense dollars, for example, you wouldn’t then build the program around coupon offers. You could build this program to be more about soft benefits and engagement, like exclusive fashion preview nights (see it before anyone else!), how-to clinics (fix that broken bathroom tile) or gamification elements (share something and earn a badge).

2. What is the interest level of customers in a program?

This is another critical step that often gets missed. We have to be open to hearing that maybe customers don’t see any value in a program. Or we have to be open to hearing that they want value props we cannot currently deliver. The customer voice has to be heard, and we have to understand if their needs can be met with a program…or not.

Conducting both qualitative and quantitative consumer research during your loyalty assessment process is critical and the best way to bring the customer’s voice to the process. This research can also provide data points for benefit design, financial business case, concept design, communication and execution.

Let’s go back to our corporate goal to reduce coupon expense. If we conduct robust qualitative and quantitative research, and the top thing customers want is better pricing—either through EDLP (everyday low price) or coupons—we don’t have a love connection. In this case, we might need to think more broadly about the loyalty experience and work to make it better (e.g. create a more welcoming store environment, provide additional services that customers want).

3. What kinds of programs do your competitors do? What loyalty objectives are they trying to solve? How do your customers feel about their programs? How will your program stand out?

Okay, that’s four questions in one, but they’re all connected. You certainly do not want to copy your competitor’s program, but you do need to assess it and understand what business problem(s) they are trying to solve and how frequently they are updating their programs. A competitive loyalty assessment should take into consideration how the membership process works and answer questions like the following:

  • Are there tiers or any kinds of exclusivity?
  • What are their hard and soft benefits?
  • What is the process for getting rewards, status upgrades, redemption etc.?
  • What are the types and number of channels for engagement and advertising?

In doing your research, you should include several questions that will help you understand the efficacy of your competitors’ programs with your own customers and those consumers you are trying to acquire. All of this information will help you to differentiate your program.

4. What inherent assets do we have that we’re willing to give to our most loyal customers?

Sometimes we forget that assets we already have can be used to fill a customer want as part of the loyalty program. A great example is the MyLowe’s concept. This could apply to any retailer that has complicated, repeat transactions. For example, in the automotive industry, a program could keep track of mileage, repairs and purchase history. A good healthcare program could keep track of your optical prescription, the type of contacts you buy, the doctor or manufacturer recommended, wear on those lenses, your purchase history, next recommended visit to the doctor, etc.  Although these programs don’t immediately drive a sale, they provide VALUE and a reason to visit YOUR site and stay loyal to YOUR company.

Another great example is Game Stop I have, I had, I want. With this program, GameStop can keep track of what items you had or have to find your interests, and it also allows users to create a wish list. The company can then use this data to serve up relevant, personalized content on current products and upcoming releases.

5. Can we afford it? Can we execute it?

This is a biggie, and you need to use a little financial rigor to figure this one out—and finance and other cross-functional team members need to be involved. This will help you to consider all of the costs of the infrastructure to support the program (people, technology, tools, marketing, etc.), as well as the hard costs (rewards, points, etc.). In addition, Merchants, Store Operations, IT, etc. all bring perspectives and insights that will keep your solutions easy for your brand to execute so you can eliminate any “gotchas!” later in the process.

Early in my career, we launched an unbelievably successful loyalty program. While all of us functional leaders were patting ourselves on the back for the volume of members and the sales attributed to those members, the C-suite was having to figure out how to report all the points liability that we had to release as part of our quarterly earnings. We had to lower they payout 3 times because we couldn’t afford the benefits. This resulted in a bad customer experience (obviously contrary to our goal!), it was costly to redo all of the associated materials, and our CFO wasn’t thrilled to share the liability with Wall Street.

Got a green light?

Once you have determined that you have a single, important business problem that a retail loyalty program could solve, customers are interested in your program, you have something worth giving to your loyal customers AND you can afford to give it, it looks like you’ve got the green light. Now to drive it through to completion…

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