Best Practices: How to Create a Rewards Program That Really Works

Americans Are Only Active in Half of the Loyalty Programs They Join

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Credit: Belly

Almost every brand from Taco Bell to your local market has a loyalty program. Waves of shoppers are signing up to access enrollment incentives, and then getting lost in a sea of other rewards cards and apps. U.S. internet users belong to more than 13 loyalty programs, on average, according to Bond Brand Loyalty data analyzed by eMarketer. But only 50% of users are active members, the data showed.

Technology companies like Apple, which is rolling rewards into Apple Pay, may help increase engagement when mobile payments gain traction. And loyalty coalitions like American Express' Plenti, which combines points across retailers, and platforms like Belly that host customized programs across a variety of retailers, are helping reduce wallet overload.

But brands need to step up to the plate as well. Below are four best practices for rewards programs.

Link rewards to branding

Credit: Walgreens

Marketers are rewarding shoppers for activities that connect with their brand positioning. For example, Walgreens, which brands itself as being "at the corner of happy and healthy," offers loyalty members additional points for healthy choices, like going for a run, tracking blood pressure or quitting smoking. "They're aligning wellness and health with the brand and with the loyalty program," said Yory Wurmser, retail analyst at eMarketer.

Walgreens' Balance Rewards app connects to other devices and apps such as Apple HealthKit, MyFitnessPal and RunKeeper for easy monitoring. And customers can earn bonus points for connecting their devices to the app or making healthy buys, like vitamins, in some instances. As of August 2014, the program had 82 million active members, according to an annual report.

"True loyalty is less about the rewards and the dollars, and it's more about understanding a brand that you associate with," said Logan LaHive, CEO of Belly.

Offer more than deals and discounts

Credit: GameStop

Retailers are also rewarding consumers beyond deals and discounts. GameStop's PowerUp Rewards program, which has 40 million members, has a paid version that costs $14.99 a year and offers customers exclusive access to merchandise, special deals and discounts, bonus points, and Game Informer magazine. The retailer recently acquired Geeknet's e-tailer ThinkGeek, in part, to expand its offerings. "It makes you feel like you're a part of this exclusive club," said Mr. Wurmser at eMarketer.

The paid loyalty model works best in high-involvement categories like gaming, said Jeff Maling, co-CEO at Isobar. "If it's something that you do a lot … [people] will pay," he said. "It's a very interesting value proposition. It absolutely could spread." In the retail category, e-tailers like Amazon, Jet and Rent the Runway offer cheap shipping and other benefits in exchange for subscriptions.

Utilize data for the customer's benefit

Loyalty programs help brands learn more about shoppers. But with that data comes great responsibility. Customers who part with their privacy expect something in return. "The programs that can collect data and use it to change customer behavior are going to be the ones that ultimately win over in the long-term," said Mr. LaHive.

Credit: Sephora

Retailers like Sephora and Lowe's help shoppers make practical use of their own data. Sephora gives customers access to their purchase data so they can remember what shade of eyeshadow they bought last year. And its loyalty program, Beauty Insider, offers custom deals and free beauty classes, as well as tiers of membership that unlock private shopping events, new products and sales, and free shipping when customers spend more. "They've decided to go for hardcore utility to help you manage your beauty purchases," said Sophie Kelly, CEO of The Barbarian Group.

Starbucks, which has more than 10 million loyalty members, rewards shoppers with free drinks and food because that's what they've asked for. "If you get the core value exchange, then everything else is icing on the cake," said Dan LaCivita, president of Firstborn.

Weave loyalty into the business model

Companies are also building loyalty directly into their business models. Coffee maker Nespresso, which makes brew machines that only work with its unique pods, has a built-in customer base. It's nurturing those shoppers through a program it calls the Nespresso Club, where customers can personalize their order, delivery, recycling and customer-service options.

Brands like Pret a Manger and GameStop are fusing loyalty with their store experiences. At GameStop, store clerks are equipped with tablets to view customers' shopping history and make personalized recommendations. And Pret a Manger allows cashiers to hand out perks at their discretion, like a coffee on the house. "It's given employees the opportunity to reward customers on an ad hoc basis," said Ms. Kelly. "It's instilling loyalty right away through the business and empowering employees to demonstrate active loyalty."

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