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ASK A LOYALTY EXPERT

How to redesign a loyalty program strategy - with Stacey Lyons

In the latest installment of the "Ask a Loyalty Expert" series, we speak to Stacey Lyons, who's the loyalty director at Loyalty & Reward Co, a leading loyalty consulting agency.

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Stacey Lyons
Loyalty Director at Loyalty & Reward Co.
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Stacey has been involved in designing and redesigning loyalty programs for some of the world's top brands, including McDonald's, CommBank, LendLease, Klarna, and Flybuys. She has vast experience in e-commerce, digital marketing, business consulting, and loyalty management. Stacey also co-created the "Loyalty Programs and Consumer Engagement Course," which provides expert theory gained from decades of dealing with all aspects of loyalty programs, and “Loyalty Programs: The Complete Guide”, a comprehensive book on loyalty program theory and practice.

In the following interview, you'll learn all about redesigning loyalty programs and gain insights to apply in your own work.

What is a customer loyalty program strategy?

I'll start by explaining the difference between a customer loyalty strategy and a customer loyalty program strategy. First, a customer loyalty strategy is a company's broad approach to customer loyalty across the business. Part of this strategy is often a formal loyalty program. A formal loyalty program requires a member to register in order to access rewards when transacting with the company. Well-engineered loyalty programs have proven time and again that they can successfully drive engagement between a company and its members. They support the relationship-building process that manifests itself in increased visits, brand loyalty spending, advocacy, retention, market share, and all the factors a company looks for.

Your strategy should work like a blueprint for a company's loyalty program, so that everyone in the business can pick it up and immediately understand precisely how the program works. The strategy outlines all the different ways members can join the loyalty program as well as all the ways they can earn and redeem. Notably, the strategy should clearly indicate what a member can see or do in their membership account. Another aspect is that any well-planned strategy must include additional program rules around rewards, expiry transfers, account suspensions, and so on.

The main loyalty strategy should include a customer lifecycle communications strategy, covering program registration and growth; retention, and win-back campaigns. The strategy should also show how the loyalty program will acquire, store, and use data. Remember that you should also include any operational requirements for running the program across business functions, including marketing, customer service, finance, reporting and analytics, security, and fraud. Lastly, the program strategy should also indicate what the program will look like in its MVP state at launch, as well as a long-term vision for its future.

How to create the perfect loyalty program strategy?

I'd definitely say that there's no silver bullet to designing the perfect loyalty program. As such, companies should take different approaches to loyalty models, rewards, and communications based on their customers. However, over many years of designing, collaborating, and researching hundreds of different loyalty programs worldwide, we've distilled eight basic principles common to the best practices of loyalty programs. We've also compiled many different frameworks for loyalty programs that exist around the world.

When we first get involved in a client's project, we spend the entire beginning of the project gaining an in-depth understanding of their business. We talk to all the stakeholders in the company, including front-line staff, customers, and members, and really get inside their heads to understand the intricacies of their business. Then, we define the program's overall objectives from a company and consumer behavior perspective.

We speak with the client about what exactly they want their customers to do. For example, they may want customers to join the program and share their data. Or the goal may be for their customers to transact more frequently, explore different products within the product range, or refer the program to their friends. Once we know these behaviors, we can work backwards and see what loyalty psychology applications we should use and what rewards and loyalty frameworks will work best to influence these specific behaviors.

Afterwards, we run a series of workshops with the client to share the eight basic principles of a successful loyalty program. We showcase a whole range of different loyalty program models that could work for their particular business. During the meeting, we always say that based on everything we've discovered about their business, we can propose, for example, a points program, a tier program, a discount program, a cashback program, a member benefit program, or a hybrid model. Of course, we also mention what the program will look like as an MVP vs in its future state. In addition, we show them some of the ways we could inject gamification, digital games, surprise and delight mechanisms, and other things to drive additional engagement within the program.

Having considered this exhaustive list of potential models, we then work with the client on the final framework. From there, we load the reward code to take it then and put all the "meat on the bones," so to speak. So, we write a full loyalty program strategy document, including all those elements I mentioned earlier. This approach ensures that the program is of a high quality and based on best practicse from the very outset.

Once the program is designed, we work with the client to make sure that three essential things underpin the program to run it optimally: organization, infrastructure, and technology. And if any elements don't line up, we bring in loyalty platform providers or do platform sourcing and then run a formal RFP for them. We ensure that there's good quality reporting and analytics to measure the impacts on customer engagement. Moreover, we make sure that there's a process for taking corrective action when the program doesn't perform as expected. So, we'd like to foster that "test and learn" optimization culture throughout the company before we move into the implementation and launch phase of the strategy.

The "'Test and learn" framework.
The "'Test and learn" framework. Source.

What are the most important milestones while redesigning a loyalty marketing strategy?

A significant advantage of loyalty programs for companies is the ability to track the lifecycle engagement of an individual member. A customer must be identified as a program member during a transaction or interaction with the company to be appropriately rewarded for their activities. As a result, this allows the company to build a comprehensive profile of each member's data and then use it to deliver a more relevant and personalized digital marketing experience. The more personalized and relevant the digital marketing experience, the more likely members are to feel recognized, rewarded. Consequently, they'll continue to transact with the company and engage with the program.

Loyalty isn't just about points, tiers, and other frameworks. It's also about using data as rocket fuel for digital marketing communications. In designing a loyalty marketing strategy, one of the most important milestones is the member lifecycle communication strategy, which is crucial to the success of a loyalty program. A member lifecycle communication strategy is the cornerstone of any loyalty program, and the two go hand in hand. Unfortunately, I'd say this is where we see most companies fail. That's why we include a proper member lifecycle communications strategy when designing a loyalty marketing strategy.

Now, I'll quickly touch on the phases of the basic member lifecycle strategy: Acquisition, onboarding, growth, advocacy, retention, and win-back. The acquisition involves welcome communications for members when they join the program. The onboarding process includes a series of communications that educate the member about the program and its benefits while encouraging them to make a transaction to unlock their first reward. The growth communications are about stimulating members to increase their engagement. Advocacy is about incentivizing current members to invite new ones into the program and keep it growing that way. Retention and win-back strategies are communications that are put in place to recognize a decline in member engagement and attempt to reverse that decline in order to channel them back to the stages of growth and advocacy that are most profitable for the company.

All of this seems pretty basic, but in reality, we've only seen a handful of companies implementing a basic member lifecycle strategy. Well, I'd say that the most important steps in designing it are to map out the stages mentioned above of the member lifecycle strategy, identify all the basic customer segments and the attributes, and determine the key messages for each customer segment and each lifecycle stage. Only then can you develop triggers when each communication needs to be sent to different customers. This really should give the marketing team everything they need to design all assets with the right message, build emails, and set triggers within the marketing automation platform.

From that point on, I'd say it's all about A/B testing of different audiences, messaging channels, creative subject line, send times, and anything else that could potentially be tested against another version. In the next step, based on the learnings from all these tests, the company can optimize and incorporate their communication approach into a more advanced and sophisticated model based on the key insights they've collected.

What stakeholders should be involved in redesigning a loyalty program?

Keep in mind that a loyalty program shouldn't just be done by the loyalty team, CRM team, or marketing team, but the whole company should be involved in its creation — this is the best, but also the hardest, part of designing and redesigning loyalty schemes.

You need to involve every business function as loyalty runs through sales, marketing, product, data, finance, customer service, logistics, and so on. For example, we need a truly streamlined sales process, a simple marketing message, a truly customer-focused product, personalization through data insights, an effective program, accounting and reporting, and a frictionless customer experience. In short, a loyalty program touches every department of a company. They need to align themselves with the loyalty strategy and deliver it in a way that is consistent with best practices.

Customer loyalty must be embedded in the company's DNA and culture so that all departments work together to achieve a loyalty program where the customer is truly at the center of everything. Loyalty needs to be driven from the top, but also literally everyone in the organization needs to be involved in making the loyalty venture a success; otherwise, it won't work. I've seen many great loyalty strategies fail because, for example, they excluded front-line employees from decision-making processes in which they should be involved.

As I mentioned in the discovery phase, the first thing we do is talk to everyone in the company. The truth is that it's the front-line employees who give us a lot of key insights because they're the ones who talk to customers daily. But also getting their buy-in is so unbelievably important because they're the ones who will mention the loyalty program to every customer and its rules or benefits. All in all, front-line employees should be involved in decision-making processes from the beginning, and their opinions should be treated in the same way as board members or department heads attending workshop meetings.

In some cases, companies replace front-line employees with other technology-led processes because there are situations in which front-line employees fail to meet the loyalty program's objectives. This is mainly because the loyalty creators didn't manage to notify crucial employees about the new loyalty program. An excellent example of this practice is Australia's largest loyalty program Everyday Rewards, formerly Woolworths Rewards.

An overview of the Everyday Rewards loyalty program.
An overview of the Everyday Rewards loyalty program.

This is a major supermarket chain, so not all front-line employees who check in customers and their groceries always ask: "Are you a member of the Everyday Rewards program?". But now, when customers make a self-checkout, they can't proceed with payments unless they proactively say whether they are an Everyday Rewards member using a simple pop-up. To me, this is just a really clever way to replace the human element with a requirement for the customer to take notice of this message in order to complete the transaction.

Yet, I wonder how effective the technological equivalent is compared to an actual human reminding the customer about the loyalty program. Because there's definitely a tremendous value in the human aspect of the relationship and building an emotional connection with customers, and technology doesn't do that.

How to measure the success of a loyalty program strategy?

There are many different ways to measure the success of a loyalty program. We devoted an entire chapter to this in our book, "Loyalty Programs: The Complete Guide." However, loyalty managers should pay attention to some of the key metrics such as acquisition growth, meaning growth in total members, active members, and new program members. I also recommend focusing on frequency and monetary value or spending increases, program engagement, program marketing communications, and positive NPS scores. In general, you want the program to deliver a positive return on investment based on behavioral and attitudinal data.

What are your favorite loyalty programs?

At the moment, I'm very much into the beauty industry, and I love the Go-To Gang. This is a program from a company called Go-To. Also of note is Country Road rewards.

Overview of the Go-To Gang loyalty program levels.
Overview of the Go-To Gang loyalty program levels. Source.

My next favorite program is Mecca Beauty Loop, which really stands out, and that's why they've been successful, in my opinion. Other brands try to follow their lead, but they're just so far ahead and have locked their customers in. You can join the Mecca Beauty Loop program and progress through levels based on your spending. Four times a year, they release a beauty sample box and depending on your level, you get better samples in the box.

For example, if you're at level three, you can get full-size samples, and if you're at level one, you can get some smaller samples. People go crazy for these free samples because… they're free. It's a perfect model for Mecca because they don't have to pay for the samples, and the cosmetics brands use this as an opportunity to get their samples into the hands of committed members who are likely to go to Mecca and buy their products. So it really feeds on itself.

Level four in the Mecca Beauty Loop loyalty program.
Level four in the Mecca Beauty Loop loyalty program. Source.

Another favorite example is MyMacca's, a just-released loyalty and office program in Australia. I'm a bit biased because we were involved in reviewing this program and helped improve. Nonetheless, I think they did a perfect job launching both offers and loyalty together in one app. For me, everything flows really smoothly and beautifully and is very easy to use. Simplicity is one of the basic principles we look for in loyalty programs, not only in design but also in joining, understanding, and engaging with the program. In truth, if your loyalty program is simple and valuable, you're off to a good start.

An overview of the MyMacca’s loyalty program.
An overview of the MyMacca’s loyalty program. Source.

Brands often copy other program designs in their industry, which negates any competitive advantage that a loyalty program might have provided. They aren't creative at all, and it's just a "sea of sameness." Many people develop subscription programs because of the success of Amazon Prime, which I'd have considered years ago to be a fantastic example of a best-practice loyalty program. Frankly, it's not really a loyalty program, but it drives member loyalty and all those metrics we look for in terms of acquisition, growth, and frequency. Companies have recognized this, and now everyone is jumping on the back of subscriptions, such as TV companies like Netflix and Stan, as well as all the meal delivery businesses. Businesses wants a piece of the subscription model, and, unfortunately, I think we all have subscription fatigue now.

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To get some loyalty program inspiration, check out the Top 100 Loyalty Programs report, or peek into the future of the loyalty industry with our Loyalty Trends 2022 research.