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May 29, 2017 8:01:43 PM

Build a loyalty program that truly increases customer retention in these 3 steps

Mari Silvennoinen

Principal Consultant, Strategy

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Loyalty programs have gone through a renaissance as digital commerce creates brand new opportunities to develop customer loyalty. Even though the main goals of almost every customer loyalty program have remained the same from the ages of bonus cards, companies are struggling while trying to invent the best program to fit their customer needs. There are several innovative loyalty programs you should benchmark, but the key question with many players is: How to get started when you are operating a omni-channel business model with a bunch of legacy systems ran by your IT department? 

Case H&M Card – Omni-channel success

One of the biggest loyalty program launches during the recent years was the H&M Card launch in 2016. The store staff had been trained well for implementation and a year after the launch it can be said that the card has been a success. H&M card works in mobile, is supported by an online store and is applicable in brick-and-mortar stores. Thus, it reinforces the omni-channel customer experience supported by features like EAN-code scanning to check online storage to see if the product has ran out from the store. Point earning rules are simple; 1 euro is 1 point.

Rewards are relevant to customers and there are always rewards that you can redeem with your points without making a purchase. Also, all the rewards can be redeemed online. However, there is still room for improvement; if only you could see your purchases from brick-and-mortar in your customer information. Nowadays, it shows only the orders from online stores.

Setting up a loyalty program that delivers

It is obvious that H&M Card has been an extensive and expensive exercise. You can start your own loyalty program without massive budgets or a one year large-scale project. Designing a loyalty program should start with asking yourself and your customers why. What are the key reasons why they are your customers, what is the value you create and how you could be even more relevant to them. This can be done via creating buyer personas and customer journey mapping, which sheds light on how to develop your omni-channel customer journey. A Customer Journey Map is a great tool for recognising and prioritising bottlenecks which hinder your customer loyalty developmentAfter that, ask your customers to participate in co-creating the loyalty program.

Customer interviews and participatory workshopping can help you to create reward models that are relevant and motivating to your customers. And try to remember that discounts hardly ever work as a good as a reward model, while they have a tendency to decrease average sales. Try to figure out what other ways there are to create additional value to your customers while also increasing average sales.

The second step is to set up the business goals for your loyalty program. Find out what is your current level of average sales per segment and what is the customer lifetime value. This is an excel-calculation exercise beacuse you have to know what kind of impact you are aiming to achieve at the top and bottom lines. Creating scenarios of how increasing average sales per order in selected segments creates understanding and a framework for budget and measures you have to take to achieve the targets. Scenario work is possible if you know your customers and how they behave. At this point it’s also good to draw a target state for your customer journey, while it opens up your eyes to the things you have to develop, like processes, IT, roles and responsibilities.       

Thirdly, understand what data you currently hold during the different phases of the customer journey and how you can incorporate that to the loyalty targets. You can get started with reading Emmi Tervala’s blog about how to incorporate analytics into your customer journey. She emphasises that the most difficult part of the journey is after the purchase, but there are several affordable tools that are easy to implement and use.

After having an understanding of current state, future goals set and scenariors created, you should start testing your hypothesis as soon as possible. In the beginning you don’t have to make large integrations or investments, rather test if your loyalty program really increases Average Sales and thus increases Customer Lifetime Value (CLV) at this point in time.


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