12 Rules of Impactful Modern Loyalty Programs

This article was written by Jeff Stone, SVP Growth at Material

A brand can’t buy loyalty. Many try, of course, with loyalty programs that promise incremental discounts and other promos in exchange for repeat purchases. But by focusing solely on the transaction, this approach teaches consumers to shop around for the next best deal – instead of building meaningful, long-term connections.

Instead, brands can – and should – earn loyalty. To do so, they must provide not only savings and other explicit rewards but also implicit benefits such as convenience, reliability and deeply personalized customer experiences. Together, these two types of benefits offer tangible value while forging emotional, identity-based connections with the brand.

At Material, we have decades of experience partnering with brands seeking to deepen their customer relationships and boost lifetime value, so we know firsthand what works – and what doesn’t. Want to build a loyalty program that will deliver measurable ROI? Explore these 12 key rules to inform your approach and set a foundation for impact.

Rule #1: Evolution is forever.

No loyalty program should be preserved in amber. Customer needs and wants change over time, just as company goals do. Programs need to adapt to these changes while consistently incorporating new insights based on what works and what doesn’t. Brands that don’t learn to love change had better learn to love irrelevance.

Rule #2: Programs should be “third-shift simple.”

The best loyalty programs are straightforward enough that even an exhausted employee working the third shift at two in the morning can understand and explain their benefits. Not only will consumers abandon overly complicated loyalty programs, but they’ll also harbor negative feelings toward brands whose programs have Sisyphean requirements.

Rule #3: Invest in data-driven personalization.

Relevance is an important implicit benefit of belonging to a loyalty program. Customers feel more loyal to a brand that delivers offers and experiences addressing their unique preferences and motivations. A shopper whose past purchases are clearly those of a vegan will not think kindly of a supermarket that sends it coupons and recipes for beef and lamb. That same customer, however, likely would appreciate one that sends them plant-focused recipes and updates on available produce.

Rule #4: Prioritize data fidelity.

Loyalty programs can provide brands with a wealth of valuable first-party data for use in individualizing their customer communications. But if data isn’t accurate or complete, those personalization efforts are destined to fail, as are efforts to measure a program’s effectiveness. Whether it’s first-, second- or third-party data, it needs to be carefully collected and regularly audited and updated. (Remember what we said about customers’ needs and wants changing over time?) Also important, and often overlooked, is ensuring that the data is easily accessible. The best data in the world is of no use if marketers cannot get to it.

Rule #5: Design the program for employees as well as customers.

Employee loyalty is just as important as customer loyalty – and employees are crucial stakeholders in driving the success of any loyalty program. For employees to be effective and impactful brand advocates and drivers of a loyalty program’s success, the program must be built with them in mind, including opportunities for education and ongoing feedback.

Rule #6: Opt for empathy-driven design.

Aesthetics are important, as any UX designer will tell you. But so is usability by consumers who are not designers. That’s at the heart of empathy-driven design: ensuring that the UI and UX is devised first and foremost for the end user. This demands a deep understanding of the audience (the UX for a brand targeting digital natives is apt to be different from that for a company that markets primarily to baby boomers) and how they will use the program.

Rule #7: Think beyond driving transactions.

Growing the top line is nearly always a goal of any loyalty program, but it cannot be the only one. Provide benefits not only for purchases but also for achieving brand-aligned goals; an athletic-gear seller might give discounts to members who run marathons, for instance. This shows customers that the company appreciates them not merely for their transactions but also for their commitment to the brand’s values. In this way, your loyalty program can go from driving transactional moments to creating transformational, durable relationships.

Rule #8: Gamification works.

Tapping into people’s love of competing, achieving status and improving skills is highly effective in keeping program members engaged. When a gamification strategy is grounded in behavioral science, members will keep coming back for more, and they’ll associate their pleasure in the game directly with the brand.

Rule #9: Make focusing on habits a habit.

Habits are at the core of loyalty. Ultimately members of a loyalty program should automatically come to that particular brand when they want or need to engage with its category. By understanding the existing habits of customers, a brand can incorporate itself into those habits, a relatively easy way to engender loyalty. Another way to begin making loyalty a habit is to reward consumers for their first three purchases as a sort of Pavlovian conditioning.

Rule #10: The name matters.

An unimaginative name – à la Brand X Rewards – will not create the sense of excitement, fun and individuality that should be part of a loyalty program. Target Circle, on the other hand, references the retailer’s bullseye logo while suggesting that members are part of the brand’s inner circle, just as PetSmart Treats plays on pet owners’ love of spoiling their animal companions.

Rule #11: Account for fraud up front.

Bad actors will inevitably find ways to abuse a loyalty program: open fake accounts, hack into others’ accounts, resell points, use gift cards to accrue benefits and then return the purchased items. Well-designed programs minimize opportunities for fraud, but nonetheless brands should factor some loss into their financial projections, just as retailers do for shrinkage.

Rule #12: Differentiate the program from others — across all categories.

Businesses typically try to differentiate their brand and offering from those of their direct competitors. But when comparing and contrasting loyalty programs, it’s just as important to look at those of businesses in other market sectors as well. Studies show that the average American consumer belongs to 18 loyalty programs; when deciding whether a program is worth signing up for, consumers compare its benefits to those of all the other plans they belong to, not just to those in a particular category.

Build Customer Lifetime Value with Material

In a fragmented and evolving, digital-first business landscape, growing and sustaining brand loyalty is a dynamic challenge that demands a holistic approach beyond individual transactions. At Material, we partner with brands to unlock actionable human insights about their consumers, helping us build and optimize loyalty programs that deliver value at the intersection of business goals and consumer needs, habits and motivations.