What is a customer loyalty program?

Wikipedia’s definition of a loyalty program is:

‘Loyalty programs are structured marketing strategies designed by merchants to encourage customers to continue to shop at or use the services of businesses associated with each program.’

If you were a customer about to sign your details up to a program and read this definition first – would you hand over your details?……….we thought not.

In our view, a loyalty program should be described as a structured customer strategy to help build a stronger relationship between the customer and the brand. Providing a value exchange between the brand and customer, beyond the product and services paid for.

Customer loyalty programs – the good, the bad, the ugly

In previous articles, we have shared powerful statistics on the cost of customer acquisition vs. customer retention. According to Gartner 80% of your future profits will come from 20% of your existing customer base. In other words – you need to look after your existing customers.

Brands are investing in loyalty programs to help increase customer retention, generate loyalty, provide a point of competitive differentiation, and ultimately get customers back in to store. Many, however, miss the mark when it comes to looking after their existing customers. Some brands offer loyalty programs which do not actually benefit the customer or are difficult to use, others offer loyalty programs purely as a marketing ploy.

Many loyalty programs actually have a bad reputation. The customer thinks they will be spammed with offers, the business carries the points risk and staff are reluctant to ‘sell’ the program to customers.

If implemented and managed properly, loyalty programs have so much potential. They enable brands to get to know their customers better – the more the customer shops with them, the more they reveal about themselves, making it easier for the brand to continue the conversation with the customer.

What does genuine loyalty look like?

It’s important to establish what genuine loyalty looks like. Customology defines loyalty as “where a customer would still choose your brand over others when given the choice (and incentives).” It’s a two-way relationship between the brand and the customer.

There is a clear difference between behavioural loyalty and attitudinal loyalty. A customer who shops regularly at the same place may be described as behaviourally loyal, whilst a customer who tells their friends how fantastic a brand/product is would be referred to as attitudinally loyal. The two are not mutually exclusive – it’s possible to have a customer with both traits. They are your best type of customer (or should we say advocate).

Advocates are guaranteed to be back, and they will bring their friends with them. They’ll promote the brand any which way they can – including social media and online reviews sites. More and more customers are referring to customer reviews first when researching a new product or service, so you need to look after this elite customer group.

When determining customer loyalty, ask yourself the following question: Will the customer still choose you if other things are equal – price, value adds, if something goes wrong? If the answer is yes – then you have a very loyal customer – hold onto them.

Don’t mistake convenience for loyalty

Today’s customers are time poor, they want an easy life, so more often than not, don’t spend time shopping around for better deals or benefits. This does not make them loyal to a brand. Don’t mistake habit for loyalty.

It’s important brands monitor repeat transactions and identify habitual behaviour. This will enable you to be more effective in your marketing communications.

Best practice loyalty programs

There are many different types of loyalty programs. Some offer rewards, others offer incentives, some you pay for. We have identified what we believe to be two of the best global loyalty programs:

Vitality Rewards

As stated on their website, “we encourage you to lead a healthier life and reward you for doing so.” As health insurance providers, Vitality reward their active members with incentives. On joining, each member (customer) undertakes an online health review, setting goals for themselves. Vitality suggest ways and means to help the members meet these goals. In addition, they encourage members to track daily activity (and offer discounted activity trackers such as Fitbits) for walking, running, cycling, swimming or going to the gym. Members who earn enough points will be rewarded with a Starbucks coffee or cinema tickets. This is a very clever way of ensuring their members stay healthy and engaged with the brand. Typically, when you buy health insurance, the policy just sits in your inbox.

Amazon Prime

We certainly couldn’t forget Amazon Prime. It was recently reported that US retailers are investing millions of dollars into revamping their loyalty programs in an attempt to compete with Amazon Prime.

Whilst the full list of benefits changes slightly for each country, Amazon Prime is a paid for loyalty membership. In Australia, Amazon Prime costs $6.99 per month (or $54.00 a year). This cost includes; free two-day domestic delivery, free standard international delivery on eligible orders over $49, Amazon Prime Video, Prime Reading and Twitch Prime.

For the online shoppers out there, unlimited free delivery for $6.99 a month is an absolute bargain. Amazon continue to find ways to innovate and differentiate. I’m sure the list of Australian benefits will have doubled by this time next year.


Whilst these are great examples of loyalty programs, it’s not mandatory to have a loyalty program to drive customer loyalty. Think of brands such as Apple and Disney – they don’t have loyalty programs, and instead are more focused on the customer experience. There are other ways to recognise and reward customer loyalty.

Before you invest in a customer or loyalty program, determine your objectives and ask yourself:

  • Will it benefit the customer?
  • Will it enhance/strengthen your customer relationships?
  • Will it enable you to understand the customer better?
  • Will your customer talk about it with their friends?
  • Can it be easily managed and maintained?
  • Will it be worth the time and investment?
  • Will it provide an opportunity for you to keep the customer conversation going?

Loyal customers visit more often, spend more and bring their friends. So remember, no matter what your solution, always bring it back to the customer.

Customology are specialists in customer lifecycle management. Contact a Customologist today on 07 3902 7700 or hi@customology.com.au for more information on how we can help your brand design, build and execute a customer or loyalty program.

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