When an entrepreneur views their loyalty program with the wrong perspective, it will stall their growth. This is a trap they've designed themselves without realizing it.
The loyal customer is your target. So, the first step to avoid this mistake is to understand exactly what a loyal customer is. Only by following a clear path can the loyalty program become sustainable.
What is a loyal customer
A loyal customer is one who buys frequently, even if they don't spend much. They are the customer who remembers the company when recommending it to a friend and prefers to buy from it over any other.
With them, the company has managed to create a bond through which they have developed feelings and thoughts regarding the company and its services/products.
The big mistake
All loyalty programs based on the “points versus rewards” pillar have a very strong financial matrix. In some cases, this financial matrix is so important that the program has a direct impact on the company's results.
The program can become so large that it gains a life of its own, as happened with Multiplus, for example. This company consolidated one of the types of program models available in the market, known as a coalition program.
However, a conflict arises when trying to generate loyalty from a program designed with a strong financial matrix. The company focuses more on value than on frequency.
The vast majority of loyalty programs have mechanisms and classifications based on the amount spent by the customer as the main reward matrix. In this way, rewards and recognition end up being given to those customers who spend the most.
This may seem obvious and correct at first glance to those less attentive, but consider this: Firstly, let's think about a loyalty program for a segment I call recurring retail, like supermarkets or pharmacies. Now, think about the main analytical techniques I assume you are familiar with – RFV (Recency, Frequency, and Value) and LTV (Lifetime Value).
These are the two main techniques applied in analyses for the development of loyalty programs. Often, they are combined with other customer behavioral segmentation techniques. And it's in RFV where the main conceptual trap lies that many companies fall into when designing the mechanics of a program.
This trap is in the financial perspective (often short-term), making us look at the V (value) instead of the F (frequency), which is directly related to the concept of loyalty. As a result, customers purchase only once or twice and don't return to buy or refer your company.
The real objective of the loyalty program
If loyalty means having the customer always close, that is, purchasing frequently, then frequent purchases should be the main reward factor. If the customer buys more frequently, even without increasing their average spend, they will naturally spend more at the company instead of going to a competitor.
The loyalty program can be a great decision motivator. From it, getting the customer to spend more should be the second step. This step must be designed with many analyses and segmentations to identify the customers who can actually spend more (not all of them) with each purchase.
In other words, a loyalty program should primarily reward the customer's loyalty. Otherwise, it will not be sustainable for anyone.