Part 2 of 4 in our series covering the psychological benefits influencing customer loyalty programs
We can’t say it enough. Loyalty programs must do more than reward transactions; they should turn customers into advocates. Using functional benefits is the fastest way to transform a passive customer into a passionate advocate. A loyalty program designed with the understanding of how functional benefits help customers achieve their goals, save time and money or provide convenience can accelerate the customer’s journey to advocacy.
Functional benefits are one of the three types of psychological benefits (functional, emotional and identity). These benefits help customers achieve their goals and drive how they perceive a program’s value and ease of use (two key factors leading to overall loyalty program satisfaction, according to our exclusive study). In fact, our research showed that when customers have a positive perception of a loyalty program’s value and ease, they are six times more likely to engage, spend more and choose your brand over competitors.
Why the best loyalty programs focus on rewards communication and differentiation
Our exclusive research study involving over 5,000 customers across 50 top brands confirmed something we long suspected: many brands fail to communicate the benefits of their loyalty program. Often, loyalty program reward descriptions rely on vague messaging like, “Earn points, get rewards and other great benefits.” Without clear communication, customers may assume the program lacks value.
Additionally, we learned many loyalty programs, even across industries, rely on the same core set of rewards. This can alienate potential advocates, as different incentives motivate different customers. What excites one person (perhaps a discount on future purchases) may feel irrelevant to another. Simply promoting a variety of different rewards can capture the attention of customers and highlight the full range of functional benefits that help drive engagement.
Related link: Why adding value to your loyalty program is key to engaging customers
Leverage "benefited" and "burdened" customer insights for improved retention
Through our research, we identified a major discrepancy between “benefited” and “burdened” loyalty program customers. Benefited customers identified examples of positive functional benefits that kept them coming back to a loyalty program. Burdened customers highlighted examples where they felt a loyalty program was deficient.
Benefitted customers: Advocates who generally feel the loyalty program benefits them
Burdened customers: Passive or detractor customers who generally feel the loyalty program burdens them
Benefited customers engaged more when:
- A program offers a high value mix of rewards beyond just discounts (for example: experiences, exclusive perks and flexible reward redemption)
- The loyalty program features easy enrollment and an appealing website/app
- Communications, rewards and preferences are personalized to them
All these examples showcase the functional benefits of a loyalty program, driving positive perceptions of value and ease and accelerating a customer’s journey to advocacy.
Brands can learn what not to do from examples burdened customers shared with us.
Burdened customers quickly became disinterested when:
- A loyalty program only offered boring, low-quality rewards that took too long to earn
- The program lacked transparency and suffered from technical issues
- Confusing communications made it difficult to get the most out of the program
All brands have benefited and burdened customers. Throughout the entire study, we saw:
- 34% of loyalty members felt they are benefited customers
- 28% were passive
- 38% were detractors
This further illustrates the need for personalization to deliver different experiences to different customers. If a brand’s loyalty program doesn’t evolve to include or promote functional benefits aimed at detractor and passive customers, they are missing two thirds of the audience.
Related Link: How having an end-to-end loyalty partner can help build personalization for customer rewards
What can brands do to amplify the functional benefits of their loyalty program?
The good news is brand leaders can crack this case. There's no reason to guess—customer feedback from our research provided actionable takeaways.
- Promote all benefits of a program. This is easy and largely free. Update websites, apps, marketing materials and program communications to promote a variety of rewards. You never know what will resonate with a customer.
- Expand the variety of rewards offered. You don’t have to switch from discounts to a full catalog of choices overnight. We’d recommend targeting a smaller customer subset with a breakthrough touchpoint to get a different behavior response. Test and learn to see what rewards resonate best.
- Get rewards to customers faster. Incorporating a variety of valuable earning opportunities creates sustained engagement and connection. Customers spend more on brands with functional, emotional and identity benefits, so get those benefits in their hands early and often.
- Act on more data. For brands struggling with data action, work with a partner who can help utilize current data and help collect more. Use data to identify and reinforce relevant functional benefits through personalized communications and offers.
- Eliminate barriers to entry. Identify any obstacles preventing customers from engaging early and often in the loyalty program.
The difference between a loyalty program creating advocates and one struggling with engagement can often be attributed to how well brands are communicating their functional benefits and providing meaningful rewards. Benefited customers need rewards to be worth their time and effort. By clearly communicating the benefits of a program, offering a variety of rewards and making earning and redemption seamless, brands can transform even passive customers into active advocates.
If your loyalty program isn’t performing as expected now’s the time to evaluate how functional benefits are being positioned and explore new ways to enhance the customer experience. Working with a partner like ITA Group can help you uncover exactly which functional benefits will drive more engagement from your audience.
Ready to turn your loyalty program into a powerful driver for customer advocacy? Explore our comprehensive ebook today to start optimizing your program for success.