Achieving success with loyalty programs often proves elusive for brands that prioritize the wrong elements. The concept of product-market fit, widely discussed in entrepreneurial circles, highlights the imperative of aligning products with market demands. Many loyalty initiatives flounder because they focus inwardly on the program mechanics rather than outwardly on understanding genuine customer needs.
This results in a deluge of uninspired loyalty programs flooding the market, lacking differentiation and customer resonance.
Customer loyalty expert Robbie Baxter, founder of Peninsula Strategies, author and host of the podcast “Subscription Stories,” told PYMNTS the key to a successful loyalty program is having “a clear understanding of the customer you’re trying to engage.”
Brands can get a clear understanding of their respective customer bases through “product market fit on an ongoing basis,” Baxter noted. “Just like any good offering.”
To build a successful loyalty program, prioritize your customers’ needs and preferences. Instead of defaulting to a points-based system, delve deeper into what motivates customers and what challenges they face. By crafting a program tailored to their unique values and pain points, you can differentiate your offering in a crowded marketplace, ensuring it provides genuine value and creates lasting customer loyalty.
Launched in 2005, Amazon Prime originally addressed customer frustration with shipping times. Initially, the program’s focus was on delivering the loyalty program perks that its top customers desired, gradually expanding its offerings over time. Amazon listened to its customers, understood their pain points, and continually invested to acquire and retain more members and transform them into brand advocates.
The emphasis here is on investing in the customer rather than the product. In today’s landscape, instant gratification holds heightened significance, particularly evident in subscription loyalty programs like Amazon Prime, where members receive instant benefits. Amazon Prime members spend nearly twice as much annually compared to non-Prime members.
The annual fee structure enables Amazon to provide extensive benefits to those customers who derive the most value from their loyalty program. The free trial plays a pivotal role, allowing more consumers to assess its suitability for their usage patterns.
Amazon Prime now has more than 200 million members across 25 countries. What Amazon has done with Prime is a textbook example of product market-fit.
Subscription-based loyalty programs, like My Best Buy Plus, have gained in popularity and customers enjoy them because they receive next-level benefits and rewards that free points programs can’t offer. Typically, subscription loyalty program members pay monthly or annual fees while brands receive a recurring revenue stream, elevated engagement and enhanced customer data they can use to tailor member communications.
Personalization, value and enhanced customer experience are key drivers. Unlike points programs catering to a broader base, subscription programs target top customers, enabling more tailored offerings and communication. Additionally, exclusive rewards like discounts and early access make members feel valued.
While there is certainly a place for points-based loyalty programs, Baxter noted that subscription loyalty programs “require the customer to raise their hand and make a commitment up front to a particular retailer.”
Subscription loyalty programs require varying types of benefits, depending on the brand and the “customer segment it’s trying to serve,” Baxter noted. “But think about what benefit is most likely to drive acquisition, as well as the benefits that will drive engagement and habits. Both are important.”
Making loyalty program members feel like they’re part of a community is crucial to long-term engagement and advocacy.
REI was founded in 1938 when a group of 23 climbing friends, united by their love for the outdoors, decided to source quality and affordable gear for their adventures. Today the REI community has 22 million lifetime members. The program is appealing for many reasons, including a $30 lifetime membership, exclusive events (garage sales) and discounts, and an annual member dividend.
“Community is a big commitment for an organization — so before investing in building a community feeling, make sure you know the ROI and also the benefit that the community will provide,” Baxter added. “It’s not just a matter of having a community platform — you need to facilitate the connections within the community under the brand umbrella.”
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