Back when S&H Green Stamps first introduced many Americans to the idea of a customer loyalty program, consumers were more than willing to fill up stamp-saver books in exchange for reward currency. Today, shoppers are especially choosy about which clubs they’ll join and what they expect in return. This has forced marketers to create customer loyalty programs that break new ground without breaking the bank. Here’s how to design a customer retention strategy that enhances loyalty and keeps costs in check:

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1. Aim for difference makers. People who buy your product all the time may not be the best target for your customer loyalty program. Timothy Keiningham, coauthor of the book Loyalty Myths and senior vice president for Parsippany, N.J.–based Ipsos Loyalty, suggests concentrating on finding those people who are casual customers and converting them into more regular purchasers through a rewards offer.
2. Give the customer some choice. The main reason anyone joins a loyalty program is for the rewards, so make sure you offer different benefits to match different tastes. Aldy Keene, president and CEO of the Indianapolis-based Loyalty Research Center, says the current poster child for successful loyalty programs, Harrah’s Casino Hotels, always gives members choices like free valet parking, meals or hotel rooms. “You can never offer unlimited rewards, so you need to find benefits the customers find the most value in,” Keene says.
3. Don’t make joining too easy. The last thing you want is customers signing up multiple times for a loyalty program simply because it’s easier to get a new membership card than find their existing one. “You see people signing up for supermarket clubs five or 10 times,” Keene points out. “That just ends up boosting your expenditures.”
4. Dare to be different. Since it’s likely that your competitors offer a loyalty program, the same old approach will not work. “It used to be open a bank account and get a toaster,” says Steve Morrissey, principal with the Motivation Shop in Barrington, Ill., which designs and manages performance improvement and incentive marketing programs. “But today you need a more sophisticated approach, as well as better rewards.” One example of a new-generation loyalty program is Upromise, which rewards consumers who buy certain products and use certain credit cards by contributing to a 529 college savings plan.
5. Learn by doing. Most marketers will tell you they’re not so much in the loyalty business as they are in the customer information business. “It’s a tough road to enhance customer loyalty through a card because those programs are so easy for your competitors to imitate,” Keiningham says. “But if you use a loyalty card to find out how your customers feel and how you can better target them, these can be great programs.”
6. Don’t give away the store. Loyalty programs created for onetime gains can be easily exploited. The Syracuse, N.Y.–based Greenhill Grocery chain ended its Thanksgiving turkey giveaway because it attracted too many people who came in only once a year. “So they came up with a program that gave points if you spent $100 or $200 or $400,” Keene says. “And when the goliath supermarkets came into the area, Greenhill actually increased their sales.”
7. Break down in tiers. Establish different levels of program membership that offer better rewards to your customers. “Tiering your program tends to work better because it gives people a reason to want to move to the next level,” Keiningham says.
8. Get with the times. Loyalty clubs that only involve collecting stamps or punching cards simply don’t leverage modern technology. “Online tools can make it easier for the program member to interact with a program and track their rewards,” Morrissey says.
9. Face the facts. Loyalty programs are not a cure-all. If your product or customer service isn’t any good, a rewards card is not going to entice customers. “[Companies] think a loyalty program will solve their problems,” Keiningham says. “But even with great programs, like the one offered by Harrah’s, people don’t come because they have a card — they come because they want to be entertained.”
10. Hang on loosely. Once someone has signed up for a loyalty program, don’t badger them. “If your follow-on solicitations get overwhelming, people will switch you off,” Morrissey says.

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