How to Start a Loyalty Program

Loyalty programs are big business. Don’t believe me? Businesses lose $1.6 trillion per year when their customers decide to switch to a competitor; and the chances of selling to a new customer range from only 5-20% compared to  60-70% for existing customers. It’s no surprise then, that the global loyalty management market is set to reach just under $7 billion by 2023.There are plenty of good reasons for starting a loyalty program. Most notably that it can help you to make more money and better engage your customers. But I’m guessing that you’re already sold on the benefits of starting a loyalty program or you wouldn’t be here– so let’s skip that and move on.

Everything I’m sharing here comes as a result of experience. I was primarily responsible for launching a rewards app for the Fazoli’s brand, an Italian restaurant chain with over 200 locations. By following industry best practices and implementing a continuous feedback loop, we were able to learn what worked and what didn’t so that we could improve through trial and error. I’m proud to say that since launching the program in 2017, we have had over 900,000 users join the Fazoli’s rewards loyalty program and have a very active user base.

How to Start a Loyalty Program

Step #1: Choosing a Partner

Choosing a partner is the most important step of any loyalty program, because the partner tends to dictate what functionality is available to you. In our case, we chose Punchh as our loyalty app technology provider, after spending a lot of time looking at possible vendor partners.

One of the main reasons we selected Punchh was that they had pre-existing integrations available that linked up with some of the other technological solutions that we were using. It enabled us to create an entire technological ecosystem instead of just using scattered pieces of tech that didn’t talk to each other.

This meant that the development work had already been completed between our point of sale equipment and our online ordering technology, which sped up the process and meant that even when we were only just starting out, we knew that all of our most vital systems would be able to communicate with each other.

When selecting a provider, it’s also important for you to think about your timeline and to ensure that they can work within it. We had an aggressive timeline for our launch, and one of the reasons we selected Punchh was that we knew they’d be able to meet our tight deadlines.

Step #2: Looking at Costs

Once you’ve decided upon the technology you’re going to use and the providers that are out there for you to work with, the next step is to start thinking about costs. You’ll want to weigh up the cost of using established loyalty program software versus that of building an app internally.

At the same time, you should remember that cost isn’t everything. You need to compare cost versus functionality, because if you have specific requirements that aren’t covered by any third-party provider then you may need to develop a solution yourself, with all of the additional costs that entails, in order to have a loyalty program that does what you want it to do.

As part of this, you’ll also need to think about how long it’s going to take you to go from planning through the program build and up to launch. 

Step #3: Choosing a Format

There are multiple types of loyalty programs out there, and so it’s important for you to familiarize yourself with the options and to figure out what works best for you. Just a few of the most popular formats include:

• Points programs: This is what most people think about when they’re looking at rewards programs. The idea is that for every dollar spent, a certain number of points are awarded, which can later be redeemed.
• Tiered programs: The idea here is to reward people based on how much they buy from your business. The more they buy, the more they climb up the tiers and unlock new rewards.
• VIP programs: VIP programs typically require people to pay a certain amount of money to join them. They then unlock special rewards. An easy example would be a concert venue where an annual membership fee unlocked a 20% discount on tickets.
• Partnership programs: These types of programs allow your business to work with other businesses for mutual benefit. For example, if you’re a restaurant, you could partner with a cinema to offer 10% off movie admissions for every meal purchased – and vice versa.
• Game programs: This concept taps into the popularity of gamification and allows you to create games and other fun applications to encourage repeat purchases and customer loyalty.
• Hybrid programs: As the name suggests, this approach brings together multiple different types of loyalty programs to build a more powerful whole.

In our case, we launched with a format in which every dollar spent was equal to one point, and when 50 points were earned, it unlocked a $5 reward. We based this decision on a number of factors including customer research, which taught us that this kind of reward was preferred by our target audience. 

Step #4: Establishing a Launch Strategy

The launch strategy that you adopt is important because it will determine whether your loyalty scheme takes off or whether it just becomes an afterthought. I can’t emphasize this enough. I don’t have any direct statistics on how many loyalty schemes fail, but I can bet that it’s a lot – and that most of them fail because they’re poorly launched.

In our case, we launched using an aggressive strategy in which we offered a free baked spaghetti with any drink purchase to people who signed up for the program. In the beginning, we additionally gave all guests the same offers, running that alongside the generous sign-up offer.

But not all customers are created equal, and so as time went on and we continued to refine our campaign, we started to experiment with segmentation, providing different offers to different guests based on what we knew about them. Most redemptions were coming from our most active guests, and so we were able to use that to adjust our discount and loyalty strategies.

I joined Fazoli’s in March 2017 and was tasked with creating the rewards program. I gave myself a deadline of six months to get the campaign set up and launched, and we were able to stick to that and to launch in September of that year. Part of the reason why we were able to stick to that was that Punchh made the implementation process very easy. 

We also needed to figure out what to call the app. In the end, we decided to go with Fazoli’s Rewards, mostly because it was simple, descriptive and branded. It was important to make sure that when people came across the app, they’d know exactly what it was. We wanted to ramp up the number of sign-ups and to give people as few opportunities as possible to drop out of the funnel.

Step #5: Further Refinement

The job’s not over just because you’ve been able to successfully launch your loyalty program. Sure, a lot of the hard work is done, but you’ll still need to track what’s working and what isn’t and make refinements along the way.
In our case, we decided to make some updates two years into the program. We switched to a points unlock system, where after points were earned, it unlocked specific free menu items. Importantly, it allowed guests to earn their first reward after spending just $25 rather than $50 to unlock in the prior structure. It also gave us more control over what our guests would be able to redeem.

What worked for us won’t work for everyone, though. That’s why it’s so important to make sure that you’re checking the metrics and acting upon what you learn. Test, track and refine, then begin the process all over again.

Conclusion

This guide is by no means complete, but I intend to continue writing more to cover the topic of loyalty in more detail, creating content that I wish was available to me while I was in the early stages of launching our loyalty program.

If you’d like to read more about the Fazoli’s Rewards program and some of the results it has achieved to date, download this case study.