Resources > Guides > [Guide] Loyalty Program Design – 7 Tips For Building A Reward System

[Guide] Loyalty Program Design – 7 Tips For Building A Reward System

Uncertainty and hard decisions fill your thoughts. You have just started planning a reward system and many unanswered questions pop up. What kind of rewards should I use? How can I make it appeal to my customer base? What should the overall loyalty program design be about?

These questions are a great starting point. Don’t worry, creating a well-functioning reward system for a loyalty program is not rocket science.

Based on my experience with creating loyalty programs, I have listed 7 vital questions you should ask yourself when choosing loyalty program rewards.

Before we dive in, here is a handy worksheet that will be super useful when thinking about rewards. You can download it here.

Loyalty Program Design

#1. What kind of rewards should I offer?

Make a quick and comprehensive list. In one column, tally the incentives that customers will expect from loyalty programs in general, and in the other column add all the crazy ideas your brand can offer.

If you want to group your ideas, I find this classification system useful:

  • Discounts: The bread and butter of any loyalty program. Simple to execute, but fosters very little loyalty. Plus, it might end up hurting your margin if you don’t apply a spendable limit. So definitely include discounts (as customers expect it anyway), but spice things up with service-related benefits, like free shipping, priority lines in shops, an extended warranty, or in-store consultancy.
  • Gifts: This can be anything, from a signed pen to a bouquet of flowers or a free book. What really matters is that customers can hold onto them and keep your brand on the top of their mind.
  • Custom rewards: Showcase your portfolio of unique rewards customers can’t get anywhere else. US-based streetwear retailer Jimmy Jazz lets customers participate in a raffle, while members of the LVR Privilege program can bid on certain rewards.
  • Experience-driven rewards: Just like physical rewards, but on a whole new level. The emphasis is on the great experience — like a hotel getaway or a community event — which transforms into long-lasting brand love.
  • Virtual rewards: Virtual badges or collectibles hold less emotional value but are received instantly, feeding into people’s desire for instant gratification. A virtual reward can include a hip background image for their desktop.
Nordstorm Loyalty

Style is something Nordstrom focuses on in its loyalty program: for instance, customers can book a private appointment with a personal stylist and get invited to exclusive fashion shows.

#2. How can I differentiate my rewards from each other?

Finished with the reward list? Great! Now you’ll decide the packaging, or how they are presented to your audience. Rewards should feel unique, after all, to make you stand out.

There are two ways to go with this:

  • Brand-specific rewards: Products that are available in your store for sale. Book shops or fast-food restaurants offer freebie items once customers reach a certain milestone, for instance. This gives people a sense of comfort, knowing they would receive a reward they are familiar with. 
  • 3rd party rewards from partners: Special merchandising items, sold through a partner company or designed exclusively for the loyalty program.
    • Partners that supply rewards: There are companies who specialize in providing rewards for loyalty programs and employee retention programs. Tango Card gives gift cards, TLC provides seasonal rewards, and Givz lets customers spend their loyalty points for charity.
    • Partners with the same target audience: As a luxury retailer, you can grant high-tier members a free weekend getaway in a wellness hotel – provided by a partner who receives exposure in exchange. As for you, customers will increase their spending volume to reach the reward threshold, and because it’s a free advertisement for partners, the deal might be free for you. 
Those who join Pampers’ loyalty program can earn points for downloading the mobile app, and then use it to create custom family albums.

Those who join Pampers’ loyalty program can earn points for downloading the mobile app, and then use it to create custom family albums.

#3. How will customers receive my rewards?

You cannot skip logistics. Sorry.

And it’s never too early to decide how customers will receive their rewards. Why? Because logistics affect the core of your marketing budget.

Here are some possibilities:

  • Delivered by a partner: If you choose some of the options listed in the previous section, the partner will take care of the delivery.
  • Delivered by your service center: The reward will be sent to the customer at the cost of the company.
  • Delivered with the next purchase: The customer will get their reward automatically with their next purchase. This keeps money in your pocket, but can be a bit disappointing for the buyer.
  • Code redemption: The reward itself is just a coupon code, and the customer can use it during the checkout process.
  • Direct download: If it’s a leaflet or an event ticket, the customer can access it through a download link.

Digital rewards are, of course, more cost-effective, as you don’t have to pay delivery costs. But don’t forget that tangible gifts are memorable and provide a more lasting impression on the buyer.

Members of the Marvel Insider loyalty program receive access to free comic issues, members-only podcasts, wallpapers, movie tickets, and so on.

Members of the Marvel Insider loyalty program receive access to free comic issues, members-only podcasts, wallpapers, movie tickets, and so on.

#4. How do I balance my rewards based on their value?

The hallmark of a well-put-together loyalty program design is that it returns a profit. Brands and retailers should aim to offer quality incentives customers would strive to get their hands on, but at the same time prevent overdrawing.

There are five categories in terms of value:

  • High-value: An invite to a fashion show or exclusive ticket to the premiere of a blockbuster movie. Only for a selected few, the perfect prize for a contest or sweepstake. 
  • Medium-value: A gift package of various products. Use gamified profiling or view people’s purchase history to pick items that customers love, making the surprise even more satisfying. 
  • Low-value: Offering small but meaningful rewards – such as hiding a lipstick in their order or granting free toppings for visitors at a fast-food chain will help to drive word of mouth, as they’ll definitely share the experience on social media. 
  • Free: Virtual badges or personalized emails or chatbot messages have no cost on your part, but they still help to develop a sense of attachment with customers.

It’s also worth mentioning that superficial rewards, like an invite to a VIP tier or an entry ticket to the special interest club, is also free, yet it makes members extremely happy and grateful.

Nike allows people to download a mobile app to keep track of their running habits. It also offers a fun coaching program that sends them running tips and reminders. What a smart way to engage customers!

Nike allows people to download a mobile app to keep track of their running habits. It also offers a fun coaching program that sends them running tips and reminders. What a smart way to engage customers!

#5. How do I manage the accessibility of my rewards?

Okay, so you have rewards with different values. To avoid any accidental expenses, determine the limits of your rewards.

  • No limitation: Think of any discount or coupon, with a set amount of markdown. 
  • Time limitation: A classical FOMO tactic, where customers need to redeem their reward within a specific time period. 
  • Quantity limitation: If the available stock is limited, people automatically see the reward as valuable. Plus, customers race against each other because early birds get the worm. 
  • Limitation by status: You can also segment your audience based on relevancy and spend value, giving special access to affluent buyers.

Offering limited rewards from time to time keeps members on their toes, and they’ll frequently visit your page or check your social media feed for news. Use this to create some buzz around your loyalty program!

On LVR’s Sneakers Club page, everyone can see the countdown on the highly desired products, but only members enjoy the privilege of buying them in advance.

On LVR’s Sneakers Club page, everyone can see the countdown on the highly desired products, but only members enjoy the privilege of buying them in advance.

#6. How do I maximize the uniqueness of my rewards?

Never show all your tricks the audience. Variety is the spice of life, and people go crazy for perks and benefits that are accessible for a selected few. This will add a hint of mystery to your loyalty program, keeping the engagement level high at all times.

The possibilities are endless, but here are some ideas for starters:

  • Design a tier-system with mystery rewards. Reaching higher levels unlocks special gifts (in medium or low value, depending on the member’s spending volume), but someone has to reach that rank in order to ‘unwrap’ their present.
  • Introduce Surprise & Delight Mechanisms — e.g. birthday campaigns — where members receive an annual gift, custom-tailored to their taste. Again, gamified profiling can be a great aid in executing this idea. 
  • Monthly surprise boxes, with randomized goodies in them. Customers need to subscribe to the service, but in exchange receive a package with products based around a specific theme. Just look at how Loot Crate does it!  
  • Special interest clubs Organize an inner circle within the loyalty program. People have to pay an entry fee in order to become a member, but in exchange receive access to premium perks. These rewards are unavailable outside of the VIP club.

By pushing monetary rewards to higher customer statuses you can secure your marketing budget and also ground real customer engagement.

Members of Simply Be’s Perks programs receive a monthly gift package, and they're encouraged to show off their rewards on social media.

Members of Simply Be’s Perks programs receive a monthly gift package, and they’re encouraged to show off their rewards on social media.

#7. How can I generate buzz around my rewards?

I’ve listed several ideas for making a reward system feel truly tantalizing, but nothing beats good old word of mouth. If you wish to become a hot topic on the Internet, follow these loyalty program design instructions:

  1. Give them a taster 
    Redeeming rewards (especially valuable ones) costs a lot of loyalty points, which could be a letdown for many customers. Make sure to offer points for actions other than a purchase – like signing up for a newsletter, bringing back old clothes or electronics, or even donating to charity.

    This will guarantee that people experience the emotional high of earning a fancy gift, and at the same time, you also drive other business KPIs. This is basically the idea behind Recognition Loyalty™.
  2. Encourage referrals and support influencers
    Surprise & Delight reward campaigns can make a big boom on social media if someone with a large following shares the experience. Yes, I’m talking about influencers. They love trying out high-end rewards, and in exchange, they could spread a dedicated loyalty program link among their followers.

    The same works with an affiliate system, just on a lower scale. Instead of handing out points, tell the members of your loyalty program that they’ll get a nice reward once they refer a certain amount of buying customers. Friend & influencer referrals are also available with Antavo.
  3. Aim for authenticity
    People trust their peers more than any form of advertisement. Incentivising user reviews on various products and rewards is a great way to boost your credibility and score trust points. Just make sure to limit this option to those who actually purchased the product – this is also available in Antavo as “Incentivized Reviews”, with all the fraud detection mechanics..
Tesco’s summer events and club card special services are enjoyed by customers who know in advance that something will go on during the hot days.

Tesco’s summer events and club card special services are enjoyed by customers who know in advance that something will go on during the hot days.

Finalizing Your Loyalty Program Design

The concept phase is one of the most important segments in a loyalty program’s life, so take your time and carefully go through all the points listed above.

But let’s not forget that rewards are only a part of the full equation. For a fully fleshed-out system, you need to nail other parts of the loyalty program design, such as personalization, marketing, gamification, and so on.

Here is a very handy reward planning sheet that you can use to organize your thoughts around rewards. Download here.

Loyalty Program Design

Zsuzsa Kecsmar
Zsuzsa Kecsmar
Zsuzsa is CMO and co-founder of Antavo. She manages the marketing team, talks with experts all over the world, holds webinars, and edits all kinds of content (it’s really a lot of editing, but she loves it). She is a mother, likes working out, and making edible cosmetics.