5 Good Practices in Your Loyalty Strategy

The five good practices of an effective loyalty strategy are to use data to understand your customers, design the program to work across every channel, keep the rules simple, manage loyalty through accountable customer relationships, and open the program to partners without losing control of customer knowledge. Together they turn a rewards scheme into a retention engine.

Loyalty programs are, at their core, mechanisms to change the behavior of specific customers. The behavior a company wants depends on its business model and competitive position. One brand needs customers to buy more often, another needs them to buy across categories, and a third simply needs to know who its customers are because it sells through intermediaries. That is why copying a competitor's program rarely works. For the executive team, the real question is how to align the loyalty strategy with the business strategy so that every reward produces margin, retention or insight. The five practices below are the ones we see separating programs that create value from programs that only create cost.

What is a loyalty strategy, and why does it need good practices?

A loyalty strategy is the set of decisions a company makes to earn repeat business from the customers it wants to keep. It includes the loyalty program, but also the product, the service model, the pricing policy and the experience across channels. If you need a refresher on the instrument itself, our article on what a loyalty program is covers the definitions and models.

The program plays a different role depending on where the company starts. If you cannot yet identify your customers across channels, stores or business units, a loyalty program can help you do so. If you can track customers individually but have few opportunities to interact with them, the program creates more of those opportunities. And if your brand already manages individual, highly interactive relationships, the program makes it easier to raise customer lifetime value.

Good practices matter because loyalty programs are easy to launch and hard to manage. Rewards create liabilities, rules accumulate exceptions, and over time the program can drift into a permanent discount that customers expect and competitors match. The goal of every practice in this article is the same, which is to raise customer lifetime value, meaning how much a customer is worth to the company over the relationship compared with what it cost to acquire and serve them. Whether the program changes behavior so that the customer buys again or reveals how they buy so the company can encourage larger purchases, the aim is to grow the average ticket over time.

The discipline is not new. Over the past two decades, loyalty programs of all kinds have spread across large markets and have become familiar to consumers. In Latin America they arrived later, but during the last decade they have become standard, largely because customers like them and feel part of the brands they enjoy.

Here are the five good practices that align a loyalty strategy with the business.

1. Data to better understand your current customer base
2. Omnichannel design to improve customer service
3. Simplicity to improve the customer experience
4. Relationship management to reward loyal customers quickly
5. Openness to make your rewards program stand out

1. Data to better understand your current customer base

Understanding the customer is the foundation of any strategy, and a loyalty program is one of the best tools a company has to learn about its customers continuously. Never miss an opportunity to learn about a customer, because it can dramatically improve the experience and satisfaction they have with your brand. Every enrollment, purchase, redemption and service interaction adds information about what each person values.

The most mature, best-practice loyalty programs design that learning into the experience. One effective technique is to let members choose among several services or treatments as a reward, because the choice itself reveals preferences. In one member recruitment drive, an automotive company offered every new member a free incentive of their choice, a pair of racing gloves with the car brand's logo, a map of places to visit, or a pack of three videos for children. Each choice said a great deal about that member's needs and preferences when dealing with the company, and that insight can shape future offers, service and communication.

Data only creates value when it changes decisions. Executives should ask three questions about the information their program collects.

• Do we use it to segment customers by value and behavior, not only by demographics?
• Does it reach the people who design offers, sell and serve, or does it stay in a marketing database?
• Are we collecting only what we need, with clear consent and a visible benefit for the customer?

The payoff is personalization that customers notice. According to McKinsey's research on the value of personalization, 71% of consumers expect companies to deliver personalized interactions, 76% get frustrated when that does not happen, and personalization most often drives a 10 to 15 percent revenue lift. A loyalty program is often the most practical way to obtain the data that makes such personalization possible.

2. Omnichannel design to improve customer service

Customers do not think in channels. They buy online, pick up in store, call the contact center and use the app, and they expect the brand to recognize them in every case. A loyalty program that works in only one channel sends the opposite message.

Two design choices make omnichannel loyalty possible.

A modular program

Structuring the program in modules lets members mix and match benefits according to their preferences. Modular incentives are a practical way to offer personalization without going to the extreme of complete, and expensive, individual offers. The company defines alternatives for the fundamentals of the program, such as how members qualify, and offers customers a set of guided options to choose from.

Connected systems

Modularity also lets the program conform to the omnichannel data the company manages, so it works online, in mobile apps and in physical stores. Earning and redeeming must connect easily to back-office systems and work the same way whether the request comes from the website, the call center or the point of sale. When every channel reads and writes to the same customer record, service improves immediately because any employee, at any touchpoint, sees the same history and status. This is where a well-implemented CRM earns its place, as we explain in our article on the benefits of an omnichannel CRM.

3. Simplicity to improve the customer experience

A program with fewer rules and restrictions is more attractive and more credible. Every exception, blackout date or unclear condition adds effort for the customer and erodes trust in the brand.

The most common mistake is promising rewards the company cannot reliably deliver. Every time a frequent flyer tries to redeem miles and is frustrated by the lack of available award seats, their confidence in the airline drops, and so does the likelihood that they will buy from it again. It is better to narrow the catalog to rewards that can be delivered safely than to include items that may not be available. Trust is hard to gain and easy to lose. So while it is important to manage the supply of free and discounted products economically, companies are better off not offering deeply discounted rewards at all if they cannot make them available to most of the members who will look for them.

Research on service supports this principle. In "Stop Trying to Delight Your Customers", published in Harvard Business Review, Matthew Dixon, Karen Freeman and Nick Toman report on a study of more than 75,000 people who interacted with service representatives or self-service channels. They found that over-the-top efforts make little difference to loyalty, while reducing customer effort matters far more. For a loyalty program, the implication is clear. Make it easy to join, easy to understand, easy to earn and easy to redeem.

A practical simplicity test for any program includes four checks.

• Can a new member explain how the program works after one reading?
• Can a frontline employee answer the most common questions without escalating?
• Are the most popular rewards available when members want them?
• Does the member always know their balance, status and next benefit?

4. Relationship management to reward loyal customers quickly

Loyalty programs should be managed around customer relationships, not around products, channels or regions. That requires a shift in ownership. CMOs and the leadership team should align the objectives of the program with those of the organization and make specific customer groups the direct responsibility of specific managers, who are then measured by the positive impact they have on those customers' behavior. For marketing, how existing customers are treated should matter as much as acquiring new ones.

In practice, this means organizing the program so that the customers whose behavior the company wants to change are served by people whose annual evaluations depend on improving the numbers for those customers. It is one of the surest ways to make a loyalty program succeed, and it sends a clear signal that progress must happen in every customer segment.

Real time, not billing cycles

Relationship management also means serving customers in real time, not on the schedule of a mailing or a billing cycle. In retail, that requires an omnichannel architecture at every point of contact and a point-of-sale system linked to the program, so that relevant offers and messages reach the customer during the actual purchase, not weeks later in a statement.

Service recovery as a loyalty moment

When something goes wrong, the program becomes a recovery tool. A personalized apology, sent by email to the customers affected by a failure, is more necessary than ever, and it can include loyalty currency as compensation to ease the inconvenience. Studies on service recovery indicate that when a service issue is fixed immediately or an apology is offered, the relationship can actually improve, and the faster the response, the more dramatic the improvement. Executives should make sure service teams have the authority and the budget to use program benefits in these moments.

5. Openness to make your rewards program stand out

Loyalty programs are moving toward more open architectures, driven by customer demand for flexibility. In a coalition program, several companies let members earn and redeem points in a shared currency, which gives customers more ways to accumulate value and more places to use it. That is why consumers generally welcome them. For brands with low purchase frequency, partnerships can make the program relevant enough to stay in the customer's daily life.

A long-standing example was the Royal Bank of Canada, whose RBC Rewards members could exchange points with the Esso Extra program at Esso gas stations. That particular link no longer exists, because Imperial Oil retired Esso Extra in January 2022 and moved Esso stations to Loblaw's PC Optimum program. The move itself illustrates the trend, since fuel, grocery and other brands now share a single loyalty currency.

Openness has a condition that executives must protect. The main benefit of a company's own program is the knowledge it generates about individual customers. Many third-party or broker-run coalitions do not share detailed transaction data with each participating brand. When that happens, the program loses its meaning and direction, because the most important asset is knowledge of the customer. Before joining or building a coalition, leadership should confirm what data the company will receive, how quickly and with what rights of use.

Transferable points and partner rewards give loyal members the greatest flexibility in using what they earn. The more options members have the better, provided those options do not weaken the company's ability to obtain customer information in real time. Showing customers that you understand what they want builds loyalty beyond points.

What this means for the C-level

These practices translate into specific responsibilities across the value chain.

The common thread is measurement. A loyalty strategy should be judged on retention, frequency, share of wallet and incremental margin after reward costs, reviewed by leadership with the same discipline as any other investment. A successful program offers valuable insight and builds relationships by being open, modular and simple, with rewards that not only interest individual customers but also encourage the behaviors that serve the company's objectives.

A loyalty strategy checklist for your next leadership meeting

Use these questions to assess your current program, or the one you are planning, in a single session.

1. What specific customer behavior is the program designed to change, and how do we measure it?
2. Which segments generate the most value, and are their benefits designed for them?
3. Does member data reach sales, service and product decisions every month?
4. Can members earn, redeem and be recognized in every channel?
5. Which rules or exceptions generate the most complaints, and can we remove them?
6. Who owns the results of each key customer segment?
7. Do service teams have authority to use program benefits to recover a bad experience?
8. If we work with partners, do we receive the data we need to know our customers?

Any question without a clear answer is a priority. If you are still deciding whether to launch a program at all, our article on how, why and when to implement a loyalty plan is a useful starting point.

How ICX helps

ICX Consulting designs loyalty strategies that start from the business model and the customer, not from the rewards catalog. Our loyalty strategy consulting defines segments, value propositions, program rules and economics, while our customer analytics and insights practice turns member data into decisions. When the program needs technology, we implement it on CRM platforms such as HubSpot or Salesforce so that every channel recognizes the member.

To make sure your program is built around real customer needs, use our Persona Playbook Toolkit to define the segments your loyalty strategy should serve first.

Frequently asked questions

What is the most common mistake in loyalty programs?

Treating the program as a discount mechanism. When rewards are generic and the rules do not target a specific behavior, customers learn to expect lower prices without becoming more loyal, and competitors can match the offer. The program then adds cost without adding retention, insight or differentiation.

Should a loyalty program reward all customers equally?

Not usually. Customers differ widely in value and in what motivates them. Tiered benefits, targeted offers and recognition for high-value members let the company invest where the return is greatest, while still offering a simple, attractive entry level for new members.

How often should a loyalty strategy be reviewed?

Leadership should review key indicators at least quarterly and revisit the program design every year. Customer expectations, competitor offers and the company's own priorities change, and rules that made sense at launch can become friction points or unnecessary costs over time.

Do B2B companies need these practices too?

Yes. In B2B, loyalty usually takes the form of key account management, partner programs and service tiers. The same principles apply. Know each account deeply, serve it consistently across channels, keep commercial terms simple, assign clear ownership and measure share of wallet and renewal.

Loyalty is earned in everyday interactions and protected by a program that makes those interactions better. If you want a loyalty strategy that pays for itself and strengthens your relationship with the customers who matter most, talk to an ICX consultant and design a program that you can measure and that works in every channel.