Discover Loyalty Program Components

Learning Objectives

After completing this unit, you’ll be able to:

• List the components of a loyalty program.
• Explain the relationship between the loyalty components.

Loyalty Components

After his negative experience, Ramon sought a different brand for his hiking requirements and has since been a customer of Northern Trail Outfitters (NTO). NTO is a retailer that sells outdoor and recreational gear and apparel. It recently launched a loyalty program called NTO Insider, which rewards members for purchases and offers a range of discounts and promotions.

A loyalty program has three components: the program itself (NTO Insider), its members, and the partner (NTO and other brands that associate with the program). Let’s find out more about them. 

NTO uses Salesforce Loyalty Management to create and manage its loyalty programs. The NTO Insider program created by NTO offers point-based rewards, tier-based incentives, and rewards for referrals. Members of the program earn points for every purchase. The points earned by a member are divided into points that they can redeem against other purchases, and points that make them eligible for higher tiers. When a member earns a certain number of points, they become eligible for higher tiers. Having multiple tiers keeps members engaged because each tier has its own set of rewards. The rewards include exclusive benefits, discount vouchers, promotions, and so forth. 

Every loyalty program has a loyalty program manager who oversees the day-to-day running of the program. They configure promotions, encourage customers to join, use analytics to optimize the program, and ensure that the program stays profitable. 

The member is at the heart of the program. The loyalty program must cater to their preferences to keep them engaged.

The business entity that creates a loyalty program is considered a partner in the context of the loyalty program. And other businesses that associate with the program are also considered partners. In the NTO Insider program, NTO is a partner. NTO adds a salon business and a cafe chain as partners to the program. When members purchase products from either partner, they get exclusive discounts. Such partnerships promote upselling and cross-selling of related services and products. NTO can reward members for purchasing from these partners or let members use their reward points to redeem partner products. 

Let’s find out how these three components work together.

The Relationship Between Loyalty Components

The NTO Insider loyalty program rewards members for social media posts. Members who post reviews on social media are eligible to receive a voucher for a cappuccino from the cafe chain. 

Every loyalty program is built using a loyalty platform or loyalty solution app. The loyalty platform checks what a member is eligible for, what reward they should get, what recognitions should be assigned, how many points should be deducted, and more. Through the platform, the loyalty program sends out rewards or payments. Now let’s find out how all of this works. 

1. Ramon is browsing the NTO website when a message flashes across his screen about the NTO Insider loyalty program. Ramon finds the program interesting and enrolls in it.
2. A few weeks later, Ramon purchases a new pair of hiking shoes from NTO. He’s happy with his purchase and posts a review of the shoes on a social media website.
3. This post triggers a notification, alerting the program of Ramon’s participation.
4. The NTO Insider program rewards Ramon for the post by giving him a voucher for a complimentary cappuccino at the cafe NTO has partnered with.
5. As Ramon earns more points, by making purchases or posting reviews, he is moved to higher tiers.
6. Ramon’s purchase of the shoe from the partner, NTO, results in NTO earning revenue from the purchase. But the program gives points to the member. Since points have a monetary value, the purchase creates a liability that needs to be adjusted. The program adjusts the liability by billing the partner, NTO.
7. NTO pays NTO Insider for the liability resulting from the purchase.
8. When Ramon redeems his cappuccino voucher at the cafe, the cafe must be compensated with the voucher’s monetary value. And to adjust this liability, the program pays the cafe the value of the voucher.
9. The program debits the redeemed vouchers (or points) from Ramon.
10. NTO can also issue vouchers for its own products and services. When Ramon redeems such vouchers, NTO credits Ramon the points directly.
11. When NTO credits the points to Ramon, the program adjusts this liability by paying NTO the monetary value of the points.

The relationship between the three components can be illustrated with the following image. 

Businesses require a platform to build their loyalty program on. In the next unit, we take a look at loyalty solution providers that offer businesses such a platform.