How to build loyalty program features from scratch

Creating a loyalty feature from scratch can seem daunting, but with the proper steps, it's entirely achievable. Imagine having a solution that keeps people coming back, again and again…

Our guide breaks down the most important basics you need to know, from setting goals to selecting attractive prizes. You'll learn how to craft a loyalty program with features that keep your customers engaged and guarantee it aligns perfectly with your business objectives.

We'll explore the various types of customer loyalty programs and help you decide which structure best suits your business needs. We'll also discuss the importance of setting clear goals and KPIs to measure your program's success. Plus, we'll dive into the critical legal and tax considerations to keep you compliant and avoid any unpleasant surprises down the road.

Are you curious about selecting and managing rewards that excite your customers? We've got you covered. We'll share practical insights on crafting engaging communication strategies and training your staff to support the program.

To top it all off, we'll look at real-world examples from successful companies like Kaufland, Biedronka, Lidl, and more, showing you how to implement these strategies in your own business.

Ready to begin?

Build a loyalty feature that will excel and bring real value to your business, turning first-time buyers into lifelong clients.

What is a loyalty feature?

A loyalty feature is a component or function within a product or service designed to incentivize and reward customer loyalty. These features aim to enhance customer retention by offering benefits, rewards, or exclusive access based on the customer's engagement or spending with the business. Common examples of loyalty features include point-based reward systems, tiered membership programs, personalized offers, exclusive discounts, and so on.

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Loyalty features included in loyalty program types

When you're setting up a loyalty program, figuring out how it's structured and how it operates is an absolute necessity to make it work for your target customers. There are a couple of main elements to think about: who owns it and how it runs.

Browse different types that might fit your business and your customers' needs.

1. Based on ownership

• Single partner program. Run by one company, offering rewards specific to its products or services.
• Redemption based on own rewards and/or partners. Lets existing customers use rewards from the company itself or partners, giving more options for using points or perks.
• Multipartner program. Involves several partners teaming up to offer rewards, giving customers a wide range of ways to earn and redeem.

2. Based on mechanics

• Points system. Customers earn points for purchases or actions, which they can later trade in for rewards.
• Points and rebates. Combines points with cash rebates, offering both long-term and immediate benefits.
• Cashback and rebates. Gives clients cash back on purchases plus future rebates, appealing to budget-conscious shoppers.
• Cashback. Offers cash rewards based on spending, providing instant gratification.
• Rebates/multirebates. Offers discounts or refunds on purchases, encouraging more spending or repeat visits.
• Tiers. Levels within the program that work with any of the above mechanics, rewarding higher spending and more engagement.
• Gamification. Incorporates game-like elements such as challenges, achievements, and interactive features into the points system, making the rewards system more enjoyable and competitive.

Picking the right loyalty program type, whether it's based on who owns it or how it works, depends on what you want to achieve and what your existing customers will love. 

10 phases to build a loyalty feature

1. Establishing key performance indicators (KPIs) and areas of support

Create a loyalty program feature that lines up with your overall business goals. Think about what you want to achieve, whether it’s boosting sales, improving customer retention, or strengthening brand loyalty.

Next, figure out the key metrics that will help you measure your program's success. Look at things like customer return rates, average spending over time, and customer satisfaction levels. These metrics will give you a clear idea of how well your program is working.

Read more: Loyalty program KPIs: Templates and best practices.

Then, identify which parts of your business will benefit most from a loyalty program. It could be sales, marketing, customer service, or even product development. Knowing where to focus will help you make the biggest impact.

Finally, decide on the type of loyalty program that best fits your business. 

Single-partner programs are straightforward and great for building direct relationships with clients.

Redemption-based programs emphasize how customers can redeem rewards, like discounts or freebies. They typically work with other loyalty programs as part of the rewards offering and may also support an entire catalog of rewards. 

Multipartner programs, which involve several non-competitive businesses, offer points-based mechanics where all businesses use the same points "currency" and provide diverse rewards. However, this model is more complex to manage and usually only covers specific areas each partner specializes in.

Which one will you choose? 

2. Creating a vision and strategy for the loyalty program

First, you need to do your homework. Start by looking at what other companies in your industry are doing with their loyalty programs. What works for them? What doesn't? This will give you a sense of what customers are already used to and where there might be opportunities to stand out.

Next, listen to your clientele and talk to them! Run your marketing insight dedicated to loyalty program ideas. Send out surveys, host focus groups, or just have casual chats to find out what they really want from a loyalty feature. What rewards would make them excited? What kind of perks are they interested in? Getting direct feedback is necessary to create something they'll love.

Once you have some feedback, it's time to know your audience better. Break down your customer base into different groups. Think about their age, shopping habits, and how often they engage with your brand. In this way, you can tailor parts of your loyalty program to fit different types of customers, making it more relevant and appealing to everyone.

After that, stay on top of trends. Pay attention to fashions and trends in customer loyalty and engagement. Whether using new tech like loyalty mobile apps or incorporating social media, staying up-to-date can help you create a modern and fresh program.

3. Deciding on points, tiers, discounts, or other mechanics 

Choose the structure of your loyalty solution. Will it be a points-based loyalty scheme, a tiered loyalty program, or a mix of both? This choice will shape how people interact and earn rewards. Align the value for customers with the cost to your business to keep the program both attractive and sustainable.

Once you've chosen a structure, it's time to kick things off with some exciting offers. Consider offering double points for special actions or promotions, sign-up rewards, or special discounts. Promote these through social media, email, and in-store to maximize visibility and sign-ups.

Points-only programs are a great place to start because they're easy for users to understand and use. Offering a variety of rewards can cater to different preferences and boost participation.

If you want to add some extra excitement, try combining points with discounts. In this way, your customers get both short-term and long-term incentives, encouraging repeat purchases. Find the right balance here.

Read more: "Pay with points" guide: Using loyalty mechanics to maximize business results.

Cashback programs are another option to consider. They're simple and appealing, though they can impact profit margins. Combining cashback with discounts can drive spending, especially during promotions.

A tiered rewards program can be very useful for a more structured approach. They reward increased engagement with greater benefits, creating a sense of achievement. Without beating around the bush, communicate the perks of each tier, like exclusive discounts or early access to sales, to motivate regular customers.

Take a look at some real-world examples to see how successful companies are doing it.

Kaufland

After leaving the Payback program in Poland last year, Kaufland's loyalty program underwent significant changes. Despite this shift, they maintained the issuance of Kaufland own points for every purchase. Their updated approach now includes daily surprises, such as limited-time promotions with special rebates or extra points, personalized uniquely for each customer.

Besides, Kaufland's partners offer exclusive opportunities to redeem accumulated points, enhancing the program's appeal with targeted incentives.

Biedronka

The Moja Biedronka loyalty program offers customers benefits such as discounts on selected products, participation in exclusive promotions, and access to a mobile app with various features. The app includes a virtual card, price scanner, transaction history, personalized offers, and shopping lists. Users can choose between a physical plastic card or the convenience of the mobile app. The program enhances the shopping experience with tailored discounts and easy-to-use functionalities.

In addition to the primary benefits, the app features a unique functionality: users shake their phones to reveal their daily special offer. Such an interactive feature attracts frequent visits from current customers eager to uncover their exclusive daily deals.

Combining a rewarding tiered loyalty program and engaging daily offers through shaking the phone enhances customer engagement, driving repeated app usage and increasing expenditures.

Lidl

Lidl's loyalty program, Lidl Plus, is a digital rewards app designed to offer customers exclusive discounts and benefits. Users can download the app and register for personalized coupons and special offers. By scanning the digital Lidl Plus card at checkout, clients accumulate savings and can access rewards, such as discount coupons and digital scratch cards, for additional prizes.

One of the features of Lidl Plus is the "Coupon Plus" program, where users can earn bonus coupons by reaching specific monthly spending targets. Each month's spending is tracked, and upon hitting the target, a reward coupon is issued directly to the app. These coupons are valid for a limited time, typically seven days from receipt.

Additionally, the app provides digital receipts, which help users keep track of their purchases and spending history. The Lidl Plus app aims to enhance the shopping experience by offering convenience and tailored savings to loyal customers​.

Orlen

The Orlen's loyalty program and all its mechanics, which has been active for over two decades, encourage customers to earn VITAY points on their purchases at Orlen stations. Members can exchange these loyalty points for store credit, discount coupons, exciting prizes, and even charitable contributions.

The ORLEN VITAY mobile app further enhances the program, making it easier to collect points and offering smooth navigation and payment at the pump. This integrated system encourages regular purchases and maximizes cashback rewards through discounts and promotions.

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Modivo

Modivo's loyalty program combines a point system with tiered rewards. Customers earn points for every purchase, with 1 zł (or the equivalent currency) equating to 1 MODIVO Point. Points can also be accrued through activities like writing reviews and referring friends, with successful referrals earning 200 points once the friend makes their first purchase.

Unlike traditional loyalty programs where loyalty points are redeemable for products, Modivo's points help fashion lovers advance through different membership tiers. As buyers reach higher tiers, they unlock incredible benefits, including VIP customer service, early access to new collections, and invitations to special events.

Members of the Fashion Club also enjoy exclusive perks such as special discounts, early access to sales, and personalized offers tailored to their preferences. This blend of point accumulation and tier-based rewards provides significant savings and unique shopping experiences.

4. Checking applicable taxes

Consider the tax implications to comply with regulations and avoid any issues down the line.

Hopefully, there's no need to add that neglecting this can lead to significant legal and financial complications, detracting from the potential benefits of your loyalty program.

1. Review tax regulations. Take a close look at the tax rules that apply to customer loyalty programs in your area. Different places have different rules about how loyalty rewards are taxed. In some areas, rewards might be treated like a discount, while in others, they could be seen as taxable income.
2. Determine taxable events. Figure out which parts of your loyalty program might trigger tax obligations, such as redeeming rewards. Knowing these details will help you plan and report correctly.
3. Establish reporting processes. Set up processes to keep track of and report all the necessary details. Keep detailed records of points issued, redeemed, and expired, as well as any monetary value tied to these transactions. Good documentation makes tax reporting and audits much more effortless.

5. Preparing the program regulations

The first step in preparing the program regulations is to draft comprehensive and transparent rules for the loyalty feature. The described step outlines the eligibility criteria, earning and redemption mechanisms, points expiration policies, and any restrictions or limitations. All rules should be detailed enough to cover various scenarios participants might encounter while being simple enough for easy understanding.

Once the draft rules are prepared, they should be developed by legal professionals. Establishing program rules and regulations requires careful consideration of various legal aspects, including understanding consumer protection laws, privacy regulations, and anti-fraud measures.

Also, double-check that your program complies with local, state, and federal laws. Legal experts can help identify and mitigate potential risks, confirming that the program is fair, transparent, and adheres to all regulatory requirements.

1. Consult with tax experts. Get in touch with tax pros who know their stuff about customer loyalty programs and tax laws. They can give you advice tailored to your specific program and the places you operate in.
2. Understand legal requirements. Work with legal experts to get a handle on the broader legal requirements and compliance issues related to your loyalty features. This part includes things like data protection laws, consumer rights, and any other regulations that could impact your program.
3. Draft legal documents. Check out if all your legal documents, like terms and conditions, privacy policies, and disclaimers, are drafted to reflect compliance with tax laws. Clear and compliant documents help manage customer expectations and avoid legal troubles.
4. Continuously monitor. Set up a system to keep an eye on and update tax laws and regulations. Tax laws can change, and staying on top of these changes will help you stay compliant. Conduct regular check-ins with your tax and legal advisors and subscribe to updates from relevant tax authorities.

6. Calculating all costs

When you're building loyalty features from scratch, get a handle on all the associated costs. Your project needs to stay on budget and deliver real value! 

Review the division of the different types of expenses you'll need to consider, from platform and resource costs to reward costs and point accruals.

Platform costs

First up, platform costs. You'll need to choose the right platform for your loyalty feature in the program. Here's how to think about it:

• Open source and headless platforms. Consider flexible and customizable platforms like Open Loyalty. They might save you some money and are fully customizable.
• Dedicated implementations. These are tailor-made solutions designed specifically for your business needs. They might be pricier upfront, but they give you more control and customization.
• Unique solutions. If you want something truly bespoke, you can develop a fully-customized loyalty system from scratch. This option often involves higher development and maintenance costs.
• Initial development. Calculate the initial costs of developing or purchasing the loyalty platform, including licensing fees.
• Integration expenses. Budget for integrating the loyalty platform with your existing CRM, POS, and e-commerce systems.
• Ongoing maintenance. Plan for the recurring costs of maintaining and updating the platform to keep it secure, functional, and in line with your evolving business needs.

Resource costs

Next up – resource costs. These cover the people and operations needed to keep your loyalty solution running smoothly.

• Development team. Include salaries for developers, IT experts, designers, and project managers involved in creating the loyalty features.
• Support teams. Account for the costs of customer service and technical support teams who will manage the program once it's live.
• Loyalty management team. Don't forget the team overseeing the customer loyalty program, including strategists, analysts, and marketing professionals.
• Day-to-day management. Budget for the daily operational costs of running the loyalty solution, such as software subscriptions, utilities, and office supplies.
• Training. Set aside funds for training, especially for those who will operate a loyalty program.

Reward costs

Let's now turn to the reward costs related to the loyalty rewards that you’ll offer your clients.

• Physical gifts. Budget for the cost of physical rewards.
• Digital rewards. Estimate expenses for digital rewards, such as e-gift cards, discounts, and exclusive content.
• Delivery and distribution. Plan for the costs of delivering physical rewards to loyal customers, including shipping, handling, and related taxes or duties.
• Inventory management. Consider the costs of storing and managing inventory for physical rewards, including warehousing and inventory tracking systems.
• Accrual planning. Financially plan for the accrual of loyalty points, which typically account for around 80% of active point costs by the end of the year. This involves estimating the liability of outstanding points and securing sufficient funds to cover these costs.

Read more: Loyalty Program ROI Worksheet: Measure and maximize your revenue.

7. Choosing and buying prizes and handling logistics

Moving on to the more enjoyable part - selecting and managing rewards in the customer loyalty program. Only the right rewards can make clients over the moon excited.

First things first, you need to pick out prizes that your loyal customers will appreciate. Think about who your clients are and what they might enjoy. You might want to run a quick survey or look at some data to figure out what rewards would make them happiest. Well, this could be anything from gift cards and discounts to exclusive products or even unique experiences.

Once you've got a list of potential prizes, it's time to crunch some numbers and set a budget (this is all related to budgeting and procurement). You'll need to start shopping around for the best deals and make sure you're getting good-quality items. Remember: you want these rewards to be well-chosen for both your customers and your bottom line.

Now, let’s discuss getting those prizes into your loyal customers' hands. You'll need a solid plan for storing and shipping physical items, and this means nothing else but finding a sound place to keep your stock safe and working out the best way to ship them out quickly and reliably. You'll also need a system to handle any returns or exchanges and keep your clientele happy.

Keeping track of all your prizes is a must – you don't want to run out of stock or have too much sitting around. An inventory management system can help you keep tabs on what you've got and predict what you'll need in the future based on how fast prizes are being claimed.

Last, but not least, play by the rules – when it comes to giveaways and promotions, there are usually some legal hoops to jump through. Confirm you understand any tax implications and have clear terms and conditions so there are NO surprises for you or your customers.

So, while this might seem like a lot, taking the time to choose the suitable prizes and manage them well is definitely worth it. Depending on how complex your program is, this whole process can take anywhere from a few weeks to a few months. But in the end, it’s all about creating a rewarding experience that keeps your customers in the loop.

8. Preparing BTL/ATL/MA communications

First things first, establish a robust communication strategy. This involves creating tailored messages for various communication channels:

1. Below-the-line (BTL) communications, such as posters, leaflets, banners, etc., which are typically more localized and targeted.
2. Above-the-line (ATL) communications, including TV and radio ads, which have broader reach and visibility.
3. Marketing automation (MA) communications encompass automated emails, push notifications, SMS, MMS, WhatsApp, etc. These are crucial for maintaining consistent engagement.

The goal here is to meticulously craft messages that resonate deeply with your audience and ignite excitement about your loyalty program feature. Each type of communication channel serves a unique purpose in amplifying your core message.

Next up, you'll need to roll up your sleeves and create the materials. Design eye-catching content, write engaging copy, and produce any multimedia elements you might need. Everything should be in line with your brand voice and the goals of your loyalty solution, delivering consistency and making a strong impression.

Now, it's time to integrate marketing automation with your customer loyalty program (and this is where elements get personalized). With automation, you can send tailored messages based on what your clients are doing and what they like, ascertaining that they get the right message at the right time.

You’ll use various channels for this, such as email, push notifications, in-app messages, social media channels, and onboarding sequences. By leveraging these channels, you can keep your customers engaged, provide timely updates on their rewards, and build long-lasting relationships.

Moving on to promotional campaigns, this is where you get to be creative. You have to design campaigns that drive engagement, encourage repeat purchases, and boost loyalty. Think of compelling offers, clear calls to action, and visually appealing designs that grab attention.

Finally, you need to implement these campaigns carefully. Once they're live, you'll keep a close eye on how they’re performing using analytics tools. By tracking metrics like open rates, click-through rates, and conversion rates, you can see what's working and make any necessary tweaks to get the best results.

9. Preparing incentives for employees

First off, design good incentive programs. These programs need to motivate employees to support and promote the loyalty solution. Think about what rewards will really drive the right behaviors – monetary bonuses, extra paid time off, gift cards, or public recognition within the company. Use both short-term and long-term incentives to keep everyone engaged and motivated.

A successful customer loyalty program incentive requires careful resource and budget allocation. Check your company's financial situation and set a sustainable budget for employee incentives. Also, allocate human resources wisely by assigning a team to manage the incentive program, track its progress, and make necessary adjustments. Provide enough resources to support the program over time.

Employees should be well-informed about the loyalty feature and how it aligns with the company's goals. Provide comprehensive training sessions to help them understand the program's benefits, how it works, and their role in its success. Use workshops, seminars, or online courses. Regular updates and refreshers can help maintain high engagement and knowledge.

Clear communication is the only way to keep everyone informed and motivated. Develop a communication strategy with regular updates on the loyalty program's progress, success stories, and any changes. Use emails, internal newsletters, and staff meetings to keep the information flowing. Encourage open feedback to spot issues early and address them promptly.

Establish a system for tracking employee performance and providing feedback. 

Set clear metrics and goals, regularly review performance data, and offer constructive feedback. Recognize and celebrate achievements to reinforce positive behaviors and inspire others.

10. Conducting training for employees

Put together solid training programs like a toolkit for your staff. Develop materials such as manuals, guides, and video tutorials that cover everything about the loyalty program. Include what it aims to achieve, how it works, and how to fix common problems.

Roll out these training sessions in a variety of ways, such as in-person workshops, online webinars, or interactive e-learning modules. The goal here is for everyone to know the ins and outs of the loyalty feature, how to tackle common issues, and how to communicate the benefits to loyal customers.

Your front-office staff, who interact directly with new customers, should make sure they can explain the loyalty program persuasively. Use role-playing scenarios and real-life case studies to help them practice enrolling clients, explaining benefits, and handling any issues.

For your back-office staff, focus on the technical, customer, and administrative side. They'll manage the program's database, monitor customer participation, handle technical issues or other complaints, and analyze program data. Their training should also cover data privacy regulations to safeguard that everything is handled responsibly.

Implement regular refresher courses, updates on new features, and ongoing support through help desks or dedicated support teams. By investing in thorough and ongoing training for both your front-office and back-office teams, your employees are fully prepared to deliver top-notch experiences.