6 Considerations When Deciding Between a Loyalty Program vs. Incentive Program

Karli Quesinberry
Karli Quesinberry

woman researching the difference between loyalty and incentive programs

A loyalty program is not the same as an incentive program.

While many people—even professionals in the field of motivation—use the words interchangeably, that is a mistake.

The difference is that loyalty isn’t something you can achieve easily—it’s the long game; the sum of all the parts. With a loyalty program, the customer is typically rewarded for both purchase and behavior; whereas, with an incentive program, a customer is only rewarded after achieving a purchase target or purchase goals. Therefore, costs are usually relative to growth, because if a client does not achieve growth, the customer doesn’t receive the reward.

Put another way: Incentive programs reward the purchase; a loyalty program reinforces the behaviors that lead to more purchases.

When we drill down further into customer loyalty programs, there are a number of identifiable differences that require marketing professionals considering customer loyalty initiatives to think through to create a holistic, long-term plan versus just a blip in time promotion or overlay incentive.

Here are six things to consider when deciding which program might work best for you:

1. Loyalty programs target and serve a large numbers of program participants. 

Often times, they are open to the entire customer audience and come with several tiers to improve segmentation utilization. They are more personalized because they need to be given the large variety of customers meant to use them. For consumer brands, those numbers can be in the millions and will require complex segmentation and versioning. While this will add cost, it generates a better result because it incorporates highly personal touchpoints that resonate with customers.

2. Launching a loyalty program is a long-term commitment.

Brands cannot simply put a program in market one year and remove it the next. This is a great way to really annoy your customers. In fact, most loyalty programs won’t even show a return on the investment until the second or third year. This is precisely why a loyalty program should be part of a comprehensive strategy—accounting not just for sales and marketing, but HR as well.

Tier-based programs keep customers engaged for a longer period of time. And it’s an excellent gamification element, because reaching a new tier feels like an achievement, pushing the customer to keep ranking up. The time it takes people to reach the next tier is dependent on many factors, but can greatly vary the time needed to earn. Meaning, do the diligence upfront to make sure you can live with what you put in market for the long haul. 

3. Any change to a loyalty program involves a high degree of reputation risk.

Even “good changes”—those in favor of the customer—will be scrutinized. Customer-facing loyalty programs are by definition visible and known not only to customers, but also to non-customers, competitors, other stakeholders—even the media. This doesn’t mean you can’t make changes, but it does mean you need to put thought into it before you do. Being proactive about these instead of reactive is critical. Plus, getting into a proactive mode with these will help keep your brand out “countermeasure land” which everyone hates because it creates stress and usually ends in a discount war. In short, proactivity protects margin.

Here’s a free lesson: If you overlay short-term promotions over a general base structure then you can avoid being locked into big time commitments if changes need to be made.

If you need to update your reward offerings, be sure to notify your loyalty customers in advance and offer them a reward that is of equal or greater value than what they had already earned. Additionally, keeping the base program on core products or services allows the flexibility to turn any ancillary product or service earning opportunity on and off at your discretion.

4. Loyalty programs—and their features—are often a differentiator for a brand.

Loyalty program providers and program owners must tread lightly if they consider duplicating or copying certain attributes. Basically, if everyone in your category is giving free Wi-Fi to customers, then that’s no longer a benefit—its table stakes.

If your business is characterized by exclusive services that are hard to duplicate, it’s a great idea to put them in the spotlight with the help of a perks program. Consider the Apple brand. While not a traditional loyalty program on the face of it, the fact many of their services are baked deeply into their own products and aren’t available on other platforms inspire long-term commitment—not least because they (usually) work so well together.

Apple has also leveraged positive customer interactions in store, on the phone and online as a major driver of customer experience. Their value prop is in their product and service, and this is a great example of using fundamentals of product and service to drive retention and protect margins.

5. Customer loyalty programs face competition…everywhere.

The Loyalty Report shows that consumers are on average in 14 customer loyalty programs, but have capacity to actively engage in no more than seven. This means even if you manage to get people on your loyalty program, it doesn’t necessarily mean they’re actually going to buy more from you. Each and every move is up for comparison to other programs, brands and experiences within your industry and beyond. The easier you make it to participate, the more likely your brand will enjoy success. The best loyalty programs are the one where the customer doesn’t even know they are enrolled.

6. Articulate the Value of Your Loyalty Program to Ancillary Audiences

It’s important to make sure that you are speaking to every aspect of the program in a well-defined way for your brand so everyone is on the same page throughout the channel. Delineate the difference between the long-term loyalty initiatives and the short-term incentives used to accelerate a purchase decision. This will help your whole organization align, and you’ll be able to accelerate the internal buy-in needed to develop and maintain a world-class loyalty program solution.

All this is to say, improving your loyalty program shouldn’t scare you, but you can’t be cavalier about the strategy. Ultimately, the loyalty program is the sum of all brand interactions. If your brand wants to implement focused drivers targeting behaviors that maximize customer lifetime value, the above list are some things to consider.

Looking for more insight into customer loyalty and loyalty programs? Keep reading and learn why loyalty and customer habits is your key to unlocking new behaviors from customers.

Karli Quesinberry

Karli Quesinberry

Karli oversees the overall program design and strategic recommendations, in support of client business objectives, for new, cross-sell and renewal presale opportunities. In her role at ITA Group, she collaborates across multiple business units, including Sales, Account Management, Analytics, Communications and Client Technology to bring our solutions to life.