Validation of Loyalty Program Ideas: How to Verify New or Refreshed Loyalty Strategy

Regardless of whether you're refining an existing loyalty program or crafting a new one from scratch, you face a crucial challenge: validating strategic assumptions. The difference between a program that drives real business results and one that falls short often comes down to the ability to test, measure, and validate ideas.  Such decisions cannot rely on intuition but must be supported by backed by data and insights.

In this article, we'll explore proven methods for testing loyalty program assumptions, uncovering the foundational elements that enable the creation of a successful strategy, and discovering tools that help you make data-driven decisions.

Why Testing Loyalty Strategy Assumptions Matters?

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It is easy to be tempted to simply replicate successful loyalty strategies from competitors or adopt industry-standard mechanisms. While this approach can seem appealing, it often leads to disappointing results. Why? Because every organization has unique goals, market challenges and customer needs. For example, one company might prioritize building a robust first-party database to improve customer targeting, while another may aim to differentiate itself through exclusive rewards that competitors can’t match. Others might be laser-focused on direct sales growth. So ask yourself: Is your loyalty program truly addressing the unique needs of your business?

If you're not sure, you’re not alone. Testing and validating assumptions are the way to uncover   whether your loyalty program will genuinely deliver on its promises. Without this validation, your business might go for a program that fails to fit with organization and resonate with buyers, leaving you with disappointed customers rather than loyal advocates.

By carefully reviewing your strategy, you can better plan your resources, improve your ideas, and help ensure your program delivers good value. In a time when customer expectations are always changing, having a program that is both effective and flexible is increasingly important.

Building Future-proof Foundations for a Loyalty Program

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A great loyalty program starts with understanding what makes your organization unique. While technology and company culture are important, it's really about making sure the program fits your specific needs and works well across all touchpoints between your brand and the customers.  Analyzing your strengths, customers preferences, and the market helps you spot challenges and opportunities. This way, you can design a program that truly stands out. Focus on three simple steps to create a program your customers will value.

Below you will find 3 main steps you need to take to create an effective loyalty program that your customers will engage with:

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1. Finding the Right Fit for Organizational Capabilities on Customer Loyalty

Every loyalty program needs strong support from your whole company and must fit with your long-term strategy.  Start by aligning it with your business priorities and ensuring it’s financially sustainable and scalable. Make sure your team has the skills and a customer-focused mindset, and check that your technology can handle integration, analytics, and data security. Finally, be ready to adapt based on customer feedback and emerging challenges.
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2. Delivering Loyalty Program that Truly Influence the Customers  

Understanding real customer needs means looking beyond their requests and analyzing data like purchase history, preferences and behavior. Strategic segmentation helps identify high-potential groups, while focused research reveals their motivations and concerns. With these insights you can design a program that truly connects with and engages your customers.
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3. Thoughtful Positioning Against a Matrix of Loyalty Competitors

Market analysis helps your program stand out. Reviewing competitors’ loyalty programs and staying informed about trends like AI or sustainability can offer valuable insights. The goal isn’t to imitate but to find unique ways to connect with your customers. With these insights, you can test ideas and refine your approach to create a program that brings real value.

By using insights from these areas, you can move forward with testing solutions and checking your assumptions. This approach helps turn a loyalty program into something that adds real value, rather than just a costly marketing tool.

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How Can You Evaluate Your Customer Loyalty Program Concepts and Hypotheses?

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Testing the concept of a loyalty program allows for the validation of assumptions and mechanisms under controlled conditions before the program is fully launched in the market. Which methods are worth using?

Focus Groups for Gathering Feedback on Loyalty Program Ideas

Focus groups are a popular tool for testing loyalty program ideas. They provide direct feedback from target customers, helping to test assumptions before a program concept is approved.

Focus groups are moderated discussions with selected representatives of the target audience. These sessions focus on specific aspects of the loyalty program, including the overall concept and strategy, the mechanics of point accumulation and reward redemption, and the value and appeal of the offered rewards. Direct interaction during these sessions helps identify the strengths of the concept, potential barriers to adoption and areas requiring improvement.
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Pros

• In-depth Understanding of Customers: Provides insights into participants’ preferences, needs, and motivations.

• Flexibility: Allows exploration of various scenarios and real-time adjustment of questions based on group reactions.

• Rapid Prototyping: Participants can evaluate initial ideas or proposals in real time, enabling immediate iterations.

• Problem Identification: Helps uncover barriers that might deter customers from engaging with the program.

• User Experience Feedback: Provides feedback on the usability and clarity of tools like loyalty apps, helping ensure the UX/UI is easy to use and understand.
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Cons  

• Organizational Costs: Recruiting participants, arranging moderation, and renting spaces can be expensive.

• Representativeness: Results from focus groups are qualitative, making it harder to generalize to the entire customer base.

• Bias Risks: Discussions can be dominated by a few individuals, potentially skewing results. Effective moderation is crucial to manage group dynamics.

• Time-Consuming: Takes time, from selecting participants and choosing an agency to conducting sessions and preparing reports.

An Example of Using Focus Groups to Validate a Loyalty Program

Starbucks used focus groups as part of the process to test its loyalty program. The company conducted research among its customers to understand which types of rewards and program mechanics would be most appealing.

Customers showed a preference for rewards directly related to the product, like free coffee or snacks. Focus groups revealed that making point accumulation and redemption simple was important for keeping customers engaged. They also highlighted the value of personalization, which influenced the creation of the Starbucks mobile app, a key part of the program.

Starbucks Rewards, built on insights from focus groups, has become one of the most profitable and engaging loyalty programs in the industry. With a simple mechanism and strong alignment with customer preferences, the program led to increased sales and strengthened customer loyalty.

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Testing Loyalty Program Concept Using Surveys and Quantitative Research

Surveys and quantitative research are helpful for gathering customer opinions from a large group. These methods collect data from many people, making the results more reliable and allowing decisions to be based on clear numbers. They are especially useful for looking at key parts of a loyalty program, like how appealing the rewards are, how points are earned, and how engaged customers are.

Surveys ask the same questions to a large group, while quantitative research looks at numbers to spot trends and customer preferences. These tools help determine which aspects of different loyalty programs - such as tier-based, cashback, or points systems - resonate most with customers.

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Pros

• Representativeness: Results are more reliable and easier to extrapolate to the entire target group due to the large sample size.

• Data Precision: Provides hard numbers that can be used in analytical models to predict program effectiveness.

• Ease of Comparison: Survey results can be analyzed across different customer segments, enabling better customization of strategies for specific groups.

• Cost Efficiency at Scale: With online tools like Google Forms or specialized research platforms, conducting surveys can be relatively inexpensive.

• Anonymity of Responses: The anonymity of surveys allows for more honest and accurate answers compared to focus groups, where social dynamics may influence responses.

Cons

• Personalization Costs: Crafting well-tailored questions requires time and expert knowledge.

• Risk of Low Engagement: Respondents may answer superficially, necessitating the use of quality filters in data analysis.

• Lack of Depth: Unlike focus groups, surveys do not allow for exploring respondents' motivations and emotions.

• Interpretation Limitations: Quantitative results require appropriate context to be correctly understood.

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Usecase of Surveys and Quantitative Research for Verifying Loyalty Program Strategy

Sephora, a global leader in the cosmetics industry, successfully utilized quantitative research to introduce gamification into its loyalty program, Beauty Insider. The company conducted surveys and behavioral analyses to better understand the preferences of Generation Z, which represented a growing portion of its customer base.

The surveys revealed that Generation Z values interactive and engaging experiences reminiscent of games. Respondents indicated that personalized rewards and gamification elements increased their engagement and willingness to participate in the program. The findings highlighted the need for a more dynamic and playful approach to loyalty programs.
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Sephora implemented gamified experiences in the Beauty Insider program, such as challenges, activity-based rewards, and bonus points for interactions in the mobile app. These changes not only boosted user engagement but also attracted younger customers who might not have been active participants in the program before.

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Pilot Testing or Soft Launch to Determine Whether Your Customer Loyalty Program Ideas Will Work

You only get one chance to make a first impression, which is why it’s important for the program to meet consumer expectations from the start. For this purpose, it is worth using pilot tests, which will help fine-tune the program before the official launch.
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A pilot loyalty program for validating strategy means the launch of a limited version of the program in selected locations, regions or among a specific group of customers. This approach allows for testing assumptions under real-world conditions before the full-scale rollout. A pilot is a controlled deployment of a loyalty program on a smaller scale, enabling:

• Identify any operational, technical, or communication problems

• See how customers respond to new features and program details

• Analyze real data, such as engagement, purchase habits, or conversion rates

Example Applications:

• Testing the point accrual and redemption mechanisms.

• Analyzing the effectiveness of specific types of rewards.

• Assessing the marketing communication strategies associated with the program.

Real-world testing helps evaluate the program's effectiveness and readiness for a larger launch. Measures include the redemption rate, which shows how many customers use their points or rewards, incremental revenue, which tracks the extra income generated compared to before the program, and customer satisfaction, assessed through feedback and Net Promoter Scores (NPS). This testing minimizes risks and provides valuable data to improve the program, ensuring any issues are addressed before a full-scale rollout. In the case of a program refresh, offering beta versions to select individuals can highlight their "uniqueness" in a positive way for the company.

Pros

• Risk Minimization: Detects errors and challenges before the program is fully deployed.

• Real Data: Results from pilot testing are more reliable than research or simulations because they are based on actual customer behaviors.

• Cost Savings: Identifying issues during the pilot stage is less expensive than making corrections to a program already in full operation.

• Optimization: Enables fine-tuning based on collected data and participant feedback.

• Clear Communication: Pilot tests help prepare better communication about the program and clarify key elements that may need more explanation.

Cons

• Limited Scale: Results may not fully represent the entire target audience.

• Time-Intensive: Designing and executing a pilot can delay the program’s full launch.

• Limited Engagement Risk: The smaller sample size in a pilot test may not fully reflect how customers will engage with the program when it's rolled out to a larger audience.

• Initial Costs: Launching a pilot program requires investment in technology, staff training and communications, which may not be fully utilized at this stage, while some of the investment had to be made and will be maintained regardless of the outcome of the tests.
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Example of Soft Launch to Test Loyalty Program Assumptions

One of our clients, Poland's leading grocery retailers took an innovative approach to testing its loyalty program: they turned to their own workforce as pioneering users. This strategic decision transformed employees into engaged beta testers who brought both commitment and deep understanding of company objectives to the trial phase.
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By granting staff exclusive early access to the application and involving them in the development process, the company achieved dual benefits. Employees became thoroughly versed in the program's features while actively participating in real-world testing – collecting points and exploring promotions firsthand. This hands-on involvement proved invaluable, allowing the team to identify and resolve subtle operational hiccups before the public launch, ultimately ensuring a polished and seamless rollout to customers.

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Use of A/B Testing to Assess the Validity of Your Customer Loyalty Program Ideas

A/B testing is a method for evaluating the effectiveness of specific elements in a loyalty program, such as mechanics, reward structures, marketing messages or customer journey. It involves comparing two or more versions of the program to identify the one that delivers the best results. During A/B testing, different customer groups are assigned to distinct program variants, and their responses are closely monitored. For example:

• Group A: Earns 1 point for every dollar spent.

• Group B: Earns 2 points for every $10 spent.

This approach enables measurement of customer engagement, reward preferences, and purchasing behavior in response to specific incentives.

‍Pros

• Data Precision: Provides accurate comparisons of the effectiveness of different solutions in controlled conditions.

• Low Risk: Facilitates evaluation of new ideas without the need for full-scale implementation.

• Quick Results: Insights can be obtained relatively quickly, enabling prompt adjustments.

• Personalization: Results from tests help tailor the program to meet the preferences of different customer segments.

‍Cons

• Technical Complexity: Requires advanced analytics tools and data management systems.

• Segmentation: Poorly selected test groups can lead to misleading results.

• Time-Intensive: Tests must run for a sufficient duration to provide representative data.

• Customer Dissatisfaction Risk: Customers assigned to less favorable conditions may feel disappointed.

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An Example of Using A/B Testing to Optimize Loyalty Program Performance

To ensure effective testing, it is essential to monitor relevant metrics such as:

• Conversion Rate: The number of customers actively participating in the program relative to those invited.

• Customer Engagement: The frequency of interactions with the program, such as points redeemed, marking consents for communication, filling in optional data, and using app.

• Basket Value: The average purchase amount of program participants and a comparison with baskets before joining the program.

• Customer Satisfaction: Feedback and ratings from participants on various program variants.

A/B testing provides actionable insights that can enhance the effectiveness of loyalty programs, ensuring they align with customer preferences and drive desired behaviors.

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Ensuring the Success of the Loyalty Program Concept Using Usability Testing

Usability testing may be one of the most important steps in validating a loyalty program. It translates to focusing on the evaluation of program interfaces such as mobile apps, websites, and other digital interaction channels. It identifies potential barriers users might encounter and assesses how intuitively they can navigate and utilize program features. The process involves observing real users as they interact with key elements of the program, such as:

• Joining the program

• Understanding the rules

• Earning and using points, purchasing a subscription or achieving a higher status depending on the program model

• Navigating the app or website

The goal is to uncover issues related to clarity, ease of use, and feature accessibility that could negatively impact the user experience (UX) and user interface (UI).

Pros

• Enhanced User Experience: Eliminating barriers makes the program easier for participants to use.

• Increased Customer Satisfaction: Intuitive interfaces and straightforward functionality contribute to a positive perception of the program.

• Higher Engagement: Participants are more likely to use the program when its rules and operation are simple and intuitive.

• Better Feature Alignment: Testing helps tailor program elements to user preferences.

Cons

• Time Resources: Organizing test sessions requires time and careful planning.

• Technical Requirements: Digital environment testing may necessitate specialized software for tracking user interactions.

• Participant Recruitment: Finding suitable users for testing can be resource-intensive.

• Need for Iteration: Test results often lead to multiple rounds of adjustments and re-testing.

• Selectivity: Tests may be conducted in selected areas, so they will not provide comprehensive feedback on the program.

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Usecase of Usability Testing for Loyalty Programs in Mobile Apps

Superindo added a loyalty program to their mobile app, aiming to improve customer engagement and satisfaction. They conducted usability testing to ensure the program was easy to navigate. The tests involved tasks like registering, reviewing rewards, and redeeming points. Based on user feedback, the team identified and addressed key usability issues, resulting in a more intuitive interface that led to increased customer participation and positive feedback.

By addressing usability issues, loyalty programs can deliver a seamless experience that enhances satisfaction and encourages active participation.

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Advanced Loyalty Program Concepts Validation Techniques – When Standard Methods Are Not Enough

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As companies move forward with validating their loyalty programs, there is a growing reliance on advanced analytical techniques and expert collaboration. These approaches enable the precise prediction of outcomes, optimization of customer segmentation, and evaluation of strategic assumptions, ensuring the program is fine-tuned to meet business objectives.
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Predictive Modeling to Evaluate Loyalty Program Assumptions

Predictive modeling leverages historical customer data to simulate the potential outcomes of a loyalty program across various scenarios. This enables organizations to forecast how adjustments in reward structures, mechanics, or communication strategies will impact customer behavior, retention, and other key performance indicators.
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Pros

• Outcome Forecasting: Predicts the impact of program changes on customer behavior with a high degree of accuracy.

• Cost Optimization: Identifies the most effective reward structures and mechanisms to maximize return on investment.

• Risk Mitigation: Helps prevent costly mistakes by allowing businesses to better understand the potential effects of different decisions.

Cons

• Quality Data Requirements: Predictive modeling depends on having accurate, structured and comprehensive historical data.

• Technological Demands: It requires advanced analytical tools and data science expertise, and the process can be time-consuming.

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Using predictive modeling in loyalty program validation allows organizations to make more informed decisions by simulating different scenarios and optimizing the program to better meet customer needs and business objectives.

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Verification of Customer Segmentation to Examine Loyalty Program Accuracy

Customer segmentation validation involves using analytical techniques, such as machine learning, to verify whether customer segments respond as expected to the loyalty program. This process ensures that the strategies—whether related to rewards, communication, or mechanics—are well-aligned with the preferences of different target groups.
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Pros

• Tailored Offerings: Customizes rewards and communications to suit the unique needs of specific customer segments.  

• Increased Effectiveness: Increases customer engagement by aligning the program with customer preferences.

• Efficiency: Automation of segmentation accelerates the process and enhances accuracy.

Cons

• Technology and Experts: Validation requires access to analytical tools and a team with data analysis expertise.

• Unpredictable Responses: Not all segments may respond as predicted, which requires further optimization.

• Ongoing Costs: Continuous operation of the algorithms requires increasing computational power, which leads to rising server costs.

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Leveraging Customer Segmentation to Enhance Loyalty Programs

Smyk, a leading retailer for children's products, utilized advanced segmentation to identify a group of occasional customers known as "gift buyers". The analysis revealed that while these customers were not very loyal to the brand, they had high transactional value during the holiday season. By focusing on a child-centric approach, Smyk was able to include more customers in their loyalty program during key shopping periods, effectively increasing engagement and program participation.

This use of customer segmentation validation ensured that the loyalty program was better tailored to different types of customers, increasing its effectiveness and long-term success.

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Validation of Loyalty Program Strategy with Experts

Collaborating with experienced experts in loyalty programs helps verify strategic assumptions and optimize key elements of the program. Experts bring market knowledge, insights into competitor strategies, and analytical tools that allow for precise budgeting and scheduling.

Pros

• Market Experience: Experts are familiar with best practices and market trends, helping avoid costly mistakes.

• Better ROI Control: Assistance in developing realistic ROI forecasts.

• Faster Implementation: Experts can speed up the planning and implementation processes.

• Access to Expertise: Experts provide a quick solution to acquire the necessary skills and knowledge, eliminating the need to recruit new employees or assist in recruitment.

Cons

• Consultation Fees: Collaborating with experts involves additional costs.

• Dependence on Partners: Over-reliance on consultants can limit the development of internal capabilities.

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Example of Use External Experts in Loyalty Program Concept Validation

At Loyalty Point, we carry out a variety of analyses to support the launch or improvement of loyalty programs. This includes working with clients to strategize and assess the financial impact of a program on their business.

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For one of our retail clients, we helped validate an internally developed strategy by analyzing data from payment cards. Our focus was on ensuring the program’s mechanics—such as rewards and awarding methods—were flexible and adaptable to all customer segments. Instead of relying on average values, we prioritized making rewards achievable for a wide range of customers.

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This process uncovered that the initial assumptions didn’t fully align with typical customer behavior, which could have led to delayed or even unattainable reward redemptions for many participants.

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Using the insights gained, we collaborated with the client to refine the program, building a business model and setting realistic KPIs. We also ensured the strategy aligned with the company’s existing systems, processes, and tools, enabling practical and cost-effective implementation.

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— "We couldn’t abstract from the ecosystem, processes, and IT tools, so the new strategy, created with Loyalty Point experts, was integrated into the company’s realities to ensure it could be implemented within a reasonable time and cost" — explains Patryk Mazurek, CRM Strategy & Development Director at Loyalty Point.

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How to Analize the Results of Validation of the Loyalty Program Concepts?

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After collecting data from various validation methods, it is crucial to conduct a systematic analysis of the results in order to make informed decisions regarding the further development of the loyalty program strategy. Customer loyalty is the result of specific patterns in their behaviors, which can be detected through the analysis of purchase history, frequency of interactions, and touchpoints with the brand. Below are the key steps in analyzing the results:

Organize the Data

The data should be grouped by key topics, such as preferences regarding rewards, ease of use, and mechanisms engaging users. It is also important to quantify the data, for example, by calculating percentages, averages, and other indicators, to obtain a clear picture of general trends and areas that require attention.

Identify Patterns and Outliers

It is important to look for patterns in the data from different customer segments, such as online, offline, or mobile app behaviors. Special attention should also be given to outliers—results that deviate from the norm, as they may indicate overlooked customer needs or areas in need of improvement.

Verify Against Business Goals

The results should be compared with the program's initial business goals. It is essential to check if the program effectively contributes to customer retention, increases the frequency of their purchases, and enhances engagement with the program's mechanisms (e.g., reward levels, gamification). It is also important to assess the program's costs, the expected return on investment, and the time required to achieve the planned effects.

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By combining these insights, companies can adjust strategies, improve loyalty programs, and create personalized experiences that foster long-term relationships with customers.
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Validation of Loyalty Program Ideas in Summary

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The first impression of your loyalty program matters – and you only get one chance to make it count. This is why dedicating time to a thorough analysis and validation of your loyalty program is crucial. In this article, we've outlined several loyalty program validation methods like focus groups, surveys, and pilot testing, as well as more advanced ones like predictive modeling and customer segmentation analysis. By carefully applying these techniques, you can ensure that your program not only meets customer expectations but also drives long-term engagement and business success.

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If you are still wondering whether your ideas for changes to an existing loyalty program or the implementation of a completely new one will work in real-life feel free to use the contact form on our website or book instant call with one of our experts.

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