Back when I was working for Aeropostale, I spent a few months looking into a loyalty program for the company. But eventually, we made the decision not to follow through with it because the product-level margins didn't give a ton of room to make a loyalty program feasible from a business perspective.

That's the thing about loyalty programs--they require careful consideration before you implement them.

You have to ask yourself if your company can sustain a rewards program and make it worth the effort. This is something your team will need to manage, and it will cost money because you're providing customers with benefits.

It may take some time to set up, but the goal is to move the needle. If it makes your prospects convert at a higher rate, makes current customers happier, and moves them along the repeat customer journey, then it's effective.

Our team at ThirdLove recently decided to try a rewards program, and it's been an eye-opening process. Here's what we've learned so far that can be helpful for starting your own program:

1. Keep it simple.

Have you ever signed up for a loyalty program that seemed to be full of arbitrary, confusing rules about purchases, points, and discounts?

Earn three points for every $5 spent. Redeem 200 points for a 20 percent discount on a full-price purchase. Exclusions apply.

A lot of companies use points-based reward systems. For some, it works really well. Starbucks now has more money in their rewards program than a small bank, for instance, and they use "stars" to track customer rewards.

The thing about points-based rewards is they can quickly get confusing, especially if you're in an industry where purchases don't come at a very regular cadence.

It wouldn't work for our company because most women aren't buying a new bra every week. Translating dollars spent into points, and then translating those points into some kind of reward just felt confusing--and not the right fit for us. Our customers' orders are more spaced out, so the rewards program works on a per-order basis. That simplifies things, which is the ideal scenario for a loyalty program.

You don't want customers to have to work hard, or think too much, to get the rewards.

2. Ask your customers what they want.

When you set out to create a loyalty program, there are two major questions you want to ask:

  1. How do we engage prospects and brand new customers?

  2. How do we create perks for VIP, more tenured customers?

You may not know the answers to these questions immediately, but your customers definitely do. So, talk to them. Hold focus groups, send surveys, find out what matters to them. What will surprise or delight them?

When we chatted with our customers, they told us that getting a 15 percent discount wasn't as exciting as getting an actual product. Women much preferred receiving something unique, or getting a cool bag, over receiving a discount.

I think it's common for people to join loyalty programs more for the unique benefits than for any discount. Companies that give you something free--like Sephora's Beauty Insider rewards--understand that getting an actual gift has a different psychological effect than getting an email with a code for 15 percent off. Sephora now has 17 million members just in North America, and those members account for 80 percent of their sales.

Your rewards program is destined to flop if your customers aren't actually excited about getting, or using, their rewards. Talk to them, figure out what they want, and incorporate it into your plan.

3. Aim for true customer loyalty.

Creating a program can be a great idea, but true customer loyalty comes from delivering a great experience and a great product.

The program doesn't create loyalty, it augments it.

The loyalty program is just a piece of the broader relationship you have with your customers. No points, discounts, or giveaways are going to replace all the things you do day in and day out to ensure your customers have a great experience.

That's why I certainly don't recommend putting together a loyalty program in the early days of a company. You're better off focusing on improving the daily interactions with your customers. When a customer feels like they've been treated in a friendly, beneficial way, that tangible moment is more important than the technical implementation of a program.

There is a time and a place for a loyalty program. Build your customers' loyalty first through a great product and a great experience, then capitalize on that with custom rewards.

Published on: Jan 3, 2019
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.