Jess Huang of McKinsey on how customer experience is key for designing loyalty programs:

The first thing you need to do is define success, so you have objectives to measure your effectiveness. It cannot be as loosey-goosey as just wanting to drive loyalty with all consumers. You have to know which consumers you’re targeting and what type of loyalty you’re driving. What is it that you actually want them to do? Do you want them to spend on more profitable products or services? The next thing is to make sure that whatever you’re trying to accomplish with the loyalty program is consistent with your overall company strategy and brand messaging.

You also want to design something that’s flexible enough to remain viable as your company and strategy evolve. Finally, loyalty programs can get expensive very fast and don’t always create value for companies. So you have to go in with eyes wide open and design a program that creates value for the consumer and for you. That often involves finding a way to leverage the gap between a consumer’s perceived value of something and your cost to provide it.

If you cannot clearly articulate why you want to launch a loyalty program for a given customer or business objective, there’s really no point, because you don’t even know what you’re designing. But if you have a clear idea of who you want to drive specific business objectives with, go and understand that customer. Don’t just design a program you think you or your consumers would like.