Loyalty Management Software Guide: Choosing an LMS in 2023

Retaining existing customers is easier and more cost-effective than acquiring new ones. To strengthen their connection with customers, companies use loyalty programs. Accenture research shows that over 90% of today’s companies have some form of loyalty program.

Loyalty programs can turn one-time buyers into lifelong customers. They do so by rewarding program members the more they engage with the brand. Over time, customers build a stronger connection with the business and feel that they get more value from the relationship.

Operating a modern customer loyalty program at scale requires the right technology. Loyalty management systems (LMS) is software designed to give organizations everything they need to run their loyalty program. The software offers a robust set of features and manages a variety of program types.

In this guide, we’ll explain in detail how loyalty software works and how it can help brands manage their programs more efficiently. We will also go through some key considerations when choosing the right software for your business.

Understanding LMS

What is LMS?

A loyalty management system (LMS) is a software tool that lets you create and manage all aspects of an e-commerce loyalty program. It provides a dashboard for merchants and program operators to oversee the program.

The dashboard is also where business users set the rules for the program and review the performance reports. On the customer-facing dashboard, users can sign up, manage their preferences, and review their rewards.

LMS offers extensive data management capabilities. For one, it stores all customer data in the system. It also gathers data from customer engagement to provide detailed performance metrics. Merchants can use the software as a customer relationship management (CRM) system or customer data platform (CDP) in addition to the loyalty functionality.

How LMS works

There are several important processes needed for the LMS to support a fully functional loyalty program. It starts when the merchant uses the LMS to create their loyalty program. From there, the system collects data as members begin to join the program. Below, we examine all the processes performed by a loyalty software:

1. Merchants and operators use the LMS to define the rules for the loyalty program.
2. They then connect the LMS to different touchpoints (POS systems, websites, etc.). This lets them capture signups and lets customers use their rewards.
3. The merchant markets the loyalty program to customers.
4. Customers sign up for the program by providing the requested information.
5. The customer’s data is added to the database within the LMS, and the user gains access to their account.
6. Customers actively engage with the brand. They earn rewards for their engagement based on what program rules specify that automatically apply to their account.
7. Merchants can see details for each individual by reviewing the member list. They can assign discounts and rewards to individual accounts.
8. Customers can track their program status through their account page. They can see how many points they’ve earned and adjust to their personal information.
9. Customers redeem their rewards through different channels. For example, they can use their points to get a free product or apply a discount code to their order.
10. The LMS updates the customer’s reward balance after the redemption.
11. The LMS compiles all data from customer purchases and redemptions into an analytics platform. This lets the merchant view reports detailing the performance of different aspects of the program.

Features of LMS

Omnichannel integrations

The LMS extends your loyalty program to all your touchpoints, whether it’s a mobile app or physical store. Customers can sign up for an account through any channel. Their data is then added to the LMS.

The software has a real-time connection to each touchpoint, allowing customers to use their rewards through any channel. With an omnichannel connection, merchants can track all customer behavior to get a unified profile for every member.

API interfaces

Modern loyalty management software comes with multiple endpoints for application programming interfaces (APIs). These APIs let the LMS connect to different applications—for example, cart services, mobile applications, and POS systems.

APIs also allow integration with other data stores like customer data platforms (CDP). These have detailed customer profiles that marketers can use when managing their programs.

Merchant dashboard

The LMS gives companies a user interface to manage their loyalty programs. This dashboard is where you define the rules for your loyalty program.

It is also where you perform important tasks like analyzing reports, creating promotions, and viewing customer accounts. You can drill down into each member profile to see their orders, points/rewards balance, preferred payment methods, and more.

Rewards management

The LMS gives merchants the ability to create various structures for their loyalty programs. This includes points-based, tier-based, subscription-based, and others.

The software has a rules-based engine that lets the business automatically apply the program parameters. For example, if you create a points-based program that rewards a certain number of points for each dollar the customer spends, the LMS will automatically add the appropriate points to the user’s account.

The rules-based engine also lets businesses run multiple types of rewards for a single program. Users can set up rules-based combinations to determine how the two structures interact with each other.

Customer dashboard

On the other end, loyalty software provides a customer-facing interface. Users can use this dashboard to manage their loyalty account. They can track their points, see their loyalty tier, and update their personal information. Customers can also set up marketing preferences or communicate with the merchant.

Hierarchies

Hierarchies let businesses visually create a hierarchical structure of the entities involved in the program. Many companies have multiple parties involved in their loyalty program. With hierarchies, businesses can configure the taxonomy of users to fit their particular use cases.

Customer segmentation

Loyalty software lets you create segments for different customer groups. You can define a segment by any number of criteria, including location, demographics, or purchase history.

With detailed customer segments, you can make your program and messaging more relevant to each user. You can also use customer segments to assign gifts and other rewards to members’ accounts automatically.

Promotions and discount codes

The LMS lets merchants create and manage promotions. This includes discount codes that users can add to their orders as well as temporary offers only available to program members.

You can automatically assign these promotions to certain customer segments. You can also assign discounts to individual user accounts through the merchant dashboard.

POS integration

The LMS can integrate with point of sale (POS) systems. It lets merchants extend the benefits of their loyalty programs to their physical stores. Customers can redeem their points or discounts in person the same way they would with an online order.

The system tracks all purchase data to update their rewards balance based on the transaction. With the POS integration, customers can check their rewards and program status right in the store.

Performance analytics

The LMS processes its data to provide performance analytics for your programs. You can see how people engage with your program and which initiatives drive the most results. With these insights, you can find areas to improve the program. The analytics and reports are available on the merchant dashboard.

Email/SMS integration

Loyalty software supports messaging program members through email or SMS. You can have the messaging functionality built-in to the software or integrate with third-party marketing services. Merchants can use the messaging functionality to create timed and automated communication with program members.

Referral marketing

The LMS supports various referral marketing functions. This is one of the most effective ways to grow your brand. Merchants can create unique referral codes for each program member that customers can send to peers. When someone signs up using the code, the referring member receives a reward.

Wallet functionality

Loyalty software needs some form of wallet functionality to streamline rewards and payment. Thus, the wallet can store points, coupons, and other rewards. It can also store a user’s payment information, allowing them to checkout faster when logged in to their account.

Benefits of LMS

Increased sales

Loyalty programs are a proven method for boosting sales. When you incentivize customers with rewards, they are more likely to engage with the business often, leading to repeat sales and a higher lifetime value (LTV) per customer.

Loyalty programs also differentiate businesses from their competitors. Providing value through their program leads to better retention and ultimately more sales as each customer becomes worth more.

Efficient operations

Running an effective loyalty program is a complex endeavor, especially at scale. An LMS lets you manage your program at a level unachievable with manual processes. It gives you a single platform to manage all aspects of your programs. The software connects to different touchpoints and centralizes the data for ease of access.

Reduced fraud

Loyalty management software is essential to mitigating potential fraud that can accompany your program. When you make rewards available to your audience, you naturally attract some people who try to take advantage of your offering in a dishonest way.

People may sign up for multiple accounts to receive double benefits. Similarly, they could send referral codes to themselves to get added rewards. The LMS can analyze program data to find unusual patterns, preventing people from misusing your program.

Improved customer experience

Loyalty software is critical in creating a great loyalty experience for your customers. The centralized system ensures that customers receive a consistent experience across channels. By creating customer segments, you ensure every user receives a relevant loyalty experience.

Better use of customer data

The LMS lets brands get more out of their customer data. By integrating your data with the LMS, you can use the insights you have from each person to make the program more valuable to them. For example, sending personalized offers and recommendations lets you give more meaningful rewards.

LMS Considerations

There are several important factors to consider when evaluating loyalty software providers. Many solutions can handle a wide range of use cases. However, the particulars of your business needs determine what solution is best.

Some variables to consider are your industry, the type of program you want, and how you plan to execute the program. Let’s examine the key considerations you should weigh when looking for a loyalty software.

Industry and loyalty program type

The first thing to consider is your industry. It determines what type of loyalty program is most effective for your business. For some industries, this will be a simple points-based program. For others, it may be a tiered program or a paid program.

The type of program you want to create determines what software will work the best. Some solutions may be better at handling different types of programs than others.

For example, if you run a paid program, you need an LMS with subscription functionality to automatically process recurring payments from your customers. In this situation, software that only supports a points-based system will not work for your business.

Integrations

It is important to consider what integrations you need. The system must connect to other data sources to build accurate profiles for your customers. It needs to connect to all your sales channels so that customers can enroll and redeem rewards through any touchpoint.

To streamline communication, the LMS should also connect with your marketing automation software. The best way an LMS can integrate with other systems is through APIs.

Scalability

The next thing you should consider is your scalability requirements. You need an LMS that will support your particular use cases now and in the future. The LMS hosted in the cloud provides the best option for scalability. Cloud-based systems offer robust data storage, and you don’t need to worry about limited server resources.

Onboarding and migration

A smooth onboarding process is important as it helps get your program up and running quickly. When evaluating different systems, you should consider their ease of use and how smoothly they let you create and customize your program.

If you already have a system for managing your loyalty program, you must consider how you will migrate between systems. You’ll need a way to transfer data from one system to another seamlessly.

Data transfer includes program rules, analytics, and customer details—the most important of these being existing rewards points. Customers should not lose their points when you migrate systems.

Support needs

It is also important to consider how much support you need to execute your loyalty program. If you have the in-house knowledge and resources, you can go with less direct support from your software provider. If not, you may want to look for a solution that provides more support. Certain SaaS providers offer more hands-on assistance than others.

Another option is to consider getting support from an agency or consulting service. For example, an e-commerce service like fabric digital services can help develop and manage your loyalty program from a business and technical perspective.

Software Options

There are several software options businesses can use to oversee their loyalty program. The most popular methods are to use existing marketing software to manage the program, extend the e-commerce platform with an application, or use a standalone LMS. Below, we will examine each of these methods.

Software option 1: Use existing marketing software

Merchants can attempt to run a loyalty program without a dedicated platform by using other marketing software. Albeit a simple approach, companies may not want to add another system to their tech stack. Instead, they can try to piece together loyalty functionality through their different software.

For example, a merchant could offer a program sign-up through their traditional email capture method. They could then track customer engagement through their CRM. Then, when customers spend a certain amount, the merchant can add them to a new customer segment that automatically sends them a discount or reward.

The approach is cumbersome and limits what you can achieve with the program. Certain program features such as the customer dashboard and program tiers are only available through dedicated loyalty software.

Software option 2: Extend e-commerce platform

If you use a monolithic e-commerce platform, you can use an add-on app to manage your loyalty program. There are various third-party applications for solutions like Shopify and BigCommerce that let you extend the platform’s functionality to support a loyalty program.

However, these applications only provide basic features for managing your loyalty program. Though they offer a customer-facing dashboard and a basic point tracking system, they will not include some of the features needed to make the program valuable to both merchants and members.

Software option 3: Standalone LMS

The best approach to managing your loyalty program is to use a standalone LMS. It offers all the robust features we’ve discussed. A standalone LMS is platform agnostic—you can use it with any e-commerce platform. It offers a single interface for managing all aspects of your program.

fabric Member is a great example of a standalone loyalty management system. The system connects your different data sources to serve as a central repository of customer information. Organizations have unlimited flexibility for creating user hierarchies and taxonomies according to their use cases.

Grow Your Brand

The potential value of a strong loyalty program is no secret. That’s why most businesses invest in attracting members to their program. If you want to create a loyalty program that stands out, you must create a valuable experience. It all starts with the right loyalty management technology.

With fabric Member, you have a one-stop solution for managing your loyalty program. Its robust suite of APIs lets you integrate with any source application. Flexible hierarchies allow you to customize the software for even the most complex use cases. Take advantage of the software that supports any type of program your customers value most.

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