More than 90% of companies have some sort of customer loyalty program.
How does a customer loyalty program work?
A customer loyalty program rewards customers who engage repeatedly with the brand. It is a strategy to retain customers and encourage them to continue purchasing from your brand rather than competitors. The more a customer buys or interacts with the brand, the greater the rewards they receive.
With a loyalty program, companies can offer points or benefits to customers. In return, they exchange points for discounts, free products, rewards, or exclusive perks. The goal is to incentivize repeat purchases and build trust between the customer and the business.
Types of customer loyalty programs
There are different types of loyalty programs you can use to build customer loyalty and achieve repeat purchases:
1. Points Programs
Points programs are the most common type of loyalty program. They allow customers to accumulate reward points that they can redeem for free products, cashback, or other perks. Customers earn points not only from purchases but can also earn points through social media engagement, leaving reviews, or celebrating their birthday, or through games.
2. Tiered Programs
Tiered loyalty programs are a type of membership where customers receive different benefits based on their level. Membership is often categorized into tiers based on specific metrics such as sales or engagement.
3. Paid Subscription Programs
Paid loyalty programs provide instant and ongoing benefits to customers in exchange for a membership fee. This fee may need to prove its value to drive sign-ups, but the company can achieve a higher customer value from members. A recent report from McKinsey shows that consumers are 62% more likely to spend more on a brand after joining a paid loyalty program.
4. Value-Based Programs
The idea behind a value-based loyalty program is to connect with customers on a deeper level. This involves donating a percentage of purchases to charities or welfare programs. You can offer multiple options for different charities to choose from or continue to support one charity that truly aligns with the customers’ values.
Examples of customer loyalty programs
Here are 7 examples of some of the best customer loyalty programs and what you can learn from each:
1. DSW
Designer Shoe Warehouse (DSW) operates a traditional VIP loyalty program that rewards customers with points for every purchase and includes tiers of rewards that customers can unlock as they spend more. However, the problem with automatic rewards is that customers forget about the loyalty program. Thus, DSW had to find a way to keep customers engaged with their program and remind them of their status and what they could earn by spending at DSW stores.
2. Sephora Beauty Insider
Sephora’s Beauty Insider program is an extremely popular rewards program. It has over 25 million loyal members, and program members account for up to 80% of Sephora’s annual sales. Customers earn rewards for every purchase based on a traditional points system. The innovative part is that members can choose how to use their reward points.
3. Starbucks Rewards
When Starbucks launched the Starbucks Rewards program through the Starbucks app, it was a new idea. Running the program through the app makes it easy for customers—no punch card required or check-in needed. To earn loyalty points (or stars, in Starbucks’ case), customers must order or pay using the Starbucks app. Starbucks can gather information about customer preferences and behavior by directing customers to its app.
4.
Amazon Prime
The primary membership program at Amazon is a well-known paid loyalty program. For a fixed annual fee, Prime members receive unlimited access to free two-day shipping on millions of products, along with other benefits like Amazon’s streaming services and Prime Day sales.
5. The North Face
The North Face, a clothing and outdoor equipment company, encourages loyalty program members to earn more rewards by offering flexibility in how they redeem them – with options designed to fit the lifestyles of their customers. Customers earn points with the XPLR Pass program in the traditional way with each purchase, and in unique ways such as attending exclusive The North Face events, checking in at specific locations, and downloading The North Face app.
6. REI Co-op
Consumers can be quite cynical about brands and marketing initiatives. They know that the ultimate goal is always to convince them to buy more products and spend more money. For this reason, the most innovative loyalty programs shift the focus away from convincing customers to spend more and redirect it towards creating value for them.
7. Apple
Sometimes, the most innovative loyalty program is simply having no loyalty program at all. Not every retailer can build a loyal and enthusiastic customer base – like Apple – without offering rewards and incentives. But sellers who provide truly unique products can do so.
When Should You Add a Loyalty Program to Your Business?
Every business today competes for customer trust. One of the best ways to build that trust is through gratitude and providing a customer experience that they can’t find anywhere else. Instead of spending your time searching for new customers, you can start a loyalty program to nurture the relationship with your current customers.
Create customer loyalty from day one by ensuring that the customer experience is considered at every touchpoint with customers. This includes touchpoints before, during, and after the purchase. Even if you don’t set up a loyalty program from the start, you can always ensure that each customer has a positive experience.
If you have a Shopify store, creating an online loyalty program is easy. You can download an app like Smile or Yotpo from the Shopify app store and get started today.
For example, using an app like Smile, you can create rewards points and referral programs that encourage customers in your store. It helps you with everything from designing the program to setting up a widget on your website to attract visitors’ attention and encourage them to sign up.
Customers will also have their own rewards portal on their phones, so they can manage their accounts, earn rewards, and redeem points anywhere.
Do Something Different with Your Loyalty Program
Over the past decade, loyalty programs and rewards programs have proven to be an effective way to improve customer retention rates, increase customer lifetime value, provide excellent customer service, and foster brand loyalty. While a subtle punch card has a place for some businesses, a truly innovative approach to customer loyalty programs can create immense value for sellers.
How will you reward customer loyalty through your loyalty program?
Illustration by Rachel Tunstall
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Frequently Asked Questions About Customer Loyalty Programs
What are the best loyalty programs?
– DSW
– Sephora Beauty Insider
– Starbucks Rewards
–
Amazon Prime
– The North Face
– REI Co-op
What do loyalty programs mean?
Loyalty programs provide customers with additional rewards and promotional offers for repeat shoppers. Every purchase earns a reward. Reward programs are great for retaining customers and their loyalty as they encourage future purchases.
What are the different types of loyalty programs?
Loyalty programs can be referral-based or purchase-based (or both). Programs can be point-based, pay-per-use, referral, tiered, or paid. You can run your loyalty program online or with a tangible item such as a punch card.
What is the purpose of a loyalty program?
The goal of a loyalty program is to encourage customers to continue purchasing from your business instead of competitors.
Loyalty programs vs. rewards programs
Loyalty programs are long-term marketing efforts that provide incentives for repeat customers who show loyal purchasing behavior. These programs can offer customers special discounts, cash back, free products, or other rewards. The aim is to increase customer loyalty by providing benefits not available to regular customers.
Rewards programs, on the other hand, are typically more transaction-focused. They provide customers with immediate benefits or rewards for each purchase, such as points for every dollar spent that can be redeemed for goods, services, discounts, or perks. These programs are more focused on incentivizing and rewarding individual purchases rather than building long-term customer loyalty.
How to create a loyalty program
Step 1: Define your goals
Determine what you want to achieve with your loyalty program. This may include increasing customer retention, attracting new customers, encouraging higher spending, etc.
Step 2: Understand your customers
Analyze customer behavior, preferences, and needs. This will help you design a program that targets them.
Step 3: Choose the type of program
Decide on the type of program that will meet your goals and target your customers. This could be a points system, a tiered system, or a paid program, etc.
Step 4: Define the rules
Clearly outline how customers can earn and redeem rewards. Ensure that the rules are simple and easy to understand.
Step 5: Implement the program
This involves the technical setup (such as creating a mobile app or integrating it with your website), training staff, and launching the program to your customers.
Step 6: Promote your program
Utilize various marketing channels to make your customers aware of the program and its benefits.
Step 7: Measure and adjust
Regularly review the program’s performance against your goals. Adjust the program as necessary based on customer feedback and data.
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