More than 90% of companies have some form of customer loyalty program.
How Customer Loyalty Programs Work
A customer loyalty program rewards customers who regularly interact 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 insider perks. The goal is to stimulate repeat purchases and build trust between the customer and the business.
95% of customers say that trust in the company increases their loyalty. Report on Customer Trust Trends, Salesforce Research
A recent survey by Yotpo revealed that people will go above and beyond for the brands they love. Around 68% of participants said they would join a customer loyalty program for brands they love, while 56% of them are willing to spend more with the brand even if there are cheaper options available.
The study also found that people want more than just free shipping and discounts. They want early access to offers and new products as well.
Running a customer loyalty program means you will have to offer something for free. Whether it’s discounts, sales, early access, etc. But the return on investment from having rewards programs is tremendous:
- More referrals from customers. If you have a great loyalty rewards program, people may tell their friends and family about it. More referrals mean more customers.
- Higher customer retention. If people see value in your customer loyalty program, they’re likely to stick around longer.
- More sales. Want to increase the average order value? According to the latest research on loyalty, 49% of consumers agree they’ve spent more after joining a loyalty program.
- Brand advocacy. A successful loyalty program can turn ordinary customers into brand advocates. This team helps your company reach new customers through word-of-mouth, a low-cost marketing strategy compared to paid advertising.
Types of Customer Loyalty Programs
Not all loyalty programs are the same. There are different types of rewards programs you can use to build customer loyalty and drive repeat purchases.
1. Points Programs
Points programs are the most common type of rewards program. They allow customers to accumulate reward points that they can exchange for free products, cashback, or other perks. Customers earn points not only from purchases but also by engaging on social media, leaving reviews, celebrating birthdays, or through games.
An example is Bodycare Blume’s store that uses a points system called Blume Bucks in its loyalty program called Blumetopia. Customers can earn Blume Bucks by following the brand on Instagram, placing an order, or telling friends about Blume.
2. Tiered Programs
Tiered loyalty programs are a type of membership where customers receive different benefits based on their tier. Companies often categorize membership into groups based on specific metrics such as sales or engagement.
These rewards programs provide customers with a goal. The higher their tier, the more exclusive and better rewards they will receive.
ThirdLove’s bra and underwear brand uses a tiered system for its program, Hooked Rewards. Customers can simply sign up for the program and start earning rewards immediately. The more a customer spends with ThirdLove, the greater the benefits they receive.
Once
If a customer spends $250 with the brand, they become excited. This tier receives additional benefits, such as free underwear with purchases and exclusive seasonal offers. If the customer spends more than $450 with the brand, they get a chance to win prizes and limited product releases.
3. Paid Loyalty Programs
Paid loyalty programs, or fee-based loyalty programs, provide immediate and ongoing benefits to customers in exchange for a participation fee. These fees may be recurring or one-time.
Paid programs might require proof of value to obtain registration, but the company can achieve higher customer value from the members. A recent report from McKinsey shows that consumers are 62% more likely to spend more on the brand after joining a paid loyalty program.
One common example of a paid loyalty program is Amazon Prime. Although it seems like a challenging model to replicate, a paid loyalty program can fit many different business models.
McKinsey identified three elements that successful paid loyalty programs share:
- The benefits clearly outweigh the fees, encouraging enrollment. Members continue to enjoy trial benefits, such as personalized experiences and member-only content. Engagement levels are high. Good paid programs have a continuous wheel of interaction that increases the value of the program.
4. Value-Based Loyalty Programs
The idea behind a value-based loyalty program is to connect with customers on a deeper level. It involves donating a percentage of purchases to charities or welfare programs. You can offer multiple options of different charities to choose from or have one charity that truly aligns with the customers’ values.
This program doesn’t actually reward customers. However, it occupies a special place in their hearts, as the rewards benefit the community. Brands often create a hybrid rewards program using this model.
For example, it allows members at Sephora to donate their rewards points to the National Black Justice Coalition.
So, for instance, if you have 500 points, you can donate $10 to the organization. 1000 points give a $20 donation, and so on.
Not sure where to start? Ask customers what they want from a rewards program. You can run a survey or poll among your customer base to find out. Then create a rewards program accordingly.
Best Examples of Customer Loyalty Programs
Here are our 7 picks for the most innovative customer loyalty programs and what you can learn from each. These examples will give you ideas for starting your own customer loyalty program today.
1. DSW
It has a traditional VIP loyalty program that rewards customers with points for every purchase and includes reward tiers that customers can unlock as they spend more.
Their programs work seamlessly. There is no member ID number or credit card for customers to remember – instead, DSW’s online system recognizes customers by their name, phone number, or payment information.
The risk when rewards become automatic is that customers forget about the loyalty program. Customers who forget the loyalty program are not enticed to spend more to earn more. DSW had a way to keep customers engaged with its program and remind them of their standing and what they could earn by spending more at DSW stores.
In early 2017, DSW launched an email campaign aimed at reminding customers about their program. The campaign consisted of a personalized email that detailed:
- The number of loyalty points they needed to earn a $10 discount certificate
- The deals
- Those who are currently entitled to benefit from it
- An overview of their interactions with the brand, including the duration of their loyalty club membership, the number of points they have earned, and how much they have saved in the past two years.
What made the campaign incredibly successful is the level of personalization. Loyalty programs like DSW give the brand access to a wealth of customer data. DSW utilized this to its advantage (along with some reliable email automation) to build highly personalized and relevant individual email messages – distinct from the other generic marketing emails that sit in customers’ inboxes.
2. Sephora Beauty Insider
Sephora’s Beauty Insider rewards program is extremely popular. It boasts over 25 million loyal members, and 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 rewards points.
One of the biggest barriers for many Sephora customers is price – Sephora products are not cheap. Beauty Insider members can redeem their reward points for gift cards and discounts, helping to offset purchase prices without diminishing the value of the products. Loyalty members can also redeem points for more exclusive items, such as limited edition products or in-store beauty classes.
By empowering loyalty members to choose how they use their reward points, Sephora can offer customers the deals and products they truly want without undermining the value of their offerings.
3. Starbucks Rewards
It is now common for retailers to create mobile apps to manage loyalty programs, but when Starbucks launched the Starbucks Rewards program through the Starbucks app, it was a novel idea. Running the program through the app makes it extremely convenient for customers – no punch card to forget or lose, no login required.
To earn loyalty points (or stars, in Starbucks’s case), customers must order or pay using the Starbucks app. Collecting customer transaction data in this way provides a wealth of information about customer preferences and behavior.
Favorite drink orders, customer lifetime value, frequently visited locations, seasonally preferred items – by guiding customers toward its app, Starbucks can gather information about all of these habits and more, allowing the brand to offer more relevant benefits and communications to its customers.
If the app is feasible for your online store, it could be a great way to collect and unify customer data. Otherwise, an advanced point-of-sale system can help you gather most of the same information.
4. Amazon Prime
The Amazon Prime membership program is well-known as a paid loyalty program. For a fixed annual fee, Prime members receive unlimited access to free two-day shipping on millions of items, along with other benefits like Amazon streaming and Prime Day sales.
Amazon faces stiff competition from other retailers like Walmart. Most products on Amazon can also be found elsewhere. Prime is how it sets itself apart and persuades customers to purchase products exclusively through Amazon. And it works: Prime members spend an average of four times more than other customers on Amazon.
For retailers in similar industries where products and price points are highly comparable among competitors, your loyalty program can become a differentiator and competitive advantage.
In wholesale membership clubs like Costco, provide customers with a reason to shop exclusively with you by offering value in addition to your products and services. By charging a membership fee, you can give yourself some flexibility to offer truly valuable perks. Upfront investment also encourages consumers to solidify their purchases by spending more with you.
When to Add a Loyalty Program to Your Business
Every business today competes for customer trust. One of the best ways to build this trust is through gratitude and providing a customer experience they can’t find anywhere else. Instead of spending your time searching for new customers, you can initiate a loyalty program to cultivate the relationship with your existing customers.
Establish customer loyalty from day one by ensuring that the customer experience is considered at every touchpoint with the customer. This includes touchpoints before, during, and after the purchase. Even if you did not set up a loyalty program from the start, you can always ensure that every customer has a positive experience. Nichole Elizabeth DeMeré, CMO, Reeview.app
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, with 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 catch the visitors’ attention and encourage them to sign up.
Customers will also have their own rewards portal on their phones, allowing them to manage their accounts, earn rewards, and redeem points anywhere.
Do Different Things with Your Loyalty Program
Over the past decade, loyalty and rewards programs have proven to be an effective way to improve customer retention rates, increase customer lifetime value, provide good customer service, and inspire brand loyalty. While a quiet punch card holds a place for some businesses, a truly innovative approach to customer loyalty programs can create massive value for merchants.
How will you reward customer loyalty through your loyalty program?
Illustration by Rachel Tanstall
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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?
A loyalty rewards program gives repeat shoppers extra benefits and offers. Every purchase earns some form of reward. Rewards programs are great for customer retention and loyalty because they encourage future purchases.
What are the different types of loyalty programs?
Loyalty programs can be referral-based, purchase-based (or both). Programs can be point-based, tier-based, spending-based, or value-based. You can run a loyalty program online or using a tangible item like a punch card.
What is the purpose of a loyalty program?
The purpose of a loyalty program is to incentivize customers to continue purchasing from your business rather than from competitors.
Loyalty Programs vs. Rewards Programs
Loyalty programs are long-term marketing efforts that provide incentives for repeat customers who show loyal buying behavior. These programs can offer customers special discounts, cashback, free products, or other rewards. The goal is to increase customer loyalty by offering benefits that regular customers do not receive.
Rewards programs, on the other hand, tend to be more transactional. They provide customers with instant 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 focus more on incentivizing and rewarding individual purchases rather than building long-term customer loyalty.
How to
Creating a Loyalty Program
Step 1: Define Your Goals
Determine what you want to achieve with your loyalty program. This could be 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 achieve your goals and target your customers. It could be a points system, tiered system, or paid program, etc.
Step 4: Establish the Rules
Clearly define how customers can earn and redeem rewards. Ensure that the rules are simple and easy to understand.
Step 5: Implement the Program
This includes the technical setup (such as creating a mobile app or integrating it with your website), training employees, 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 performance of the program against your goals. Adjust the program as needed based on customer feedback and data.
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