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What Is a Customer Loyalty Program and How to Set It Up?

ByAparna Seshadri

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Are you struggling to turn one-time customers into loyal, repeat buyers? In today's highly competitive market, brands are constantly battling for customer attention and loyalty. Customer loyalty programs may offer you the solution you’re looking for.

In this comprehensive guide, you’ll learn everything there is to know about customer loyalty programs, including various types, how these programs operate, and how you can set up one for your business.

Table of contents

What are loyalty programs?

Loyalty programs are strategic initiatives through which businesses reward repeat customers with enticing benefits such as discounts, free offers, and exclusive incentives.

When implemented thoughtfully, prioritizing the customer experience, loyalty programs can create a positive sentiment in customers, making their purchasing decisions more satisfying.

How do customer loyalty programs work?

The customer loyalty program of a brand offers customers incentives in the form of points or benefits when they make a purchase from them. These points accumulate in the customer’s account on the brand’s website or app or in special cards that brick-and-mortar businesses give to their loyal customers.

Customers can then redeem these points for discounts, free products, rewards, or insider perks. Different types of loyalty programs differ in how points are earned, the benefits that they offer and the overall structure of the program. We’ll go through the different types later in this article.

Importance of loyalty programs

Customer relationships thrive when both parties receive value. Customers extend their support through purchases, and in reciprocation, loyalty programs offer enticing rewards to them. Here are 8 compelling advantages of implementing a customer loyalty program for your brand:

  1. Enhanced customer retention: It contributes to retaining customers by fostering a sense of commitment.

  2. Increased customer lifetime value: By encouraging repeat business, loyalty programs elevate the lifetime value of each customer.

  3. Revenue boost: It often entices loyal customers to spend more, resulting in significant revenue growth.

  4. Strengthened customer relationships: It helps deepen the connection between customers and the brand, building stronger, more lasting relationships.

  5. Word-of-mouth marketing: It turns satisfied customers into brand advocates, promoting the business through positive word-of-mouth.

Who should have a customer loyalty program?

Customer loyalty programs can benefit various businesses, especially those aiming to build lasting relationships and retain customers. This includes almost any kind of D2C and B2C business that provides service or sells products, including:

  1. Ecommerce businesses

  2. Brick-and-mortar stores

  3. Airlines

  4. Hotels

  5. Banks

What do customers want from a loyalty program?

Customers have evolving expectations from loyalty programs, seeking features and benefits that enhance their overall experience. Here are key aspects customers desire from loyalty programs:

  1. Community building and social engagement: Customers value programs that foster a sense of community, allowing them to engage with other members and the brand itself.

  2. Exclusivity: Customers prefer loyalty programs that offer unique and differentiated rewards or experiences, making them feel special, more important and a part of an exclusive club.

  3. Real value: Customers seek tangible and substantial value from loyalty programs, including discounts, exclusive access, or personalized offers that genuinely enhance their purchasing experience.

  4. Instant rewards: Always-on rewards that are instant and easily accessible contribute to customer satisfaction, aligning with the desire for immediate gratification.

  5. Brand partnerships with value-added experiences: Collaborations with other brands to provide additional value or unique experiences amplify the appeal of loyalty programs, offering diverse benefits to customers.

How to create a loyalty program?

The following steps will help you create a loyalty program:

  1. Define clear objectives: Pinpoint specific goals—increasing purchase frequency, lowering churn, or enhancing engagement. Keeping targeted objectives increases of the program's success.

  2. Leverage customer data: Utilize customer data, including milestones, purchase history, and preferences, to tailor effective loyalty programs. A data-driven approach offers flexibility, allowing customers unique experiences within the same program.

  3. Keep it simple: Avoid complexity, as customers are drawn to well-planned, easy-to-understand loyalty programs. Simplify enrollment, benefits, and rewards redemption processes to enhance participation and satisfaction.

  4. Effective marketing: Promote your loyalty program strategically through channels like email announcements, website banners, social media promotions, and more. Ensure customers know the program's details, benefits, and how to enroll.

  5. Continuous customer communication: Regularly engage customers through emails and texts to remind them of program value. Provide personalized messages, exclusive deals, and renewal reminders based on usage patterns, ensuring your program stands out among competitors.

6 types of loyalty programs

Let's go through the different types of loyalty programs that you might want to use for your ecommerce business.

1. Points-based programs

Points-based programs reward customers with points for their purchases. This is the most prevalent type of rewards initiative, enabling customers to amass points for various benefits such as freebies, cashback, and perks. Beyond purchases, customers can earn loyalty points through social sharing, reviews, birthdays, and gamification activities. After accumulating a certain number of points, they can redeem them. Also, this encourages repeat visits and customer retention.

2. Tier-based programs

Tier-based programs offer customers different levels of benefits according to their loyalty tiers. As customers progress through the tiers, they unlock access to exclusive products, early releases, and rewards. Higher tiers also provide additional perks such as free shipping, double points, and free trial offers, creating a sense of achievement for loyal customers. This progression encourages customers to strive for higher tiers, strengthening brand loyalty and retention.

3. Subscription programs

Subscription programs provide members exclusive access to premium features, products, or benefits in exchange for a recurring fee. Subscribers enjoy early access to new products, exclusive items, or members-only events, fostering a sense of exclusivity and belonging.

4. Value-based loyalty program

In this model, a portion of each purchase contributes to charitable or welfare initiatives. Brands may offer a range of charity options or align with one that resonates with their customers' values.

Unlike traditional loyalty programs, this approach doesn't provide direct rewards to customers. Instead, it holds a unique significance by channeling the rewards toward societal benefits. Many brands adopt a hybrid loyalty program, combining value-based and traditional models.

5. Hybrid Loyalty programs

A hybrid loyalty program integrates multiple loyalty systems, combining elements from distinct approaches. For example, you can blend the tier system with a game program, allowing customers to advance in loyalty levels by completing new stages in your game. By combining traditional and interactive elements, this amalgamation provides a multifaceted and engaging customer experience.

6. Cashback loyalty programs

A cashback loyalty program is a type of loyalty program that gives customers a percentage of their purchases as cash rewards. The program encourages customers to spend more while saving them money on each purchase. These are popular because they provide instant gratification, reinforcing the customer's shopping decision.

6 of the best examples of customer loyalty programs

Below are some examples of customer loyalty programs that you can get inspiration from:

1. Chubbies

Chubbies excel as a point-based loyalty program as it simplifies customers' process of accumulating points. While earning customer loyalty can be challenging, the same should not hold for loyalty points. If obtaining points is a complex task, it can lead to customer discouragement.

To address this, Chubbies ensures accessibility by allowing even one-time customers to earn up to 350 points. This substantial amount equals an almost $20 discount on their next purchase!

2.Lancome

Lancome offers a tier-based loyalty program and rewards across rose, gold, and platinum tiers. This tiers is based on the level of engagement or spending. These exclusive tiers grant special privileges, including early access to upcoming products and exclusive invitations to brand-organized events.

3. DoorDash

DoorDash's paid loyalty program, DashPass, allows customers to become members for a small monthly fee. Students can sign up for a discounted DashPass plan for $4.99 per month or $48 per year.

4. Lego Insiders

LEGO Insiders is a loyalty program that launched in August 2023. It replaced the LEGO VIP program. Once you've signed up, you get points by participating in activities, purchasing sets on LEGO.com to purchasing directly from LEGO Stores, and registering your LEGO sets. You can find a list of LEGO Stores here.

5. Bank of America

Depending on the category, Bank of America offers 1%, 2%, and 3% cashback. For example, customers can earn 3% cashback for purchases in their chosen category and 2% cashback for shopping at grocery stores and wholesale clubs.

6. Starbucks rewards

Starbucks rewards app combines a points-based program with tiered loyalty. Customers earn "stars" (points) based on their spending. For every 150 stars collected, customers can redeem a free drink. At 450 stars, users reach the "gold level" tier.

Takeaways

To stay ahead in the competitive market, brands continuously strive for customer attention and loyalty. Strategic initiatives like loyalty programs emerge as secret weapons for building lasting connections. When executed with careful consideration for the customer experience, these programs go beyond mere point systems or tier structures. They become tools that inject positivity into customers' buying choices, turning their loyalty into a satisfying and rewarding decision. The realm of customer loyalty is extensive, and with the right strategies, your business can chart a path that aligns with your mission, products, and overall goals.

Frequently Asked Questions

The popularity of loyalty programs can vary, but some widely recognized and popular ones include Starbucks Rewards, which offers points for purchases, and Amazon Prime, known for its membership-based loyalty program providing various benefits like fast shipping and exclusive deals.

The loyalty programs aim to achieve two key objectives:

  1. Increase customer base
  2. Enhance customer retention

An effective loyalty program possesses key characteristics such as simplicity, providing meaningful rewards, seamless digital experiences, prioritizing customer engagement, and incorporating features like points, tiers, rewards catalogs, vouchers, referrals, and achievements.

The 3 R's of a successful loyalty program are- Reward, Recognition and Relevance.

What should you do next?

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