Customer loyalty programs: A quick guide

Can you think of a few brands that you would consider yourself loyal to? Maybe it’s your neighborhood coffee shop or a big box store that sells in bulk. Now ask yourself why? What is it about these brands that makes you return to them every time?

If loyalty programs made your list of reasons why, it wasn’t accidental.

Businesses across the globe have recognized the importance of fostering a relationship with their customers through customer loyalty programs.

But what exactly are customer loyalty programs, and why are they so essential?

In this guide, we’ll take a walk through the world of customer loyalty programs. We’ll explore their benefits, examine successful examples from various industries, and give tips on how to create your own program to strengthen the bond with your customers.

What is customer loyalty?

Let’s start with the basics; what is customer loyalty and how do we measure it?

Every interaction influences a customer’s loyalty – it’s something that brands need to continuously work on.

How do I measure customer loyalty?

It’s one thing to guess or assume customers are loyal, but to make improvements and strategically plan how to communicate with customers, we need measurable goals and metrics.

What is a customer loyalty program?

A customer loyalty program is an initiative brands offer to reward customers who make repeat purchases, send referrals, and engage with them.

Depending on the brand and industry, there are many ways you can reward customers for their loyalty. Free products, exclusive offers, member status, and cashback points are some of the more popular ways brands thank their loyal customers.

But how do brands choose what kind of loyalty program to offer – and what are the options?

Well, you can get as creative as you like to stand out or go with a tried-and-true loyalty system. Let’s cover nine types of loyalty programs that have helped brands improve satisfaction and yield great results.

9 types of loyalty programs with examples

Paid loyalty programs

Paid loyalty programs have grown in popularity over the last few years. Essentially, customers pay a fee to get perks and higher-value products and offers with their loyalty status.

Example: Barnes and Noble

The book-selling moguls have a very popular loyalty program in place. First, they offer a free loyalty program, where customers collect stamps ($10 = 1 stamp, 10 stamps = $5 reward). But they also offer a paid program – customers pay a yearly fee and get a long list of perks including free shipping, 10% discount on their web shop, one free eBook a month and much more.

Points program

A points-based loyalty program allows customers to collect points with every purchase, and they can redeem their points for discounts, free products, or other perks.

Example: Starbucks

The Starbucks rewards program is immensely popular among their customers. Customers earn one “star” with every dollar of their purchase and can use their stars for free products. Depending on how many stars they collect, they can get anything from a free coffee (25 stars) to Starbucks merchandise (400 stars).

To encourage the use of their app, Starbucks offers double the stars if you use their rewards program through their app.

Cashback programs

Example: American Express

Cashback rewards is most popular with credit card providers, like American Express. With a cashback card, customers earn a percentage on every dollar they spend on eligible purchases with their American Express card and can use their cashback rewards to pay their American Express bill every month.

Tiered loyalty program

A tiered program ranks customers based on their loyalty. The more engagement or purchases a customer makes, the higher their status with your brand. Customers can access different perks based on their status.

Example: Sephora

Sephora’s Beauty Insider is a great example of a successful tiered loyalty program. Customers collect points on purchases and can redeem rewards like samples or even full-sized products. There are 3 tiers (Insider, VIB, and Rouge), and all three have great perks to start like free shipping and birthday gifts, but the rewards get better the higher you climb.

Sephora’s Beauty Insider program is extremely popular among shoppers. The program boosted cross-sell leads by 22% and 13-51% increase in upsell revenue. Sephora is continuously making changes and improvements to their loyalty program to engage better with their customers, and offer better rewards and prizes as they grow.

Referral program

A referral loyalty program encourages your customers to invite new customers to try your products and services. The existing customer gets some sort of reward for their referral, and you’ve gained a new user.

Example: Revolut

Revolut is a fintech brand that has been quite successful with their referral program. Customers recommend Revolut to their friends and family and only after the new customer has completed a certain number of actions does the existing customer get their reward. This encourages customers to recommend serious referrals and not dead-end ones just to get a reward.

Game-based loyalty programs

Gamified loyalty programs add a fun element to your loyalty program and encourage greater engagement than other types of programs. Brands can create a game, unlock new levels with purchases, complete quizzes, and much more with a gamified approach to a loyalty program.

Example: Tim Horton’s

Canada’s favorite coffee shop, Tim Horton’s, has been using “Roll-Up the Rim” for 35 years. Up until 2020, customers would by a Tim’s drink and roll up the rim of their cup to reveal a prize. Prizes could be anything from a free coffee or donut, cash, or even a new car! Tim Horton’s had to shift to a digital version of the game, where customers can still win prizes by buying Tim’s products, but the reveal is on the Tim Horton’s app.

This game-based loyalty program adds a much more exciting element to drinking your morning coffee, with the anticipation that one cup could bring you big wins.

Value-based programs

Value-based programs don’t directly impact the customers, but rather the brand donates a percentage of the purchase or pledges to contribute in some way to a social or economic issue.

Example: Warby Parker

By purchasing at Warby Parker, customers feel they have made a greater impact through their purchase or even by donating their old glasses. Eye wear is a must-have necessity for many people, why not help another person out when you make your annual purchase?

Partnership loyalty program

A partnership loyalty program involves two businesses partnering up and providing each other’s customers with shared benefits. This could be cross-industry partnerships, like between a retailer and an airline. Customers spend with one brand and can reap rewards from another – and vice versa.

Example: PayPal and Spotify

Spotify and PayPal offered new customers a great deal, where if they use PayPal to sign up for a Spotify Premium account, they get the first three months of Spotify Premium for free.

The benefits of having a customer loyalty program

Boost revenue

Reduce churn

Personalize experiences

Deeper connections

Loyalty program members generate about 12-18% more revenue growth per year than non-members.

Probably the most obvious benefit of a loyalty program is the high number of repeat purchases. Encouraging customers to keep spending with your brand to earn points and get rewards is a great way to keep them loyal – helping your brand boost its revenue year after year.

Reduce churn

84% of customers say they are more likely to stick with a brand if they offer a loyalty program.

If your loyalty program is well planned and beneficial to your customers, you significantly lower the risk of your customers churning. You’re offering them rewards unique to your brand, plus if they churn, they lose all the points they’ve earned – it’s a good incentive to stay.

Personalized experiences

80% of customers would rather do business with brands that offer personalized experiences.

A loyalty program gives your brand a great opportunity to personalize interactions with customers, sending them relevant promotional messages that are tailored to their spending habits, and rewards that apply to their favorite products. Customers are less likely to engage with your loyalty program if the rewards are for products or services that don’t interest them.

Form deeper connections with customers

60% of consumers that are part of a loyalty program believe their relationship with the brand goes beyond a transactional one.

Through a strong loyalty program, along with personalized experiences and offers, brands can form much deeper relationships with customers, proving that they understand their needs and are ready to reward their loyalty to your brand.

Tips to launching a successful customer loyalty program

1. Use customer data to your advantage

Your first- and zero-party data hold a lot of potential in helping you personalize your interactions with customers and tailor their loyalty program to their interests.

Using a customer data platform can help you collect and organize customer data. When you collect data from various sources and remove data silos, you can view the full image of who your customer is and how they want to interact with your brand.

A customer data platform enables you to unify the data about a customer gathered from various interactions.

2. Automate messages

Automating loyalty messages can take a huge strain off your employees and will offer customers better overall experiences with your brand.

Take advantage of an omnichannel customer engagement solution that tracks the behavior and engagement of every customer. It is essential to analyze their behavior and send relevant information through their favorite channels about their loyalty program, encouraging them to stay up to date and engaged. Some popular use cases that can be automated for a loyalty program are:

3. Segment your audience

Simply having a loyalty program is not enough. When 90% of businesses have loyalty programs but 71% of customers say it has no effect on their loyalty, something’s got to give. The trick is to understand how to increase customer engagement in loyalty programs to make them more valuable.

You can optimize your loyalty program by segmenting your audience. Take what you already know about your customers and make sure they get messages about rewards and promotions that are relevant to them and their status within the program.

By segmenting your audience, you can send personalized loyalty offers.

Petpetgo is a top pet supply e-commerce company that used our solutions to segment customers based on purchase behavior and preferences. Customers received promotional offers based on loyalty status and preferences which doubled Petpetgo’s purchasing frequency.

4. Collect and act on feedback

Getting feedback from your customers about your loyalty program can go a long way toward helping you optimize the entire program to ensure both your business and customers are satisfied.

To help your feedback surveys get the best visibility, send customers messages on channels like Viber or WhatsApp where they can provide you with their thoughts directly in the conversation – no need to switch apps or windows.

You can use channels like WhatsApp to gather feedback from loyal customers.

5. Be responsive and reliable

Customers can have a lot of questions about your loyalty program – which could end up slowing down your customer service and adding more work to your live agents if you have a call center.

Consider launching a simple chatbot that focuses on your loyalty program, where customers can interact with your brand, get answers to their questions 24/7, browse prizes and rewards all within one chat app.

6. Re-engage dormant customers

A lost customer doesn’t need to be lost forever. It is your job to engage and re-engage your customers to nourish loyal relationships. You already know them well. You understand their habits, favorite communication channels, and their purchasing history. Use this to your advantage to reduce your overall churn.

Push notifications are a great way to re-engage. After a few weeks of inactivity on your app, send a relevant notification via their favorite channel to entice them to revisit your offers. This notification could be anything, like a ‘we miss you’ message to a 10% voucher just for them.

Build loyalty through conversations

With a well-crafted customer loyalty program in place, you’ll not only retain more customers and drive increased revenue, but you’ll also create a loyal community of brand advocates who will champion your business far and wide.

But even a well-planned program can fail if the messaging and conversations with customers miss the mark. Keeping all your interactions conversational, using always-on chatbots, automated marketing messages and reminders, and easy access to customer support all play a major role in keeping loyalty up.

All in all, designing the right kind of loyalty program, paired with a well-crafted communication strategy will help your brand reach higher levels of loyalty, which means consistent revenue growth and lower churn over.