In order to maintain customer loyalty, certain businesses implement a loyalty program, which involves offering special discounts to customers who make consistent purchases. The goal of this strategy is to provide customers with a reason to continue buying from the business.
Customer loyalty programs can increase customer engagement if they are well-executed and customer-centric. The type of loyalty program to choose depends on factors such as your mission, product, and goals for the reward program.
Customer Loyalty Programs
A customer retention strategy known as a customer loyalty program (or rewards program) is designed to encourage customers to continue purchasing from your business, rather than choosing competitors.
Benefits of a customer loyalty program
Just like personal relationships, successful customer relationships are based on mutual benefits. Customers show their support by purchasing from you, and the presence of loyalty rewards such as discounts and freebies assures them that they are receiving something in exchange.
If you haven’t already, it is advantageous to implement a loyalty program since more than 90 percent of companies have one according to Accenture.
Here are several benefits of a customer loyalty program:
Boosts revenue
Customer loyalty programs have the potential to increase the revenue of your business. The greater the affection a buyer has for your brand and the duration they remain engaged, the higher the probability of their increased expenditure. As an illustration, numerous shoppers may buy more products in order to advance to a superior level in a program or to avail a discounted price.
Improves customer retention and customer lifetime value
By implementing customer loyalty programs, you enhance the value of customers over time and foster repeat business. Offering rewards to your regular customers for their purchases is an efficient technique to ensure their continued patronage. Furthermore, providing buyers with a pleasurable experience contributes to greater satisfaction with your brand, facilitating the establishment of relationships with new customers.
Builds stronger customer relationships
Based on the Zendesk Customer Experience Trends Report, it was found that 75 percent of customers consider their experience with a brand when making purchasing decisions. Furthermore, in our survey, half of the consumers stated that customer experience holds greater importance to them now compared to a year ago. By implementing customer loyalty programs, you can enhance the overall experience and strengthen customer relations.
One effective way to distinguish oneself from other brands lacking a customer loyalty program is by implementing one. A loyalty program has the potential to:
- Give customers another reason to engage with your brand
- Provide rewards that allow customers to purchase products at a lower price than your competitors
According to HBR, companies that have effective customer loyalty programs experience a revenue growth rate that is 2.5 times faster than their competitors and generate shareholder returns that are 100 to 400 percent higher.
Encourages word-of-mouth marketing
When customers are rewarded for sharing information about your brand, customer loyalty programs can also promote word-of-mouth marketing. For example, offering a discount to customers who provide a review on Yelp can incentivize them to spread the word about your brand.
Referring to the customer loyalty programs, this is also applicable to the refer-a-friend concept. In this scenario, if a customer recommends a friend and their friend makes a purchase, the customer can be offered a free month of service as a reward.
Shows customers you appreciate them
Rewarding repeat customers with discounts and services is basically a way of showing customer appreciation, which is why a customer loyalty program is considered one of the best methods.
Motivates consumer behavior
By offering a discount code in exchange, you can motivate your customers to take certain actions such as subscribing to your newsletter or signing up for text alerts through a customer loyalty program.
How do loyalty programs work
The general process of loyalty programs involves offering customers incentives to make purchases or interact with the company in order to retain customers, increase their lifetime value, and show appreciation for their patronage, even though the specific mechanics of each program may vary.
- Customer makes a purchase or engages with a company
- Company prompts the customer to sign up for its loyalty program
- Customer signs up using their information (phone number, email, etc.)
- Customer receives rewards for purchases or through promotional materials
Below, learn more about the different types of customer loyalty programs and how each type works. In a points program, customers have the option to redeem their points for discounts or gifts, while subscription programs reward customers for subscribing. It is common for businesses to utilize a combination of these programs.
Types of customer loyalty programs
1. Point programs
The simplest programs in the commerce world are the point programs, which are also the most common programs. These programs operate on the basic principle that the more you spend, the more you receive.
Customers are awarded points based on the size of their purchase, whether it is in-store or on your website. These points can be exchanged for rewards such as discounts or special customer perks. Customers strive to accumulate a specific number of points to redeem their chosen reward.
2. Spend-based loyalty programs
In spend programs, businesses offer customers loyalty credits based on the amount they spend. This program is simple to comprehend, establish, and sustain. Moreover, it has been demonstrated as an effective method to enhance transaction amounts and decrease customer attrition.
3. Tiered programs
To strike a balance between achievable and appealing rewards, one possible approach is incorporating a tiered loyalty reward system. This system acknowledges initial loyalty and prompts further purchases.
In essence, the tier program operates by assessing levels of loyalty. Points are earned by customers with every purchase made. As the number of points accumulates, the loyalty level of the customer increases correspondingly. Consequently, the rewards obtained by customers also increase as their loyalty level rises.
4. Paid programs – VIP member club
Your VIP member club requires customers to pay a monthly or yearly fee in order to obtain access to special services, discounts, or unique opportunities. It is crucial for your paid program to offer benefits that are only available to members; otherwise, its value will diminish.
5. Value – based programs
If you design a loyalty program that reflects your customers’ values, they will be more inclined to promote your brand. The crucial question to consider is: How can you provide rewards to your customers without actually giving them rewards?
To begin with, it is crucial to establish your values. Consider the scenario where you operate an online pet store and are aware that your target audience highly regards animal welfare. In this case, one approach you can adopt is initiating a loyalty program resembling a point system, which converts customers’ purchases into currency. Consequently, whenever a customer makes a purchase worth 50€, you will contribute 5€ to an animal rescue organization.
By opting for the value-based program, the benefit is the ability to establish a robust and ethical relationship with customers, thereby fostering a deeper connection with them.
6. Partnered program
By offering customers more opportunities, a strategic partnership for customer loyalty can greatly enhance customer retention. Additionally, it can foster the growth of your business through the establishment of new business relationships and partnerships.
By offering customers value that is pertinent to their needs and surpasses what your company can solely provide, you demonstrate genuine understanding and concern for their requirements.
7. Game program
Is there anyone who does not love games?
One way to consider is converting your loyalty program into a gaming application to promote repeat purchases, enhance customer loyalty, amuse customers, and bolster your brand’s image in a more entertaining manner.
8. Hybrid loyalty programs
A hybrid loyalty program involves integrating multiple loyalty systems. For example, you can combine the tier and game programs, where customers advance in loyalty levels by completing game levels after making a purchase.
The point-based system paired with a tier program is the most commonly used combination because it simplifies point calculations for customers and motivates them to achieve higher loyalty levels and make more purchases.
9. Cashback programs
Cashback rewards programs are frequently utilized by financial companies to provide customers with cashback or money to spend with the business. By doing so, customers feel that they are receiving something in return despite spending money.
10. Community programs
Customer engagement can be promoted through community customer loyalty programs, which can emerge from a pre-existing loyalty program. A case in point is the Beauty Insider Community by Sephora, where loyalty program members can establish online clubs and groups.
By implementing this kind of program, brands can enable customers to publish inquiries, upload pictures of themselves using a product, and engage in interactions with each other.
11. Refer-a-friend programs
Referral programs offer incentives to customers who refer their friends and family, utilizing word-of-mouth tactics. This approach can transform devoted purchasers into brand ambassadors, and the referred individual may also make further referrals down the line.
By having referral programs in place, your customer acquisition cost can also be reduced as the customer will be doing the work on your behalf.
