A Guide to Customer Loyalty Programs  

Why Customer Loyalty Programs Matter

Customer loyalty programs influence the likelihood that a customer will continue purchasing from a given company rather than their competition. This brand loyalty is reinforced by an ongoing positive relationship between a customer and a business and damaged by poor experiences. Having loyal customers is crucial for any company; in fact, it may be what gives a business an edge over its competitors. Customer loyalty does not only motivate customers to choose one business over another, but loyal customers often recommend their favorite brands to family and friends. From a financial perspective, loyal customers are more likely to spend money with you, speak highly of you, and return to your business time and time again. All of this contributes to your business goals. So, what makes a customer loyal to a brand? Customers want to feel as if they are valued, and the best way to do that is through a loyalty program designed to create great customer experiences.


The Benefits of Loyalty Programs 

A loyalty program is a business practice that encourages people to continue to shop with a brand by rewarding customers that frequently engage with that brand. By offering points, free merchandise, coupons, and more, businesses can use loyalty programs to increase long-term relationships with customers. Often, these programs are implemented by marketing teams, but they can be implemented by customer service or a dedicated team as well. The benefits of loyalty programs tend to fall into two categories, increasing customer engagement and maximizing customer value.

shopping online creates lots of data for loyalty programsLoyalty programs can also be a good way to track and influence customer engagement. The program will allow you to track data and analytics to see how customer loyalty affects sales, as well as to measure metrics such as repeat customer rate and purchase frequency. Additionally, loyalty programs allow for a direct line of communication with the customer. Companies can use the program to communicate with their customers instead of relying on email. In the case of an emergency, like a recall, the company can use many channels to ensure customers are kept safe and satisfied. These investments in customer engagement will help protect the brand image and keep customers buying from the brand.

A loyalty program is also a good way to maximize your revenue per customer and to bring in new customers.. If a company offers points or discounts for simply signing up for the program, new customers will want to take advantage of that. Customers will also be incentivized to join the program through the offer of rewards within reach. According to a study, 42% of customers say incentives often motivate consumers to choose one brand over another, and 75% of customers are likely to make another purchase after receiving an incentive. So, having a rewards program will not only encourage new customers to sign-up but keep customers buying more through time.

What Makes a Good Loyalty Program? 

Loyalty or rewards programs are not new concepts, but they have now become an expected part of the customer experience, and a traditional loyalty program may no longer be enough. In fact, 42% of Americans say that they will stop shopping with a brand they are loyal to after two bad experiences. So, getting the loyalty program right is important, and there are many models to choose from, though they tend to come in two forms – gamification and pay-for-benefits 

Using Points to Gamify Loyalty

The points system is one popular model for reward programs. The system revolves around the idea that the more a customer spends, the more they get in return. When a customer makes a purchase, they will receive points depending on how much they spend. One example of a company that uses a point system is Starbucks. If you use the Starbucks app to make a purchase, you will receive points or stars. When you work up to a certain number of stars, you will get a free product. Having rewards within reach encourages customers to sign up for the program in the first place. 

Rewards systems also provide unique opportunities to enhance your customer experience. Because the rewards are tracked within an owned app that connects to a point of sale, there is the possibility to prompt customers to take certain actions or the ability to reward them in unique ways. This will differ from business to business but helps the customer feel they are winning something just by participating. 

Tiered Programs for Increased Gamification

Tier based loyalty programs are based on different levels of loyalty. The more loyal you are to a brand, and the more you purchase from them, the more rewards you will receive. Offering tiers is a great way to engage customers since the chance to reach a higher level turns buying products into a game of sorts. A great example of the tier program is Sephora Beauty Insider. Members of Sephora Beauty Insider climb from the free Insider tier up to VIB Rogue, which is offered to those who spend $1000 within a calendar year. Each tier gets a different amount of discounts, samples, and special experiences. 

For a business trying to expand engagement and drive further purchases, using tiers can give customers something to aim for and achieve. This can be useful when you need to get a marginal increase in how much customers spend.  By rewarding them when they reach these benchmarks, you can help reinforce repeat purchases and other repeat behavior.

Paid Loyalty Programs For Exclusive Deals

Another type of loyalty program is the paid program. Paid loyalty programs involve inviting customers to pay a monthly or annual fee to join a member’s club. The club has many benefits for the customer, including special discounts or potentially a communal space for discussion. This type of program flourishes on marketing towards existing or loyal customers since new customers are unlikely to join paid rewards programs. 

An example of a company that uses the paid program is Barnes & Noble. Their VIP program costs $25 dollars a year, and in return, members receive discounts, free shipping, and other benefits. The value of the loyalty program outweighs the cost of motivating people to join. Once customers have joined, you have additional ways to impact their behavior and loyalty. Because they’ve made an upfront commitment, customers will often take deals and offer that you make to ensure they get full value out of their membership. 

Subscriptions: Convenience Based Loyalty

pay for experience programs like subscription services can be powerful tools for better cxThe subscription program is a newer type of loyalty program, similar to the paid program, but with one difference. The subscription program involves customers signing up for a subscription to receive products or services. One example is, Bean Box, a company that sells artisan coffees, employs the subscription program. Customers spend $24 a month and in return get multiple bags of coffee. On Bean Box’s website, a customer can choose what type of coffee—light, medium, dark, etc.—they prefer, making the process personalized.  This personalization can then be used to suggest new flavors and products to customers. 

Paying for this convenience ensures both a constant supply of a desired good for the consumer and also a flow of revenue for your business. To get the most out of subscriptions though, the relationship needs to deepen and grow with time. As customer desires change, you may need to adapt to their new needs rather than historical preferences. Reacting in real-time is easier with a subscription-based loyalty program in part because you can use the information gathered from transactions, behavior, and expressed preferences to note both changes from and adherence to historical behavior.

Customer Loyalty is a Key Part of the Customer Journey

Customer loyalty is a crucial part of retaining consumers. Whether you choose to model your program after the points system or the tier system, it is important to appeal to your customers’ desires. By making an emotional connection with the customer through loyalty programs, a company can make the most use out of the customer’s buying power. Building these emotional connections can be difficult, but with the power of real-time decisioning, businesses can make each customer relationship more like a conversation. To learn more about the power of real-time interaction management, check out our recent webinar, the Importance of Real-Time Decisioning For Customer Journeys.