As a brand, you want to create long-lasting relationships with customers, but relationships don’t just materialize from nothing. It takes time and effort to establish trust with the brand. To do that, businesses often include customer loyalty programs in their marketing strategy.
Loyalty programs, if executed well and with the customer at the center, can help your existing customers feel good about purchasing from you. They can earn rewards and other benefits that motivate them to keep coming back. Over time, these efforts can improve customer retention and build brand loyalty.
There are many different types of customer loyalty programs you can use to increase customer engagement. What you choose depends upon your company mission, the products and services you offer, and the end goal of your reward program. Let’s review some of the most common customer loyalty program models that motivate repeat business.
1. Points-Based Customer Loyalty Programs
Points programs are among the most popular types of customer loyalty programs. How do they work? Simply put, every time your customer makes a purchase, they earn points. The points can be redeemed for credit toward their next purchase, discounted services, or giveaways. Points programs can be managed with a loyalty card or a mobile app.
For example, Walgreens has a popular customer loyalty rewards program called Balance Rewards. The brand allows buyers to redeem points that can be exchanged for savings on purchases. As customers continue to buy, they unlock additional savings via paperless coupons, access to promotional items, and special sales created solely for members. Shopping is easily accessible through visiting in-store locations, online shopping, and through the Walgreens app.
Personalization has been key in driving Walgreens' increased brand loyalty. The benefit of implementing a points-based reward system is that it allows Walgreens to collect detailed customer data that grows with each purchase. The more they know about their customer’s spending habits, the more the company can personalize their products and services to their customer’s needs.
2. Tier-Based Customer Loyalty Programs
Tier programs start with a points program that allows customers to earn rewards with every purchase. However, tier programs are like video games; once you complete one level of spending, loyal customers can unlock a new level that gives them access to bigger benefits and more perks.
Tiered programs can be developed to coincide with your brand marketing strategy. For example, if you are seeking to create an element of exclusivity, you may be interested in creating a tier of “diamond level” clients. Customers in this level could earn exclusive pricing for your most expensive products and services. This will motivate your existing customers in lower tiers to make the effort to get to the next level of spending. The more exclusive the reward, the greater the customer appeal.
DSW, the popular shoe retail outlet, announced its VIP customer loyalty tier program for Canadian customers in 2019. Their tiers were designed based on annual spending amounts and offered rewards like free shipping and extra points for donating unwanted shoes to their philanthropic partner.
The major benefit to adding a tiered rewards customer loyalty program to a points program is that it offers a structure that customers can rely on for months or even years at a time. It gives them something to strive for.
3. Value-Based Customer Loyalty Programs
Not all rewards programs have to be focused around spending tiers and discount codes. If your company has a strong social mission in addition to its interest in making a profit, then you may want to implement a value-based customer loyalty program.
A value-based rewards program offers your company an opportunity to build customer engagement through your shared commitment to a project or cause. These types of programs can be very effective when you partner with a nonprofit organization that has a strong connection to the company’s mission. For example, Lush, the natural bath and body product company, created the Charity Pot program. Customers can buy the Charity Pot lotion, and the sales (minus taxes) are donated to charities that support animals, the environment, social programs and other causes.
The benefit of the value-based customer loyalty program is that it allows customers to feel like their purchase, whether big or small, is connected to a larger mission that improves the lives of others. If you are considering starting a value-based customer loyalty program, be sure that the foundational values of your company are based in supporting other people and communities. Then, identify organizations or causes that would resonate with your customer base.
4. Spend-Based Customer Loyalty Programs
We’ve already discussed points-based reward programs that offer points to customers for every purchase they make. But how do you reward those customers who are spending more money in a shorter period of time? How do you encourage those customers to continue spending their money with you as opposed to going elsewhere?
Spend-based customer rewards programs allow companies to reward their highest paying clientele. Airlines, in particular, are transitioning from the points method to spend-based programs because it allows them an opportunity to engage deeper with elite clients who are paying more for fewer flights. Those travelers who reach elite status sooner are rewarded with perks like complimentary lounge access, early boarding, and additional checked baggage allowances.
This kind of program benefits business travelers who are paying more money for last-minute flights to their next meeting or scheduled appearance. Elite clients will earn the same points as in a traditional miles program, however, they will have access to more rewards than those customers who wait for sale fares.
5. Gaming-Based Customer Loyalty Programs
Gaming programs introduce an element of fun into the mundane task of making a purchase. Let’s look at Starbucks as a great example of a customer loyalty program based in gamification.
Starbucks, the world’s most popular coffee retailer, made the transition from a simple points program to the gaming-based rewards customer loyalty model in 2016. In addition to these changes, Starbucks recently announced new features to try to incentivize occasional customers to become frequent customers.
Prior to these changes, all customers were rewarded with one point for every purchase, regardless of how much money was spent. The challenge was that the customer who purchased a grande iced vanilla latte and a slice of pumpkin loaf earned the same reward as someone who only ordered a tall cappuccino.
With the gaming-based system, customers earn two “stars” for every dollar spent, rewarding those who spend more money during shorter periods of time. However, the gaming-based system doesn’t stop at earning stars. The newly introduced tier component expands the points program, allowing customers to redeem their stars for other items beyond just cups of coffee, like an extra espresso shot or even select merchandise.
Starbucks utilizes a mobile app that customers access via their smartphone to access games that give them opportunities to earn bonus stars. They even receive event notices like double star day where customers earn twice the number of stars for their purchases. Gaming-based customer loyalty programs allow customers to get excited about spending money at the places they love the most.
Listen to your customers
An important element of implementing a successful customer loyalty program is ensuring that the rewards reflect what your customers actually want in a rewards program. This requires that companies make a genuine effort to understand their most loyal customers and what would entice them to come back again and again. Make sure that your customers feel seen by asking for feedback on what would make a spectacular shopping experience for them. The benefit of doing so in regular intervals may mean that you will be able to thrive no matter the state of the economy for many years to come.
Listening to your customers is important not only for your loyalty program, but also to improve your entire customer experience and build a loyal fan base. Listen to your customers, and let them be your guide as you build out all the elements of your customer experience, from your loyalty program to your customer support.