You’re probably here because you’re looking for more ways to drive more growth for your business this year. A customer loyalty program is one of the top ways to achieve your goals. It can be your secret sauce for retaining customers, boosting customer satisfaction, and outperforming the competition.
In this guide, we’ll go over the main aspects of customer loyalty programs — how they work, different types to know about, and how to start creating one.
Why Is Customer Loyalty Important?
Let’s start by understanding customer loyalty. By definition, customer loyalty is a customer’s willingness to continuously interact and make repeat purchases from a business.
People show loyalty for many reasons. For example, they might prefer you over the competition because you offer better products at affordable prices. Or maybe they’re attracted to your persuasive pitch or how you make them feel.
Customer loyalty is essential to the success of any business. It can impact every metric such as your website traffic, lead conversion rates, sales revenue, and retention rates.
The truth is that getting new customers costs more than keeping the ones you already have. In a Harvard Business Review article, it was mentioned that acquiring a new customer is 5 to 25 times more expensive. In other words, repeat customers are more profitable.
One of the ways to strengthen loyalty is by incentivizing customer interactions. This is where a customer loyalty program comes in.
What Is a Customer Loyalty Program?
A customer loyalty program is a marketing technique in which a brand rewards its customers for repeatedly doing business with them. Essentially, the more they interact with a brand (such as making purchases), the greater the incentives they earn.
Here’s how it works: Your brand chooses what incentive to give your customers. It could be points, discounts, a free trial, or another unique offer. Whatever you’re giving away, remember that your end goal is to encourage people to make repeat purchases — so, make the incentive worth their while.
Check out these two popular companies with loyalty programs:
Starbucks: “Collect Stars with every sip”
Starbucks motivates their customers to keep enjoying their handcrafted drinks by giving them stars. When they reach a certain number of stars, they get a free drink, pastry, or a slice of cake!
Sephora: “Beauty Insider Program”
This French retailer of beauty products has set up a point-based loyalty program. Anyone can join their program by subscribing to their email in order to receive deals and exclusive offers. The more customers spend, the more points they get. They can then use those points to avail any product sold on Sephora.
Sephora also takes things to the next level by rewarding customers with a VIB or Rouge Status with exclusive gifts and free samples.
Types of Customer Loyalty Programs
Now that you understand the importance of customer loyalty programs, let’s have a look at the various types of loyalty programs you can implement in your business.
1. Point-Based Loyalty Program
Point-based loyalty programs are commonly used by companies. Customers can earn points from every purchase and those points accumulate over time to redeem items and other perks.
This type of program offers a low barrier of entry to customers. But because most of your competitors are probably using it, your challenge is to find ways to differentiate yourself.
When it comes to the type of business, point-based programs are best suited for those that involve short-term purchases, such as food and beverage, beauty products, and pet items.
2. Tier-Based Loyalty Program
Tiered loyalty programs use a hierarchy system to incentivize customers. You reward your audience based on their spending levels. Customers who spend more get better, more exciting rewards.
What’s great about tiered loyalty programs is that they recognize your best customers — those who are truly devoted to your business. In addition, it motivates those who are less committed to investing more in you because they can see that you recognize everyone’s effort.
Sephora has a tier-based loyalty program. Notice that they categorize their audience into three tiers, namely: Insider, VIB, and Rouge. The best part is that their first tier, Insider, is free to join.
3. Game-Based Loyalty Program
Game-based loyalty programs get people excited. Gamification can be more effective than standard loyalty programs because they awaken people’s competitive spirits and tap into their fear of missing out (FOMO).
A basic example of this program is a customer spending their points to spin a wheel to receive a surprise reward depending on where the needle stops.
Another example would be fun visual quizzes or surveys in exchange for points. Quizzes and surveys also provide the benefit of learning more about a customer’s preferences. You can then use the data for better segmentation and providing highly relevant offers.
4. Fee-Based (Paid) Loyalty Program
Fee-based or paid loyalty programs are what you think they are. Before someone can enjoy a brand’s perks, they need to show commitment by actually paying a one-time or recurring membership fee.
To encourage people to participate, you must make clear the benefits of joining, such as exclusive offers and experiences they can’t get elsewhere. A well-planned paid program increases engagement levels and buying frequency.
5. Value-Based Loyalty Program
Unlike the previous programs mentioned on this list, a value-based loyalty program doesn’t directly reward customers. Instead, a brand connects with customers at a deeper level by leveraging their values.
Apple, for example, encourages customers to save lives through their (PRODUCT)RED products — Apple watch bands, cases, speakers, and more. Every purchase goes to the Global Fund’s support of AIDS programs.
How to Build a Customer Loyalty Program
How do you create a customer loyalty program? Here are the three basic steps to getting started.
1. Start with research.
Before implementing anything, you need to establish certain details to create a good program. It helps to ask questions like:
- Which products do my customers buy?
- How often do they buy?
- What are their interests and preferences?
- How satisfied are they currently with our company?
- What specific objectives am I looking to achieve with this loyalty program?
- How much will I spend on this program?
- Which customers will I target? (Relevant for tier-based loyalty programs)
Pro Tip: A surefire way to know what your customers really want from your loyalty program is to survey them! In the survey, ask them their top reasons for choosing to join a loyalty program (to save money, for example) and their favorite products from your store. Surveys remove the guesswork that comes with creating loyalty programs that work.
2. Focus on a simple structure.
Regardless of the type of customer loyalty program you choose, make sure that people can easily join. This reduces friction. Don’t require them to complete a lot of steps or make it look too complicated.
For instance, you could have them enter their name, email, and other relevant information in a simple form, then click the ‘Join Now’ button to create an account.
Decide which actions you’re going to reward. For most brands, that’s making a successful purchase. However, you might consider rewarding other actions like completing a survey, subscribing to your social media channels, and more.
3. Promote your customer loyalty program.
Once your program is set, you should promote it! Make it visible on your website. Send an email to your mailing list or a text announcement. Share it on social media. Train your employees, including your customer service team, to promote your loyalty program to every customer they interact with.
In fact, you can make it more fun and exciting by incentivizing your audience for referring their friends and family into your loyalty program. Furthermore, you could offer an instant reward for just signing up. That way, you get more people to participate. If you’re looking for a tool to set up this referral system, we recommend UpViral.
Get the most out of your customers by improving customer loyalty. As you’ve read in this article, customer loyalty programs position your business for long-term success. They encourage repeat purchases and boost retention.
Loyalty programs can come in different types, such as point-based programs and fee-based programs. Your choice depends on what you can handle, how simple or sophisticated you want your program to be, and your budget — among other factors.
The key is to make your loyalty program clear and appealing to your customers. And of course, it should be able to create massive value for your business.