Loyalty programs are everywhere these days, and for good reason: they work. When done right, loyalty programs can increase customer retention, drive more sales, and enhance brand reputation without a large marketing budget.
However, not all loyalty programs are created equal.
You need to understand your customer’s wants and needs in order to build a killer loyalty program that keeps them coming back. With examples, facts and a few smart strategies, how to create one that really benefits your business…
Key Takeaways
- If you want to move the needle, including a loyalty program may be the answer; are members of loyalty programs 60% more likely to spend.
- Building a community of loyal customers will help your business achieve long-term success; may be loyalty program members 12 times more profitable compared to non-members.
- Keeping new customers is cheaper than acquiring them, so if you can find a loyalty program that works, you’re in for a treat. Read more creating a brand community here.
- Get inspired by the big players and use their loyalty program business models to help you. There are many examples in this post!
What is a Loyalty Program and why is it so important?
Loyalty programs are marketing strategies designed to retain customers by rewarding them for repeat purchases or badges. see this article about customer attraction secrets. They encourage loyalty by offering perks such as discounts, points or exclusive access, encouraging customers to stick with one brand over competitors.
9 Ways to Implement a Loyalty Program That Actually Works
1. Be Simple and Clear
A complicated loyalty program is a quick way to lose customer interest. The most effective loyalty programs are easy to understand and don’t require much effort to participate.
Your customers want quick wins, just like all of us! Point-based systems are one of the most popular systems because they are easy to understand and work in a variety of industries. Customers earn points for every purchase, which they can later redeem for rewards.
Example: Starbucks Rewards
Starbucks Rewards is one of the most popular loyalty programs. That’s right. Members earn stars for every dollar they spend, which add up to free coffee, food and exclusive offers.
Starbucks keeps it simple, but adds value with tiered membership levels and often offers more perks to customers. In fact, Starbucks claims that loyalty program members drive 40% of US income.
2. Create a Tiered Reward System
A tiered loyalty program rewards customers based on their level of loyalty. This type of system can encourage customers to spend more to reach higher levels, unlocking better rewards along the way. This not only creates a sense of success but also keeps the customer engaged with the brand.
Example: Sephora’s Beauty Insider Program
Beauty brand Sephora is a perfect example – it offers three levels; Insider, VIB and Rouge. Each level offers different benefits, with the highest level providing the most exclusive rewards. This tiered structure not only encourages spending, with 80% of Sephora transactions It comes from Insider members in the US.
3. Use data to personalize rewards
Personalization is the key to a successful loyalty program. According to research by Bond Brand Loyalty, 79% of consumers more likely to engage with a loyalty program that offers personalized rewards. Use data to track purchase history, preferences and spending habits so you can tailor rewards accordingly. Want more information? Read about its use customer insights to drive growth and build loyalty.
Example: Amazon Prime
Amazon Prime isn’t just a loyalty program – it’s an entire ecosystem of personalized benefits! From free two-day shipping to Prime Video, customers feel like they’re getting special treatment tailored to their needs. 90% of Prime members in the US renew their membership annually.
Amazon’s success with Prime shows how personalization can make a loyalty program feel valuable and necessary.
4. Gamify the experience
Gamification involves adding elements of fun, such as challenges, rewards for completing tasks, or limited-time offers. This technique works well because it taps into a person’s natural desire for achievement and competition. A gamified loyalty program can make customers feel more engaged and more likely to return.
Example: Nike’s NikePlus Membership
Nike’s loyalty program is built around fitness challenges and community events. Members can track their workouts, compete in challenges and even unlock exclusive products.
By gamifying the experience, Nike built a vibrant community and increased brand loyalty among fitness enthusiasts, a large part of their customer base.
5. Add a Social Impact Component
Today’s consumers want more than just rewards—they want to make a positive impact. Loyalty programs that incorporate a social responsibility aspect can attract customers who care about sustainability, philanthropy or giving back. It will also differentiate you from crowded markets and differentiate you from your competitors.
Example: TOMS Passport Rewards
TOMS’ loyalty program allows members to earn points and redeem them for rewards such as early access to new products or exclusive events.
They also allow members to donate points to fund TOMS’ relief initiatives. This approach resonates well with TOMS’ socially conscious audience and is in line with the brand’s mission to make a difference in the world.
6. Combine Mobile and Digital Rewards
With the rise of digital wallets and mobile apps, it’s critical that loyalty programs are mobile-friendly. Mobile access allows customers to easily track their points, redeem rewards and connect with your app on the go. This accessibility puts your brand in the spotlight.
Example: Circle of Target
coupon site, Target Circle has a loyalty program built into the Target app. Members get personalized offers, earn cash back on purchases and can choose causes that Target supports. The convenience of the in-app experience made Target Circle a huge hit with 80 million members by 2022.
7. Make Rewards Accessible and Valuable
Nothing frustrates a customer more than realizing they have to spend a small fortune to get a reward. You can get the rewards and make sure they are really worth it. Smaller, more attainable rewards make the experience gratifying from the get-go, motivate customers to continue, and increase brand loyalty.
Example: Dunkin’s DD Perks
Dunkin’ is able to capture rewards by allowing customers to earn points with every purchase, and they can quickly earn free drinks.
By offering frequent, attainable rewards, Dunkin’ keeps customers interested and keeps them coming back. DD Perks members spend 20% more than non-memberss they must be doing something right!
8. Engage through Exclusive Experiences
Offering exclusive experiences or behind-the-scenes access can create a unique bond between your brand and the customer. Experiences add a personal touch and make customers feel valued in a way that a simple points program doesn’t.
Example: American Express Membership Rewards
American Express’s loyalty program is known for offering exclusive experiences such as early access to concerts, VIP tickets and invitations to special events.
This approach appeals to Amex’s high-end customers, and members see these benefits as high value, creating loyalty and satisfaction. Amex cardholders spend 43% more each year than other credit card users.
9. Incentivize referrals with rewards
Adding a referral program to your loyalty initiative can help you grow your customer base while rewarding your current customers. Referral incentives make your program work as a marketing tool, encouraging loyal customers to spread the word.
Example: Dropbox’s Referral Program
While not a traditional retail loyalty program, Dropbox’s referral system is highly effective. Users are rewarded with extra storage space to refer new users which works like a win. This strategy helped Dropbox grow 100,000 to 4 million users in just 15 months.
Loyalty programs are about more than having. They are important for customer retention. 56% of customers they say they are more likely to stick with brands that have good loyalty programs. By keeping your loyalty program simple, personalized and useful, and leveraging technology, you’ll create a program that attracts and keeps customers.
Whether you’re a small business or a global brand, these loyalty program strategies can help turn one-time shoppers into loyal brand advocates.
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Frequently Asked Questions:
Why are customer loyalty programs important for business?
Loyalty programs are important because they increase customer retention, which is often more profitable than acquiring new customers. On average, returning customers spend 67% more than the new ones. Brands with a loyal customer base see more consistent revenue, higher customer lifetime value (CLTV) and better word-of-mouth referrals.
How can a loyalty program increase customer retention?
By offering points, exclusive discounts, early access to products or personalized rewards, customers feel valued and are more likely to return. Programs that use personalized offers can further increase customer retention – 79% of customers say they are more loyal to brands with personalized rewards.
How do I measure the success of my loyalty program?
To measure the success of your loyalty program, track these key performance indicators (KPIs):
- Customer retention rate: Percentage of customers who stay with the brand over time.
- Customer Lifetime Value (CLTV): The average revenue a customer earns from their relationship with the business.
- Payment rate: Percentage of rewards redeemed and issued, indicating whether rewards are attractive or not.
- Purchase Frequency: How often loyalty members shop compared to non-members.
Program ROI: Compare the costs of running the program (rewards, software, marketing) with the revenue generated from loyalty members.