11 of the best customer loyalty programs (and how they work)
A customer loyalty program or rewards program is a customer-retention strategy that motivates customers to continue buying from your brand instead of a competitor. Read on for examples of the best loyalty programs.
Published January 25, 2022
Last updated October 26, 2022
Sometimes you have to give customers a reason to keep buying from you. To build customer loyalty, businesses offer special discounts to customers who make regular purchases. This strategy is known as a loyalty program.
If executed well and with the customer at the centre, loyalty programs can help your customers feel good about purchasing from you. There are many different types of customer loyalty programs you can use to increase customer engagement. What you choose depends upon your mission, your product and your goals for the reward program.
Read on to learn more about how and why customer loyalty programs work.
What are customer loyalty programs?
A customer loyalty program or rewards program is a customer-retention strategy that motivates customers to continue buying from your brand instead of competitors.
Why are customer loyalty programs important?
Like personal relationships, customer relationships are successful when both parties feel they are getting something beneficial from the relationship. Customers give you their support when they buy from you, and loyalty rewards like discounts and freebies affirm that they are receiving something in return. Here are eight benefits of a customer loyalty program:
- Improves customer retention
- Increases customer lifetime value and repeat business
- Boosts revenue
- Builds stronger customer relationships
- Differentiates a brand from its competitors
- Encourages word-of-mouth marketing
- Shows customers appreciation
- Drives customer satisfaction
And if that's not enough, here are a few statistics that prove the importance of loyalty programs.
- Customer loyalty programs help build a more engaging customer experience. And 75 per cent of customers base purchasing decisions on their experience, according to our 2021 Customer Experience Trends Report. Half of customers we surveyed also said that customer experience is more important to them now compared to a year ago.
- Companies with strong loyalty marketing programs grow revenues 2.5 times faster than their competitors and generate 100-400 per cent higher returns to shareholders, according to HBR.
- More than 90 per cent of companies have some sort of loyalty program, according to Accenture.
How do loyalty programs work?
Most loyalty programs have the common goal of retaining customers, increasing customer lifetime value and showing customers appreciation. But each type of loyalty program works differently. For example, rewards points programs allow customers to redeem points for discounts or gifts, whereas subscription programs reward customers when they subscribe.
Types of customer loyalty programs
- Points programs
- Tier-based programs
- Mission-driven programs
- Spending-based programs
- Gaming programs
- Free perks programs
- Subscription programs
- Community programs
- Refer-a-friend programs
- Paid programs
- Cashback programs
Read on to learn how these programs work and for examples of some of the best in the game.
Best customer loyalty program examples
- Ben & Jerry’s
- Azerbaijan Airlines
- Dirty Lemon
- Bank of America
1. Points programs (Marriott)
Points programs are among the most popular types of customer loyalty programs. They're useful because points are easy to earn and easy to redeem. Customers can redeem points for credit toward their next purchase, discounted services or giveaways. Customers can track points programs with a loyalty card, online account or mobile app. Because so many brands employ a points program, it's an easily recognisable format for customers. They understand how to take advantage of them, and it's a seamless experience. For example, Marriott has a popular customer loyalty rewards program called Marriott Bonvoy Benefits. Travelers can redeem points for free hotel nights, dining and other experiences. They can also earn points with car rentals and flights, share points with friends and family, and get free Wi-Fi and special rates. Personalization has been vital in driving Marriott's increased brand loyalty. The benefit of rewarding customers using a points-based system is that it allows Marriott to analyse customer behaviour and use that customer data to create a better experience tailored to each customer. The more they know about their customers' preferences, the more the company can offer personalised rewards.
2. Tier-based programs (DSW)
A tiered program starts with a points program that allows customers to earn rewards with every purchase. Tier programs are like video games. Once you complete one level of spending, customers can unlock a new level that gives them access to more significant benefits and more perks.
Tiered programs can also align with your brand marketing strategy. To create an element of exclusivity, you could have a tier of “diamond level” clients. Customers at this level could earn exclusive pricing for your most expensive products and services. This will motivate your customers in lower tiers to make an 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. Tiers were designed based on customer buying behaviour and include rewards like free shipping and extra points for donating unwanted shoes. Survey data source
The 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. Mission-driven programs (Ben & Jerry’s)
Not all rewards programs focus on tiers and discount codes. If your company has a strong social mission, then you may want to try a customer loyalty program with a cause.
Aligning with a mission or cause allows you to build customer engagement and drive repeat purchases through your shared values. These programs can be more effective when you partner with a non-profit organisation with a strong connection to the company’s mission. Ben & Jerry’s creates social justice-themed ice cream flavours and donates sales to charities that support animals, the environment, social programs and other causes. Quote source A mission-driven customer loyalty program allows customers to feel like their purchase, whether big or small, helps improve others' lives. Before you start this type of program, make sure your company values and mission are aligned. Then, identify organisations or causes that would resonate with your customer base.
4. Spend-based programs (Azerbaijan Airlines)
We've already discussed loyalty campaigns 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? 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 recognise high-spend customers. Airlines, in particular, are transitioning from the points programs to spend-based systems. It allows them to engage deeper with frequent fliers who pay more for fewer flights. Azerbaijan Airlines rewards frequent flyers with travel points based on each ticket's base fare. Those travellers who reach elite status sooner get perks like complimentary lounge access, early boarding and additional checked baggage allowances.
This kind of program benefits business travelers who pay more money for last-minute flights to their next meeting or scheduled events. It recognises both how often customers buy and how much they spend.
5. Gaming programs (Starbucks)
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 on gamification.
Starbucks switched from a simple points program to a gamified approach in 2016. In addition to these changes, Starbucks recently announced new features to incentivise 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 system, customers earn two “stars” for every dollar spent, rewarding those who spend more money during shorter periods. However, it doesn't stop with 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.
Customers play the game on a mobile app, which Starbucks also uses to notify customers of opportunities to earn extra points. Gamified loyalty programs encourage future purchases by making make the points process more fun and keeping customers hooked.
6. Free perks programs (Grubhub)
Who doesn't love gifts? Free perks programs gift loyal customers free products and services. Grubhub's loyalty program allows customers to redeem ongoing offers, which can total more than $400 in free food at any given time. In doing so, the program also helps its restaurant partners promote their restaurants on the app by introducing customers to places they haven't tried. Quote source
7. Subscription programs (Dirty Lemon)
Amazon Prime is the holy-grail of subscription-based customer loyalty programs. But you don't have to be a tech giant to implement this kind of rewards model. Dirty Lemon, an e-commerce start-up specialising in lemonade with a kick, gives subscribers a discount—everyone else has to pay full price for their charcoal lemonade.
8. Community programs (Sephora)
Sephora's Beauty Insider program gives customers a choice of gifts based on a points system. But it also offers something unique: an online community. The Beauty Insider Community is an online community where the beauty-obsessed and beauty newbies alike can ask questions, share their looks and swap tips. Experiential rewards like Sephora's online community adds an emotional element and strengthens customers' relationship with the brand. Image source
9. Refer a friend programs (Freshly)
Referral programs are a type of customer rewards that reward customers for referring their friends and family. They help turn loyal customers into brand advocates. Freshly's referral program gives an existing customer a $40 discount for every new customer they refer, and that friend gets $40 off, too.
10. Paid programs (DoorDash)
A paid loyalty program requires customers to pay a fee for loyalty perks. DoorDash customers can become DashPass members for a small monthly fee. In exchange, they get free delivery for a wide range of restaurants, so customers that use the app often ultimately save on orders. The takeaway? Paid customer loyalty programs only work when the value outweighs the cost.
11. Cashback programs (Bank of America)
The most successful loyalty programs make customers feel like they are getting something in return. Cashback rewards give customers cashback or money to spend with the business. This type of loyalty program is popular for financial companies. But Gap also gives customers Gap Cash to spend at the store or online. Bank of America's Preferred Rewards gives customers cashback rewards when they spend money in the category of their choice and use their debit or credit card at national retailers, restaurants and other companies. According to John Sellers, Rewards Executive at Bank of America, some of the benefits of the program include:
- Higher customer satisfaction: eight out of ten program participants are likely to recommend Bank of America to friends and family
- Greater customer retention
- More profitable customers evident in increased customer spend
How to create a customer loyalty program
Here are nine tips for creating a winning customer loyalty program.
- Know your audience
- Give customers something to strive for
- Genuinely provide value for your customer
- Add a personal touch
- Offer an incentive
- Use technology for a more effortless experience
- Prepare to be agile
- Become data-centric
- Add an emotional element
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. It's all about research. Use surveys, customer service data and customer interviews to gather insights into who your customer is. You need to have that foundation of knowing who your customer is and what they'll respond to.
A benefit of tier-based programs is that they give customers something to strive for. Sephora's Beauty Insider loyalty program is a good example. The program has three tiers, and the higher a customer gets, the more benefits they get. Tier-based programs engage customers while making them feel special. It feels like a badge of pride to know you made it to the highest level.
If your loyalty program is more about benefiting your business than it is your customers, customers will see right through it. It's crucial to ensure customers feel like they are getting something back. For example, you might offer bonus points so customers will get more rewards the more they spend.
With so many brands offering loyalty programs, adding a personal touch is one way to stand out—and customers increasingly expect it. A clothing company could look at customer behaviour. It could use that data to encourage customers to shop in different categories relevant to their interests and needs. If a customer has always been a dress shopper, you could target them with discounts on accessories to get them to buy in another section of your store.
When you build a new loyalty program, offering an incentive encourages customers to take advantage of the deals. Some brands offer a welcome discount as an incentive to sign up. Panera gives MyPanera loyalty members their first month of membership for free, and a free sweet treat when they join.
If your loyalty program isn't a seamless experience, it won't be worth it to customers. Smart use of technology helps foster that effortless experience customers expect. Brands like Cost Plus World Market are incorporating an SMS component in their loyalty program so customers can get gifts sent directly to their phones. SMS means rewards are in your customer's pocket. With other channels like email, customers often have to sign in and click around to find their offers. But with SMS, you can send a link straight to their phone. Reservations.com’s R-Club connects members with a travel advisor they can text, call or email about their itinerary when they join the loyalty program.
When the pandemic hit, many loyalty teams had to be flexible and make quick adjustments to their loyalty program— a reminder of the importance of agility. As customer expectations and the market changes, your loyalty program will have to follow suit. While Sephora's loyalty program relied heavily on in-store shopping previously, customers now have the option to redeem gifts via kerbside pickup.
Data is key to measuring the success of your customer loyalty program. Look at incremental sales. This measures how many sales happened because a coupon went out and measures that against what base behaviour would have been without that coupon. Another key metric is customer lifetime value. A rewards program team should ask itself: "Did the customer return after they used a coupon?" In other words, did the coupon make people more loyal or are customers using it once and never coming back?
To truly retain customers, adding an emotional component to your loyalty program is key. Before the pandemic, some brands had events tied to discount weekends. Sephora gave customers free makeovers. But in this remote world, businesses have to try new ways to make an emotional connection with customers so people have a warm, fuzzy feeling when they think of their brand. This means going beyond discounts and coupons. For example, keeping your program interesting and engaging so customers are more likely to come back and have good thoughts, feelings and memories about your brand. Beyond points and free food, Panera’s rewards program lets customers customise menu items however they like and then save their favourites. Members also get to be the first to see new menu items.
The best loyalty programs are customer-centric
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.