5 customer loyalty program examples and how they work
Customer loyalty programs are about more than perks. With a good loyalty program, you can build an experience that shows customers you care.
Published April 29, 2020
Last updated September 22, 2020
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 center, 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 is a customer loyalty program?
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.
What are the benefits of loyalty programs?
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 in return, loyalty rewards like discounts and freebies affirm that they are receiving something in return.
Here are 8 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
5 good customer loyalty programs—and how they work
Successful loyalty program examples include points programs, tier-based programs and games. Read on to see more examples and find out how top companies are leveraging a loyalty strategy.
Points programs are among the most popular types of customer loyalty programs.
They are effective because points are easy to earn and easy to redeem. 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. Because so many brands employ a points program, it's an easily recognizable format for customers. They understand how to take advantage of them, and it's a seamless experience.
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 coupons and special sales. Shopping is easily accessible through stores, online shopping, and through the Walgreens app.
Personalization has been key in driving Walgreens' increased brand loyalty.
The benefit of rewarding customers using a points-based 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 can offer personalized rewards as well as personalize their products and services to their customer’s needs.
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 bigger benefits and more perks.
Tiered programs can be developed to align 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 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.
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.
Not all rewards programs have to be focused around spending 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 share values. 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 a mission-driven customer loyalty program is that it allows customers to feel like their purchase, whether big or small, helps improve the lives of others.
Before you start this type of program, make sure your company values and mission are aligned. Then, identify organizations or causes that would resonate with your customer base.
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 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 recognize high-spend customers.
Airlines in particular are transitioning from the points programs to spend-based systems because it allows them to engage deeper with frequent fliers 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 events. It recognizes both how often customers buy and how much they spend.
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, siwtched from a simple points program to a gamified appraoch 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 system, customers earn two “stars” for every dollar spent, rewarding those who spend more money during shorter periods of time. 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.
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.