11 best customer loyalty programs (+ 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's. Read on for examples of the best loyalty programs.
Last updated January 5, 2023
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 programme.
If executed well and with the customer at the centre, loyalty programmes can help your customers feel good about purchasing from you. There are many different types of customer loyalty programmes that can increase customer engagement. What you choose depends on your mission, product and goals for the rewards programme.
Read on to learn more about how and why customer loyalty programmes work.
What is a customer loyalty programme?
A customer loyalty programme, or rewards programme, is a customer-retention strategy that motivates customers to continue buying from your brand instead of a competitor's.
Why are customer loyalty programmes important?
Like personal relationships, customer relationships are successful when both parties feel that they are getting something beneficial from the connection. Customers give you their support when they buy from you, and in return, loyalty rewards such as discounts and freebies affirm that they are receiving something in return. Here are eight benefits of a customer loyalty programme:
- 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 is not enough, here are a few statistics that prove the importance of loyalty programmes.
- Customer loyalty programmes 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 the customers we surveyed also said that customer experience is more important to them than a year ago.
- Companies with strong loyalty marketing programmes grow revenues 2.5 times faster than their competitors and generate 100-400 per cent higher returns to shareholders, according to HBR.
- According to Accenture, more than 90 per cent of the companies have some sort of loyalty programme.
How do loyalty programmes work?
Most loyalty programmes have the common goal of retaining customers, increasing customer lifetime value and showing customers appreciation. But each type of loyalty programme works differently. For example, rewards points programmes allow customers to redeem points for discounts or gifts, whereas subscription programmes reward customers when they subscribe.
Types of customer loyalty programmes
- Points programmes
- Tier-based programmes
- Mission-driven programmes
- Spending-based programmes
- Gaming programmes
- Free perks programmes
- Subscription programmes
- Community programmes
- Referral programmes
- Paid programmes
- Cashback programmes
Read on to learn how these programmes work and see examples of some of the best in the game.
Best customer loyalty programme examples
- Ben & Jerry’s
- Azerbaijan Airlines
- Dirty Lemon
- Bank of America
1. Points programmes (Marriott)
Points programmes are among the most popular types of customer loyalty programmes. They are effective because points are easy to earn and redeem. Customers can redeem points for credit towards their next purchase, discounted services or giveaways. Customers can track points programmes with a loyalty card, online account or mobile app. Because so many brands employ a points programme, it is easily recognisable for customers. They understand how to take advantage of them and it is a seamless experience. For example, Marriott has a popular customer loyalty rewards programme called Marriott Bonvoy Benefits. Travellers 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. Personalisation has been key in driving Marriott's increased brand loyalty. The benefit of rewarding customers using a points-based system allows Marriott to analyse customer behaviour and use that customer data to create a better experience tailored to each customer. The more the company knows about its customers' preferences, the more it can offer personalised rewards.
2. Tier-based programmes (DSW)
A tiered programme starts with a points programme that allows customers to earn rewards with every purchase. Tier programmes 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 programmes can also align with your brand marketing strategy. To create an element of exclusivity, you could have a tier of “diamond level” clients. Customers on 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 programme for Canadian customers in 2019. Tiers were designed based on consumer behaviour and included rewards like free shipping and extra points for donating unwanted shoes. Survey data source
The benefit to adding a tiered rewards customer loyalty programme to a points programme 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 programmes (Ben & Jerry’s)
Not all rewards programmes focus on tiers and discount codes. If your company has a strong social mission, you may want to try a customer loyalty programme with a cause.
Aligning with a mission or cause allows you to build customer engagement and drive repeat purchases through your shared values. These programmes 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 programmes and other causes. Quote source A mission-driven customer loyalty programme allows customers to feel like their purchase, whether big or small, helps improve others' lives. Before you start this type of programme, make sure your company values and mission are aligned. Then, identify organisations or causes that would resonate with your customer base.
4. Spending-based programmes (Azerbaijan Airlines)
We have already discussed loyalty campaigns that offer points to customers for every purchase that they make. But how do you reward the customers who are spending more money in a shorter period of time? How do you encourage these customers to continue spending their money with you instead of going elsewhere? Spending-based customer rewards programmes allow companies to recognise high-spending customers. Airlines, in particular, are transitioning from the points programmes to spending-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 type of programme benefits business travellers who are paying 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 programmes (Starbucks)
Gaming programmes 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 programme based on gamification.
Starbucks switched from a simple points programme 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 of time. However, it does not stop with stars. The newly introduced tier component expands the points programme, allowing customers to redeem their stars for other items beyond just cups of coffee, like an extra espresso shot or even selected merchandise.
Customers play the game on a mobile app, which Starbucks also uses to notify customers of opportunities to earn extra points. Gamified loyalty programmes encourage future purchases by making the points process more fun and keeping customers hooked.
6. Free perks programmes (Grubhub)
Who does not love gifts? Free perks programmes gift loyal customers free products and services. Grubhub's loyalty programme allows customers to redeem ongoing offers, which can total more than $400 in free food at any given time. In doing so, the programme also helps its restaurant partners promote their restaurants on the app by introducing customers to places they have not tried. Quote source
7. Subscription programmes (Dirty Lemon)
Amazon Prime is the holy-grail of subscription-based customer loyalty programmes. But you do not 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 programmes (Sephora)
Sephora's Beauty Insider programme 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' relationships with the brand. Image source
9. Referral programmes (Freshly)
Referral programmes 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 programme gives an existing customer a $40 discount for every new customer they refer, and that friend gets $40 off, too.
10. Paid programmes (DoorDash)
A paid loyalty programme 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 who use the app often ultimately save on orders. The takeaway? Paid customer loyalty programmes only work when the value outweighs the cost.
11. Cashback programmes (Bank of America)
The most successful loyalty programmes 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 programme 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 programme include:
- Higher customer satisfaction: eight out of ten programme 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 programme
Here are nine tips for creating a winning customer loyalty programme.
- 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 programme is ensuring that the rewards reflect what your customers want in a rewards programme. This requires companies to make a genuine effort to understand their most loyal customers and what would entice them to keep coming back. It is 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 will respond to.
A benefit of tier-based programmes is that they give customers something to strive for. Sephora's Beauty Insider loyalty programme is a good example. The programme has three tiers, and the higher a customer gets, the more benefits they get. Tier-based programmes 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 programme is more about benefiting your business rather than your customers, customers will see right through it. It is 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 programmes, 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 programme, 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 programme is not a seamless experience, it will not 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 programme 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 navigate 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 programme.
When the pandemic hit, many loyalty teams had to be flexible and make quick adjustments to their loyalty programme – a reminder of the importance of agility. As customer expectations and the market changes, your loyalty programme will have to follow suit. While Sephora's loyalty programme relied heavily on in-store shopping previously, customers now have the option to redeem gifts via curbside pickup.
Data is key to measuring the success of your customer loyalty programme. Look at incremental sales. This measures how many sales happened because a coupon went out and measures against what base behaviour would have been without that coupon. Another key metric is customer lifetime value. A rewards programme 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 programme 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 programme 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 programme 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 programmes are customer-centric
Listening to your customers is important not only for your loyalty programme, 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 programme to your customer support.