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Customer Loyalty Programs: How to Choose the Right Type for your Business
It's important to choose the right loyalty programs for the business to ensure a positive return on investment. Explore 10 types to communicate with customers effectively and build lasting relationships.
Are you looking to implement a customer loyalty program to improve your customer retention efforts?
Loyalty programs can be effective in increasing customer retention and sales, but they can also be costly for a company to implement and maintain. As such, businesses must carefully consider the cost-benefit of a loyalty program before launching one.
In this article, we will explore ten types of loyalty programs that fit well with your business
What is a Customer Loyalty Program?
It is a rewards program offered by a company to incentivize repeat customers. These programs typically involve a customer earning points or credits for purchases made at a business, which can then be redeemed for discounts, free products or services, exclusive deals, or other perks. The goal of a loyalty program is to build a relationship with customers, encourage them to continue doing business and potentially spend more over time. A report by Accenture found that More than 90% of companies have some sort of loyalty program.
10 Types of Customer Loyalty Programs
Some programs are card-based and require customers to present a card at the point of sale in order to earn rewards. Others are digital and involve customers creating an account online to track their rewards and redeem them. Here are ten types of programs for you to explore:
1. Points Program
A points program allows customers to earn points for purchases or other actions, such as signing up for an account or referring friends. These points can then be redeemed for rewards, such as discounts, free products or services, exclusive deals, or other perks.
In a points program, customers earn a certain number of points for each dollar they spend, or a set number of points for specific actions. For example, a business might offer one point for every dollar spent, or give customers 100 points for signing up for an account. Once a customer has accumulated a certain number of points, they can redeem them for rewards.
Points program can be effective in encouraging customers to spend more with a business, as they know they will be rewarded for doing so. They can also be used to encourage customers to try new products or services. However, it's important to set the points earning ratio and redemption options effectively, so that the program can be sustainable and beneficial for the business.
2. Tiered Programs
A tiered program is a type of customer loyalty program in which customers are assigned to different tiers based on their spending or activity level. Each tier offers a different set of rewards or benefits, with higher tiers offering more rewards or better perks. The goal of this program is to incentivize customers to spend more or be more active with a business in order to reach higher tiers and earn more rewards.
Customers typically move up through the tiers by earning a certain number of points or credits for purchases. 52% of American consumers will join a loyalty program of a brand they make frequent purchases from. For example, a business might offer a discount on purchases for customers in the lowest tier, free shipping for customers in the middle tier, and exclusive access to products or events for customers in the highest tier.
It can be a great way to reward your most loyal and engaged customers, while also encouraging others to spend more or be more active with your business. However, it's also important to be transparent and clear about how customers can move up the tiers, how the rewards are set up, and the criteria for staying within a tier so that they can understand what they are working towards and how they can best engage with the program.
3. VIP Member Programs
In a VIP member program customers who meet certain criteria are given special status and exclusive rewards or benefits. These programs are often used by businesses to reward their most loyal and valuable customers. It usually involves a higher level of personalization and attention than other types of programs.
VIP member programs typically involve customers meeting specific criteria, such as spending a certain amount of money within a certain timeframe or making a certain number of purchases. Once customers meet the criteria, they are given VIP status wherein they can enjoy rewards and benefits such as exclusive discounts, free products or services, early access to new products or events, and personalized customer service.
These programs can be effective in building stronger relationships with customers. They can also help a business identify and target its most valuable customers, and provide them with incentives to continue to shop with them.
The rewards offered in these programs can be tailored to fit the business and the type of customers, like special events, personalized offers, exclusive access to services and products, or even a dedicated account manager. It's also important to keep in mind that the criteria for being a VIP member should be achievable yet challenging, so the program can be sustainable and valuable for both the business and the customers.
4. Value-based Programs
Value-based programs reward customers for the value they bring to a business, and not just their frequency of purchases or amount spent.
It typically uses data and analytics to identify customers who are more likely to bring in repeat business, refer friends, or otherwise help to drive revenue and growth for the company. Once customers are segmented, they are then rewarded with discounts, special offers, exclusive access to products or services, or other perks.
For example, a business might use customer data to identify customers who are most likely to refer friends and family, and then offer them rewards for doing so. Or a business might use data to identify customers who are most likely to make large, infrequent purchases, and then offer them special deals or exclusive access to products as an incentive to do so.
It can be very effective for businesses because they are able to target their rewards to the customers who are most valuable to the company, rather than just giving rewards to all customers regardless of their value to the business.
These programs are more data-driven and require more sophisticated tracking and analytics than other types of customer loyalty programs. To implement this type of program effectively, businesses will need to have a good understanding of customer data and behavior, and leverage it to segment and personalize their shopper’s experience.
5. Spend-based Programs
A spend-based program rewards customers based on the amount of money they spend with a business. This type of program is often used to incentivize customers to spend more money with a brand.
In a spend-based program, customers typically earn rewards or perks for reaching certain spending milestones. For example, a business might offer a discount on a future purchase for customers who spend $100 or more or give a free gift to customers who spend $500 or more.
Spend-based programs can be effective in encouraging customers to make larger purchases or to spend more in general, as they know they will be rewarded for doing so. They can also be used to encourage customers to try new products or services.
However, it's important to set up the milestones and rewards effectively, so that the program can be beneficial for both the customer and the business. If the milestones are set too low, the program may not be effective in encouraging customers to spend more. And if the milestones are set too high, it may discourage customers from participating in the program. In addition, the rewards should be attractive enough to make customers want to reach the milestones.
6. Partnered Programs
A partnered program is run in partnership with other businesses or organizations. These programs can take several forms, but they generally involve businesses working together to offer customers a wider range of rewards and benefits. There are two main types of partnered programs:
Coalition programs: In this program, a group of businesses come together to offer customers a single loyalty program that can be used across multiple brands. Customers earn points or rewards for purchases made at any of the participating businesses and can redeem them for discounts, free products or services, or other perks from any of the businesses. This type of program allow customers to earn rewards from a variety of different businesses, increasing the value of the program for the customers and encouraging them to shop at multiple locations.
Co-branded program: In this program, a business partners with another brand to offer customers exclusive rewards or benefits. For example, a credit card company might partner with a hotel chain to offer cardholders discounts on hotel stays, or a clothing retailer might partner with a car rental company to offer customers discounts on car rentals when they make a purchase at the clothing store.
Partnered programs can be beneficial for businesses because they can help to increase the value of a program for customers, by providing them with a wider range of rewards and benefits. They can also help to increase brand awareness and drive customer acquisition for participating businesses. However, it's important to make sure that the partnerships are aligned with the business's target customers and goals, and that both parties will benefit from the program.
7. Hybrid Programs
Hybrid loyalty programs are a combination of two or more programs. These programs take elements from multiple types of programs and combine them to create a unique rewards program that is tailored to a business's specific needs and goals.
It can be created by combining different program types like point programs, tiered programs, spend-based programs, and so on. For example, a business might run a hybrid program that includes elements of both a point program, where customers earn points for purchases, and a tiered program, where customers are placed in different tiers based on their spending.
It can be very effective because they allow businesses to target different types of customers and incentivize different behaviors. For example, a hybrid program could be designed to reward frequent shoppers with discounts and freebies, while also incentivizing large purchases and customer referrals with special perks.
However, it can be challenging to design and manage a hybrid program effectively, as it requires a good understanding of different types of loyalty programs and customer behavior. It is important to consider the cost and effort required to manage the program and make sure that it's providing a positive return on investment for the business.
8. Game Programs
Game-based customer loyalty programs incorporate elements of gaming and competition to incentivize customers to engage with a brand and make purchases. These programs use game mechanics like points, levels, badges, leaderboards, and other gamification elements to create a sense of fun and competition, and motivate customers to take certain actions.
It usually involve customers earning points or rewards for completing certain actions, such as making a purchase, sharing a post on social media, or referring friends to the program. As customers earn points, they progress through levels and unlock rewards or badges, and they can also see how they are doing in relation to other customers on leaderboards.
It can be effective in motivating customers to engage with a brand and make purchases because they make the experience more fun and interactive. The program can also help to create a sense of community and competition among customers, which can be beneficial for the business by increasing customer engagement and retention. However, designing and executing a game-based program can be challenging, as it requires a good understanding of game mechanics, customer behavior, and engagement.
9. Cash-back Programs
A cash-back program rewards customers with cash or cash equivalents (such as gift cards or store credit) for making purchases or taking other actions. These programs typically involve customers earning a certain percentage of cash back or a set amount of cash back for each purchase, and then redeeming the cash back for discounts or other rewards.
These programs are more attractive to customers who value the flexibility and convenience of cash, as they can use it to purchase whatever they want, rather than being restricted to certain rewards or offers.
Many businesses and retailers have their own cashback program, and it can also be offered by credit card companies and other financial institutions. However, it's important to consider the cost and effort required to implement and manage a cashback program and ensure it's providing a positive return on investment for the business. Businesses should carefully consider the cashback percentage or amount offered, as it could have a direct impact on their profit margins. Businesses can also leverage WhatsApp for customer loyalty programs to incentivize and engage with customers on a one-on-one basis.
10. Punch card Programs
A punch card program uses physical punch cards to track customer purchases and rewards. In this type of program, customers receive a punch card with a set number of spaces or "punches." Each time a customer makes a purchase or takes a specific action, a punch is made on the card. Once the card is fully punched, the customer can redeem it for a reward or discount.
It is usually used by businesses, like cafes, hair salons, or other service providers. They are simple to implement and easy for customers to understand. The cards are often small enough to fit in a wallet or purse so customers can carry and the program can be easily tracked by staff.
However, punch card programs can be difficult to track and manage, especially if a business has many customers participating in the program. It also can be labor-intensive to keep punch cards on hand and manually punch them when customers make a purchase. Additionally, with the increasing usage of digital payments and mobile wallets, it could be hard to keep up with the trend and maintain the program.
An effective loyalty program is tailored to the specific needs and goals of the business and its customers, while also providing a positive return on investment.
However, it's important to choose the right program for the business and customers and to keep track of the program's performance for it's effectiveness. The key is to understand the customer needs and behavior, set clear goals and criteria, and communicate effectively with the customers to make the program a win-win.