Types of Customer Loyalty Programs


Did you know that it can cost between 5 and 25 times as much to acquire a new customer as it does to keep an existing one? If you didn’t, you are not alone. Most marketing advice focuses exclusively on topics like growing your audience and expanding your reach. And while both of those things are certainly important in building your business, not enough is said about the importance of cultivating brand loyalty with your customers. In today’s post, I’ll be outlining the four most popular types of brand loyalty programs and sharing 10 examples of companies with innovative customer rewards options that we can all learn from. By the end of this post, you’ll understand why customer loyalty programs are such an important part of growing an online business and have the tools and inspiration that you need to create one of your own. Hi everyone and welcome back to Learn with Shopify. I’m your host, Stephanie Pellet, and I’m a coach for creative entrepreneurs. If you’re not already subscribed, take a second to click the button below so that you never miss an episode. Now it probably goes without saying that the most important part of creating brand loyalty is to have a quality product that solves a specific problem for your customer. After all, if you were a cafe selling terrible coffee, even the very best punch card program in the world wouldn’t be enough to keep people coming back for more. But if you’re confident that your product or service delivers on its promise and is a high value for your customer, then creating an accompanying program to reward your clients for shopping with you can be a huge boost to your business. And if you’re still not convinced that rewarding your customers for their purchases is a smart business strategy, consider this. According to one study cited by the Harvard business review, increasing your customer retention rates by just 5% can increase your profits by between 25 to 95%. Here’s the bottom line. Building relationships is good for business and creating programs that reward your customers for shopping with you is just one of many ways to create loyalty that lasts. First off let’s look at why loyalty programs are such an effective strategy for deepening relationships with your customers. As I’ve already shared, retaining customers costs a lot less than acquiring new ones. And we now know that customer retention in general creates a huge boost in profits. Loyalty programs take this concept of retention one step further by establishing a formal system for celebrating and rewarding your existing customers through some combination of points, discounts, or other rewards. When done well, these programs will make your customers feel appreciated, help to build trust in your company and give your audience even more reason to choose you over your company. Not only that, but you’ll also be giving people what they want since consumers are increasingly looking to have a meaningful connection with the brands that they buy from. One recent study from Yotpo showed that nearly 70% of customers would be interested in joining a loyalty program for a company they like, and almost 60% of those would be willing to spend more with a brand they love even if cheaper options existed. That being said, it’s important to note that in order to create a compelling loyalty program, you will have to be generous with your rewards, which may mean giving something away, such as discounts on products or special bonuses. But remember that your customers are not only looking for coupons. While saving money is obviously a motivating factor, engaged fans are also motivated by exclusive benefits and perks like behind the scenes, sneak peaks, early access to products and sales and customized recommendations tailored to them. And it’s actually in your best interest to be generous because what you’ll get in return is so much more valuable than anything that you’re giving. In addition to greater excitement about your business and more referrals from your customers.

Types of Loyalty Programs

There is a financial incentive to reward programs too. Close to 50% of respondents in one study indicated that they spend more with a company after joining its loyalty program. While the sky’s the limit, in terms of ways to reward your customers, there are four major types of loyalty programs that most businesses adapt for their own audiences. Let’s take a quick look at each one and some of their advantages and disadvantages.

Points-Based Loyalty

The most common option for a loyalty program is a points-based system. Customers accumulate points for their actions and trade them in for various rewards, such as discounts or merch. But while encouraging purchases is great, the best of these programs also offer points for other kinds of actions, such as signing up for a newsletter, leaving a review or sharing about the business on social media. These programs work well. If they are simple to understand and intuitive to use. When people can see their points adding up and know what they’re working towards, they’ll have a clear incentive to take further action. But customers can also be cynical about this kind of program so make sure that yours delivers as promised. I for one have had far too many experiences of not receiving points I was promised in exchange for taking an action or making a purchase. You should also make sure that the rewards you’re offering are compelling to your customers. If I have to rack up thousands of points, just to earn a simple 10% off coupon, I probably won’t be very motivated to change my behavior. But if your point system is straightforward, generous, and reliable, this can be a great option for motivating and rewarding your customers.

Points-Based Loyalty

Tiered Loyalty

In a tiered loyalty program, customers are assigned ranks that get them different benefits depending on their status with your company. These ranking systems are usually based on how much a customer spends or how engaged they are with your brand. The higher their rank, the more rewards the customer receives on an ongoing basis. Unlike in a points based system where customers trade in their accumulated points for a one-time benefit, tiered loyalty programs are a gift to the customer that keeps on giving. Once they’ve earned a particular tier in your program, members will continue to get certain perks as long as they shop with you, which can be a huge incentive for your fans. The biggest pitfall with this kind of reward system is that it can feel like a money grab. If your tiers are based exclusively on how much a customer spends with you. In order for your customers to feel appreciated it’s a good idea to include alternative strategies for folks to reach a higher tier. For example, taking part in surveys or focus groups, referring friends to your brand or joining your online communities.

Paid loyalty

In a paid loyalty program customers pay a one-time or recurring fee for access to instant and ongoing perks from a brand. This kind of program is a harder sell so the key is to offer benefits that clearly outweigh the cost of the membership. In particular, customers are likely to be motivated by features like early access to products or events, customized rewards tailored to them, or the chance to be part of an exclusive community. Paid programs are also typically easier for a customer to understand and engage with. Rather than worrying about how many points they’ve earned or figuring out which tier they’re in, a paid loyalty program offers specific benefits in exchange for a simple fee. And if you’re able to convince your customer to join your paid program, it’s also likely to be more lucrative for your business. One recent report by McKinsey showed that consumers were 62% more likely to spend more on a brand after joining their paid loyalty program.

Value loyalty

The last type of loyalty program takes a different approach. A value loyalty program, doesn’t directly reward your customers, but it does allow them to make a greater impact to causes they care about, by financially supporting specific charities or nonprofits. This type of program is often offered on a broad scale, such as when companies donate a portion of every sale to a particular organization. But it can also be set up as a hybrid with another type of loyalty program, such as, a point based system. In this model, customers get the option of trading in some of their points for donations to an organization they support. Either way, this kind of program builds deeper trust with your customers. Especially if they feel aligned with the causes you’re supporting. On the other hand, depending on the type of business you run, this approach may not motivate your specific audience. A value loyalty program will work best for companies with a strongly values based approach and a clear commitment to social responsibility. If you’re not sure which type of loyalty program to choose for your business, consider doing a survey of your existing audience. Start by getting really clear on what your customers would value most, and then design your program to suit their specific needs. You can’t really go wrong if you’re creating a program that intentionally appreciates and rewards your ideal customer. And when you’re ready to set up your own customer loyalty program, we hope you’ll come check out Shopify. Our platform makes it easy to create your online store by integrating with lots of cool apps to help you build anything from a points program to a referral reward system for your customers. We also offer a free, no commitment two week trial so that you can be sure that you’re making the right choice for your business.

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