As if converting strangers into customers wasn’t hard enough, keeping those customers in your pockets is no easy task either. With all the competition out there, retaining your customers and not letting them be influenced by clever marketing from your competitors requires you to go the extra mile.
After all, it costs a lot less to sell to existing customers than acquire new ones. In fact, it can cost five times more to attract a new customer than it does to retain an existing one, which means customer retention should be your top priority.
Now, even if you feel you’ve the best product in the market, it’s always a good idea to give your customers a concrete reason to keep buying from you. With the right incentives, you can turn one-time buyers into repeat customers who’d love to spread a good word about your brand.
That’s what loyalty programs are all about. While they’re nothing new, they’re one of the most powerful ways to form sustainable customer relationships, increase customer lifetime value, and inspire customer loyalty.
Knowing that 75% of consumers favor companies that offer rewards, and 70% would be more likely to recommend a brand with a good loyalty program, it is almost a no-brainer to invest efforts in creating a compelling loyalty program.
There are various types of customer loyalty programs you can use to retain customers. Depending on your business model, product, and goals, here are X of the best types of loyalty programs to choose from.
The Points Program
A traditional, tried-and-true type of loyalty program, the points program is based on the simple principle that the more you spend, the more redeemable points you earn.
The points program is simple yet effective, as points are easy to hand out and easy to redeem. Points can be used as credit for future purchases, discounts, or special rewards.
Moreover, a points program can be conveniently managed with a loyalty card or a mobile app.
As so many brands employ a simple points-based loyalty program, it’s an easily recognizable format for customers. You don’t really have to explain how it’s beneficial, and it helps create a seamless customer experience.
The North Face serves as a good example of this program in use.
They make it super easy for customers to understand how their points program works.
To further boost customer engagement, The North Face has also developed an app where users can manage their account, shop products, earn more Peak Points, redeem rewards, and more.
By rewarding customers with redeemable points, you boost your customer’s average order value and encourage them to stick to your brand. Use a tool like Smile.io to implement a points program that works both online and offline, if you have physical stores.
Make sure your points program is as straightforward as possible. For instance, $1 equals one point. That way, customers can instantly appreciate the value of your program and are more likely to sign up without a second thought.
The Tier-Based Program
A tied-based program is a points program that incorporates elements of gamification wherein members unlock higher levels of benefits and more perks as they spend more.
A typical tier-based program is similar to a video game. As you play more, you unlock the next level and the rewards keep getting bigger and better.
Here’s a fine example of a tier-based reward system from e.l.f. Cosmetics.
As you can see, the more points a member earns, the higher the levels of rewards they achieve.
To motivate members to reach higher levels of a tier program, you can create a sense of exclusivity by showing a leaderboard of how many members have reached the top-tier level and how they’re enjoying that status with exclusive rewards.
Thanks to our innate drive to compete and gain social status, members in lower tiers would be impelled to make the effort to get to the next level of rewards.
So, consider creating a tier-based program in addition to a basic points system, and offer greater exclusivity and benefits to members that remain engaged and loyal.
The Paid Program
A paid program involves inviting customers to pay a monthly or annual fee to join an exclusive VIP club which entails them to some member-only benefits. This type of loyalty program is particularly effective to retain frequent buyers.
You’re surely aware of Amazon’s Prime membership program. For a flat annual fee, Prime members get access to unlimited free two-day shipping on millions of products, as well as other perks like video and music streaming services and exclusive deals.
As most products on Amazon are available elsewhere too, Amazon is not short of competition from the likes of Walmart. Prime is how Amazon sets itself apart. It convinces customers to not just stick with the platform but also spend way more than non-Prime members.
The key to getting people to sign up for a paid program is show customers how the program’s value outweighs the cost. Amazon does this extremely well, as shown above. Also, you can nudge customers on the fence by using testimonials from existing members to trigger social proof.
The Community Program
You can take the tier-based program to the next level by giving members exclusive access to a community of like-minded people.
Sephora’s Beauty Insider loyalty program is a good example of this in action.
Apart from the usual tier-based point system shown above, Beauty Insider members can connect with each other, find inspiration, sign up for exclusive events, and more.
Sephora has used its loyalty club to build a branded community where their customers can interact with each other, get recommendations, join challenges, and get help from Sephora.
An added benefit of creating such a loyalty platform is that you get a lot of consumer insights that you can use for product development and improve other areas of business.
The Mission-Driven Program
Your loyal customers program doesn’t necessarily have to be about spending tiers and rewards. If your business is continually working towards a social mission, then it may be a good idea to try a customer loyalty program that supports the charitable cause.
Incorporating your brand values into a loyalty program is a surefire way to build a stronger relationship with your customers. In fact, 89% of customers are loyal to companies that share their values.
Aligning your program with a cause drives more customer engagement and repeat sales. Mission-driven programs are particularly useful if you partner with a nonprofit organization that has a strong connection to your social mission.
Lush, the natural bath and body product company, does this neatly with its Charity Pot program. Customers can buy the Charity Pot lotion, and the sales go to charities that support animal welfare, environmental sustainability, and various social causes.
A mission-driven customer loyalty program makes customers feel like their purchase, be it big or small, makes a positive difference to the world, and so, it works.
The Subscription Program
A relatively new type of loyalty program, the subscription program is more of a shift in your business model (unlike how the pandemic forced you to be a fully remote company, that is).
Forget rewards and benefits, you offer your products on a subscription basis. Let’s look at Bean Box as a case in point.
To boost customer loyalty, Bean Box offers a wide variety of coffee flavors as subscriptions, and once subscribed, customers don’t have to worry about running out of coffee for weeks.
This way, customers enjoy the convenience of “set and forget” while Bean Box increases the lifetime value of their customers — a win-win.
So, if your product is suitable, consider offering it on subscription. Convenience drives loyalty, plain and simple. And you can also incentivize people to choose a subscription over a one-time purchase by offering a discount on your subscription plans.
Over to You
A vital element of any successful loyalty program is making sure that the rewards reflect what your customers actually want. For that, you need to make an effort to understand your most loyal customers, and gain feedback from them about what makes them tick.
In other words, listen to your customers, get their feedback on a regular basis, and let them guide you in building an outstanding customer experience, from first contact to loyalty programs and customer support.
Based on the insights you gain from your existing customers along with some competitor analysis, pick a program type from the ones discussed above and tailor it to your business model to start boosting your customer retention, engagement, and loyalty levels right away.
Gaurav Belani is a senior SEO and content marketing analyst at Growfusely, a content marketing agency specializing in content and data-driven SEO. He has more than seven years of experience in digital marketing. He likes sharing his knowledge in a wide range of domains ranging from eCommerce, startups, marketing to human capital management and much more. His work is featured in several authoritative business publications. Connect with him on LinkedIn and Twitter at @belanigaurav.