Integrating loyalty and referral programmes unlocks the potential for increased customer advocacy, engagement, cost-effective acquisition, higher customer lifetime value, stronger relationships, and data-driven insights. This combination provides a comprehensive approach to customer growth and retention, benefiting both the business and its loyal customers.
By the end of this blog, you’ll understand how to integrate customer loyalty and referral programmes, and the best practices for ensuring they succeed.
Understanding Loyalty Programmes
Customer loyalty programmes involve strategies that encourage customers to keep on buying from brands. The main objectives of this initiative is to cultivate and nurture strong, long lasting relationships between brands and consumers. This results in higher rates of customer retention. A study by Visa and Bond found that...
64% of loyalty programme members shop more frequently than their counterparts.
Why customer retention is important for businesses
Customer retention is important for businesses due to several reasons. Firstly, it stabilises revenue due to its cost-effectiveness compared to acquisition. As it costs companies five times more to acquire new customers than to retain them.
Retained customers also have an increased customer lifetime value. According to one Microsoft-partnered agency, loyal (or retained) customers are five times more likely to repurchase, seven times likely to try new products, and four times as likely to refer.
Different types of loyalty programmes
Customer loyalty programmes come in different variations. Each of them provide something slightly different. However, the ultimate objective of nurturing loyalty remains consistent across the board. Here’s some examples:
Always on Loyalty Programmes
This type of loyalty programme rewards customers the moment they become a member. It continues to regularly reward members regardless of spending value or purchase volumes. Being a member is the only criteria to keep on receiving special promotions and discounts.
Loyalty partnerships sees brands form alliances to co-create unique and highly relevant rewards for their audiences. Usually, these brands complement each other's products or services. For example, a gym and protein powder company could team up to offer discounts to their respective audiences. As a result, they attract new leads, increase their chances of uptake due to reward relevancy and build brand authority.
Referral Loyalty Programmes
Loyal customers are encouraged to refer their colleagues, friends or family to the business. In return, they receive an incentive and the new customer also gets a welcome reward. You might’ve guessed from this blog’s topic that referral loyalty programmes can be integrated with others on this list. You’d be right! Let’s look into this one more specifically later…
Gamified Loyalty Programmes
Gamification is booming in popularity across multiple sectors. Companies are using it to keep customers and their employees engaged. That’s precisely the reason why gamification has found a place in loyalty programme initiatives; it drives consistent, long term engagement.
Loyalty programme members are encouraged to take part in games, puzzles, quizzes and challenges in order to earn badges, milestone rewards and more.
It’s no wonder that companies that employ gamified elements into their loyalty programme see a 46% uptick in engagement levels.
Tiered Loyalty Programmes
Tiered loyalty programmes inject social status into loyalty-building initiatives. Many different sectors use this strategy to drive engagement and retention. Members must spend a certain amount or hit a specific number of purchases to advance in tier. Once they reach the tier, exclusive rewards, perks and benefits are unlocked.
Earn & Burn Loyalty Programmes
Customers earn points any time they purchase a product or service. The company usually scales the amount of points earned in each transaction. It’s completely up to the customer whether they want to accumulate points or burn them as they’re earned.
Premium Loyalty Programmes
Mostly used by SaaS companies, the premium loyalty works well in businesses with subscription-based models. Certain services or products, benefits, rewards or perks, are locked behind a premium level. Therefore, customers pay that little bit more on their subscription in order to receive these benefits.
Benefits of Loyalty Programmes
We’ve already touched on some of the benefits loyalty programmes can bring to your business. In fact, we’ve hinted at more advantages in the different types listed above. Loyalty programmes improve customer retention, lifetime value, engagement and satisfaction, referrals and key insights into your audience.
Let’s not forget that loyalty programmes also benefit customers. Particularly during tough economic climates. Rewards and discounts can offset the costs of essential needs, for example. Let’s take a look at some of the key benefits of loyalty programmes in more detail, and how your customers benefit when you implement these strategies.
Enhance customer lifetime value
Loyalty programmes significantly increase the average lifetime value of your customer base. Implementing strategies that consistently satisfy customers, nurtures loyalty over time, and cultivates a stronger bond with the brand.
Increasing overall customer loyalty by just 7% results in an 85% increase in value for each client.
Offering personalised, exclusive, attractive rewards increases customer engagement. Together, these motivate customers to participate in the loyalty programme, and spend more during the relationship with your brand. Without harming customer pockets and giving them additional value they can’t find anywhere else. It’s a win-win for everyone.
The cost-effective advantages of retention over acquisition are clear enough. But what does increased retention truly mean for your business? Well, for starters, it reduces customer churn.
On average, businesses lose approximately $243 per customer that churns. So, for every customer you retain, you’re saving a considerable amount of money. Loyalty programmes counter customer churn using rewards incentives and other retention strategies that keep customers happy and satisfied. Which brings us to our next benefit…
Drive engagement and customer satisfaction
Loyalty programmes require a substantial amount of supportive operational procedures. Behind the scenes, you need some form of email marketing platform, CRM, in-house (or external) programme provider, to make contact with customers at key touchpoints.
That’s because you want to keep customers engaged at every step of their journey with your brand. By offering them the right personalised message, reward, impromptu thank you message, at the right time, on their preferred channel, you put a smile on their face. Memorable customer experiences are crucial for increased levels of satisfaction, with 86% of buyers willing to pay more for better CX.
Helps your brand stand out
The true beauty of a loyalty programme? You can make it your own. Not just in terms of branding. We’re talking about the entire rewards model. You can customise programmes so that they trigger different outcomes for specific actions. In other words, you can create an experience that is truly one of a kind.
Of course, it takes time getting there. You need to know what resonates with your existing customer base and target audience. When you strike gold, the only way is up. Customers are getting the best experiences and competitive differentiation makes the brands stand out in their respective markets.
When there’s a buzz around your brand, your most loyal customers are in a prime position to substantiate your reputation…in other words, brand advocacy.
Boosts referrals and word-of-mouth marketing
Loyalty programmes stimulate positive word-of-mouth marketing. This is due to satisfied, loyal customers eventually becoming brand advocates. They recommend their favourite brands to others in their social circles. Tapping into the power of personal recommendations puts your brand in a very influential position; the topic of conversation.
Word-of-mouth marketing is the most trusted form of advertising. Consumers overwhelmingly trust recommendations from people they know. Therefore, they are that much more likely to try out the recommended brand. Acquisition via referral marketing boosts revenue as it’s been proven to widen margins.
The customers’ perspective is twofold. On the one hand, you’ve got brand advocates that are rewarded for championing the brand. On the other, new leads are not just given a recommendation based on their general interests and needs. They also gain (or at least should), a welcome reward upon their first transaction.
What Makes a Loyalty Programme Successful?
Successful programmes encourage commercially desirable behaviours from customers. They should always enhance the customer experience, avoiding frustrating customers and should always be improved. Here we take a look at some essential features of a successful customer loyalty programme.
Clear and valuable rewards
The rewards you offer should resonate with your existing customer base, align with their preferences, and provide tangible benefits. Discounts, freebies, early or exclusive access and personalised offers all work well. However, they’re certainly not a one-size-fits-all solution. Rewards should make sense to your customers’ journey and offer enough of an incentive for continued engagement.
Easy to use
The loyalty programme should be a frictionless and seamless experience. Every stage of the loyalty programme must be easy to understand and simple to use; from signing up and tracking progress to redeeming rewards and making referrals. Communications about rules, terms and conditions should be clear and straightforward to avoid confusion or hassle.
Personalised rewards and communications
Personalisation has been a major part of the discourse in marketing for many years now. A study in 2018 showed 80% of respondents would do business with companies that implemented personalised features.
Adding personalisation to your rewards loyalty programme is a great way to foster even stronger relationships with loyal members. Offering rewards and offers tailored to their preferences and interacting with customers in a personalised, human-centric manner, makes them feel valued, strengthens the emotional connection, and enhances their engagement with the programme.
In addition to being frictionless and seamless, successful customer loyalty programmes are also convenient. The loyal programme should never be too far away. That’s why it’s important to make it accessible across multiple channels. Whether that be a link on social media, email, on mobile apps and websites or even in-store.
Extensive coverage means your customers can interact and share your customer loyalty programme in a way that suits them.
Data analysis & segmentation
A successful customer loyalty programme is always backed up by data-driven insights and decisions. The businesses that deploy programmes need to understand what’s resonating with customers and what needs improvements. This information can be gauged from behavioural patterns within customer segments.
Any drop in member activity would indicate the programme needs refinement in that specific area. Whether that be adjusting target marketing efforts, investigating how to improve customer experience by asking for feedback or conducting research to understand evolving expectations.
Customer segments are essential for successful data analysis as they reveal common themes and opinions on a more granular level of the overall experience. Allowing businesses to pinpoint exactly where loyalty programmes (or any other part of the overall CX) requires optimisation.
Clear goals and KPIs
Successful loyalty programmes also have clear goals and KPIs established from the very get-go. KPIs can be tied to customer retention rates, lifetime values, engagement levels and revenue generated by the programme.
How to set goals and KPIs
So, how do we set these goals and KPIs? Well, we would suggest dividing goals into operations, the actual deployment of the programme, and distribution of responsibilities to teams and departments. SMART goals are a great way to organise efforts, track teams’ progress and measure success within specified timeframes.
As for KPIs and metrics, you need to specify what the ultimate goal of the loyalty programme is? Do you want to improve retention? Or implement a cost-effective method of acquisition through referrals? There can be multiple overall goals to your loyalty programme. Once you’ve identified them, break down the process of achieving these goals into smaller tactical objectives, tracked by essential metrics.
Understanding Referral Programmes
Referral programmes have a huge impact on brand trust and customer conversions. We need to understand why that is in order to craft an effective referral programme and leverage its full power.
Social proof is a huge motivator. That’s why we see businesses encouraging their customers to leave feedback, testimonials and reviews. Referral programmes take the already-powerful concept of social proof and turn it up to ten. As they tap into customers’ social circles and rely on word-of-mouth to advertise the business.
Word-of-mouth advertising is the most trusted form of advertising. An overwhelming majority of consumers said they trust brands when they’re recommended by friends. As we know, trust is a huge factor in the purchase decision. Since the recommendation comes from someone who has had first-hand experiences with the brand, the potential customer feels more inclined to trust the endorsement.
That’s exactly the reason why referral programmes tend to have higher conversion rates of better quality leads compared to traditional acquisition channels.
Why the advocate and referees should be rewarded
In the interest of best practice, businesses should reward both brand advocates (the referrers) and the referees (those who’ve been referred).
Single-sided referral programmes see just the brand advocates get rewards for bringing other customers onboard. This certainly benefits brand advocates and motivates them to keep making referrals. But you need to think about the newcomer. If they’ve signed up to or purchased from your business knowing full well their friend gets a reward, they might ask what’s in it for them?
Double-sided referrals on the other hand, reward both the existing customer and the newcomer. This is a much more effective method of building trust as the referee also stands to gain something. Therefore, their friends or family aren’t perceived as trying to get others on board solely to benefit themselves.
Designing enticing referral incentives for both
Keep in mind what makes a loyalty programme successful during the design stage of referral incentives. For example, you want to make sure the benefits of referrals are clearly communicated, terms and conditions straightforward, and the incentives are personalised. Looking back at the components of a successful customer loyalty programme, you also want your referral process to be:
Easy to participate for both parties
Constantly improved to ensure rewards remain enticing
As mentioned earlier, you want to try and use a double-sided referral programme. When starting out, consider the point where the brand advocate and new lead are on the customer journey. Think about what you want each of them to do and the strategies you should use to motivate those actions.
For brand advocates
For the brand advocate, you want them to repeatedly bring in warm leads. Since they’ve already championed your brand, you need to think of ways to retain this loyal customer and incentivise them to advocate again. Equally, you don’t want to give away too much too soon and run out of ideas.
Establish milestones in an “advocacy journey” (don’t brand it this way as a journey intends there’s an end and you don’t want that). However, you could add a progress bar that tracks how close the advocate is to their next reward. Each reward should ideally be tailored to that specific customer. Here’s some to consider:
Discounts on favourite products
Gift cards (great if you have partnerships in place too!)
Early access to new products (invite them to give feedback on the new product)
Invites to unique experiences
For the referee, they’re just setting out on their customer journey. It’s wise not to approach them with a referral request just yet. You want to delight them with a welcome gift. Set a sequence of actions (e.g., 2 or 3 repeat purchases) and with enough data you can plan triggers personalised to their preferences. Then, cordially invite them to the referral programme.
Integrating Loyalty and Referral Programmes
Benefits of Integrating both ProgrammesCombining loyalty and referral programmes together generates a number of synergistic effects.
Amplified Customer Advocacy: Combining loyalty and referral programmes creates a powerful synergy, as loyal customers are more likely to refer others. By integrating the two, businesses tap into the existing customer base's advocacy, resulting in increased referrals and brand promotion.
Enhanced Customer Engagement: Loyalty programmes create a sense of appreciation and reward among customers, while referral programmes encourage active participation and engagement. By integrating both, businesses can create a holistic customer experience that keeps customers engaged, motivated, and more likely to refer others.
Cost-Effective Customer Acquisition: Referral programmes leverage the power of word-of-mouth marketing, which is highly effective and cost-efficient. By integrating referrals into a loyalty programme, businesses can acquire new customers at a lower cost compared to traditional marketing methods, such as advertising or cold outreach.
Increased Customer Lifetime Value: Loyalty programmes aim to retain existing customers and increase their lifetime value. By integrating referral programmes, businesses can not only retain loyal customers but also transform them into brand advocates who bring in new customers. This leads to a higher customer lifetime value and greater revenue potential.
Strengthened Customer Relationships: Loyalty and referral programmes provide opportunities for businesses to deepen their relationships with customers. By offering personalised rewards, incentives, and recognition for both loyalty and referrals, businesses can develop stronger connections, trust, and loyalty among their customer base.
Data-Driven Insights: Integrating loyalty and referral programmes allows businesses to gather valuable data and insights on customer behaviour, preferences, and referral patterns. This data can inform targeted marketing strategies, refine the customer experience, and optimise the effectiveness of both programmes
Examples of Integrated Loyalty and Referral Programmes
Sephora’s loyalty programme “Beauty Insider” uses the typical transaction model of earn and burn. Customers earn points for every purchase they make. These points can be redeemed for exclusive products or experiences.
Alongside this earn and burn loyalty programme, Sephora also operates a referral programme. Customers refer friends to sign up to the “Beauty Insider” earn and burn loyalty programme. The referral programme is double-sided so both parties receive rewards. Referrers get bonus points after the referral’s first purchase and the referee receives a welcome gift.
“Starbucks Rewards” is the loyalty programme at the world-renowned coffeehouse chain. Every purchase earns customers stars that they can redeem for free drinks, food items, and serve ware. In addition to this, Starbucks has an integrated referral programme, encouraging customers to refer friends to join “Starbucks Rewards”.
Both parties receive bonus stars after the referee has made a qualified purchase.
The popular loyalty programme “Amazon Prime” sees customers enjoy various benefits, from free and fast shipping, exclusive deals, and access to streaming services. Amazon adds another layer to their loyalty-building strategy with a referral programme called “Amazon Associates”.
“Amazon Associates” allows referrers to act almost as affiliate channels as they earn referral fees by promoting Amazon products. They are given unique referral links that assist Amazon with tracking lead generation and sales volumes.
How to Integrate Loyalty and Referral Programmes
10 Best Practices for Implementation
Now that we’ve seen some examples, it’s time to consider how exactly loyalty and referral programmes work in tandem. For example, Sephora’s loyalty and referral programmes motivate customers to make repeat purchases and drive referral-assisted acquisitions.
Amazon relies on a combination of Prime and Associates to reward loyalty with exclusive benefits and treat referrers almost like affiliates.
These examples help us to identify the synergy of both strategies. The next step is to understand the best practices of integrating loyalty and referral programmes effectively.
Step 1) Assess existing programmes
Assess your current loyalty and/or referral programme. Identify common elements and areas where they may or could overlap. This will give you an opportunity to align and merge the objectives, aspects and purpose of both programmes.
The whole point of each programme is to achieve your business goals. Together, they should strengthen customer engagement, retention, acquisition or any other important KPI.
Step 2) Identify integration points
At points where common elements are identified, consider how the programmes can work together to benefit one another. For example, offer bonus points for successful referrals or provide exclusive referral rewards only accessible to brand advocates. This will help create a seamless experience for participants between the programmes.
Step 3) Choose an integration tool or software
Consider a suitable loyalty and referral programme management and integration tool. Features should support full referral tracking, reward management, customer segmentation, and data gathering. The tool should be flexible enough to handle the requirements of both your loyalty and referral programmes.
Step 4) Design a cohesive user experience
Create a unified user interface using your chosen tool, platform or software. The programmes combined must offer a cohesive user experience. Participants should be able to easily access and engage with both loyalty and referral activities. Maintain consistent branding and messaging to reinforce the connection between both programmes.
Add gamified elements into both programmes to make the experience more enjoyable and engaging for participants. Progress bars, levels, and badges will tie both programmes into an unforgettable, integrated experiences.
Step 5) Develop cross programme benefits and rewards
Design reward structures so that loyalty and referrals are simultaneously cultivated and encouraged. Offer loyalty points, discounts and other referral bonuses for brand advocates. Strike a balance that motivates customers to remain loyal and encourages referrals.
Step 6) Train employees
Develop a training programme in several departments for effective customer service and success. Additionally, marketing and sales teams will need to be briefed and trained to promote and sell loyalty and referral programmes.
Ultimately, all employees should understand the mechanics of both loyalty and referral programmes and how they synergise.
Step 7) Communicate the integration to customers
Clearly communicate the benefits of the integration to your customers. Highlight the rewards they stand to gain for participating in both programmes. Clearly acknowledge their loyalty, offer them valuable rewards to show your appreciation, and incentivise referrals by announcing exclusive benefits. Use various communication channels, such as email, website messaging, and social media, to spread the word.
Step 8) Incentivise your existing customer base
Tap into your current customer base to incentivise referrals. A well established loyalty programme should yield some valuable insights into your customer segments. Individuals who are extremely loyal are much more likely to champion your brand. These people know and trust your brand and are therefore receptive to your referral requests. Offer them an additional bonus for being the first brand advocates.
Step 9) Encourage feedback
Encouraging feedback helps you paint a picture of your customers’ experiences with the programmes. They may help you identify weaknesses in how both programmes work together. Use surveys, reviews and even closed focus groups to gather suggestions for improvement.
Step 10) Monitor and optimise integration
Continuously monitor the performance of the integrated programmes, using the insights gathered from feedback and data. Use data analytics to measure key metrics, identify areas for improvement, and make necessary adjustments to maximise the impact of the integrated tool.
As mentioned earlier, monitor KPIs for each programme. In the case of customer loyalty and referral programmes, essential metrics include:
Customer retention rate (for both)
Repeat purchase rate (for customer loyalty programme)
Customer Lifetime Value (for customer loyalty programme)
Referral conversion rate (for referral programme)
Number of referrals (for referral programme)
Net promoter score (for both)
Alongside customer feedback, tracking key metrics is important as together they provide invaluable insights into the effectiveness of both programmes. These will help you refine and optimise the programmes over time. Such as adding more rewards to keep incentives fresh and scaling acquisition rewards to attract even more leads during referrals.
Ready to maximise advocacy and loyalty?
Now that we understand the similarities between customer loyalty and referral programmes we can envision how they synergise. Equally as important are their slightly nuanced differences, that allow us to draw distinctions between the two, and how they can complement one another.
Customer loyalty and referrals are the winning team for driving substantial business growth.
On the one hand, the customer loyalty programme satisfies, delights and cultivates strong emotional bonds with customers. The referral programme gives happy customers an avenue to express the ultimate form of loyalty. Sharing their positive experiences with social circles boosts brand awareness and conversions due to word-of-mouth being the most trusted form of advertising.
That’s something you can achieve today by integrating a referral process into your overall customer loyalty programme strategy.