Loyalty programmes are some of the most effective methods of increasing customer retention and revenue. Lots of customers agree that some type of loyalty and reward system incentivises them to engage with brands. In fact, emotionally engaged customers annually spend 60% more with brands that they’re loyal to.
Customer loyalty programmes actually reward brands that implement them. That's because they are proven to increase retention at a time when it’s significantly cheaper than acquisition. Plus, customer loyalty is a powerful motivator for brand advocacy. Which again, further reduces CAC. The fact is loyal customers are willing to increase and alter their spending behaviours with businesses that reward them. But how you nurture loyalty depends on a number of factors about your business.
Contents:
1) Always On Loyalty Programmes
2) Earn & Burn Loyalty Programmes
4) Premium-based Loyalty Programmes
6) Gamified Loyalty Programmes
7) Referral Loyalty Programmes
Download the Customer Loyalty Programme Comparison Guide today for essential insights of how to choose the right loyalty programme for your brand.
Implementing a loyalty programme is not so cut and dry. It takes careful consideration of a number of things to make them successful. First we must understand:
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The type of customer loyalty programme, what it does and how it could benefit your business
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If it works in your sector, industry or niche
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Whether it aligns with your goals
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If it only resonates with certain demographics
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Challenges of the loyalty programme
1) Always On Loyalty Programmes (Instant Reward Programmes)
Always On Loyalty Programmes begin to consistently nurture loyalty with someone the moment they become a customer. Rewards and offers are frequently sent to the customer, regardless of whether they've accrued points or subscribed to a tier.
Always On ensure your brand is always at front of mind with customers, even when they're not shopping with you. As rewards and offers pop up, giving customers an element of surprise and consistent delight. This encourages them to interact with the brand to redeem their rewards.
61% of customers agree that surprise rewards and offers increase their engagement.
An Always on Loyalty Programme is a flexible retention tool that improves conversions through upsells and wins back lapsed customers through consistent engagement.
Plus, Instant Reward programmes aren’t directly linked to customer spend. In other words, you’ll be giving your customers something of value for free. Increasing their overall customer lifetime value (CLV).
Does it work well in your industry?
Always On programmes work well in most industries due to their flexibility. Brands operating on a membership or subscription model in particular benefit greatly with Always On programmes. However, if you're just starting out nurturing customer loyalty, an Always On programme is the best place to start.
Does it align with your goals?
An Always On programme might be your perfect fit if you're looking for an economic option for building long lasting loyalty. It's a great starting point for building out rewards for customers. Over time you can adjust your loyalty building strategies from the solid foundation an Always On loyalty programme provides.
- Are you looking for a scalable solution that rewards growing audiences without incurring extra spend for you?
- Do you want to delight customers and keep then constantly engaged with your brand, even outside of the sales cycle?
- Is your priority to retain, engage or convert more customers with up-sells and cross-sells?
Is demographics a factor?
The universal appeal of receiving rewards such as discounts is another great benefit of Always On programmes. Therefore, it should resonate with most demographics. Of course, much of that depends on whether the rewards on offer are compelling enough.
Demographics will require a re-visit should you wish to combine Always On with other programme types.
Challenges of Always On programmes
- A partner network is necessary for offering a variety of rewards relevant to customers
- Companies who build an Always On in-house must have experience in managing loyalty programmes in order to scale to growing audiences
- Technical experience is also required to deliver a seamless and secure experience
- Companies should know critical touchpoints on the customer loyalty ladder. Otherwise they risk missing opportunities to deliver the right reward, at the right time, to the right customers
2) Earn & Burn Loyalty Programmes
Earn and burn or point-based programmes are the traditional means of nurturing customer loyalty. Customers earn points every time they take action, such as making repeat purchases. Once customers gather enough points, they receive reward offers, discounts and other incentives.
Earn and burn loyalty programmes are a simple but effective tool for nurturing customer loyalty. Transactional in nature and simple for customers to follow, points-based loyalty programmes uplift transactions per customer every year. Rewards of increasing value incentivise customers to keep on making purchases.
A well-known example of this type of loyalty model is Starbucks Rewards.
Does it work well in your industry?
Point programmes are widely used because they are the simplest and fastest type to implement. New businesses with simple purchase transactions are ideal. As long as customers regularly buy products, point systems should work well regardless of industry or sector.
Does it align with your goals?
If your business is just starting out, a points-based loyalty programme is ideal. Especially if you want a quick set up and your budget is tight.
- You want to sell commodities at a high purchase frequency rate
- You’re aiming to position your brand as high perceived value
- You want a easy-to-budget solution
- You want to quickly launch and implement a loyalty programme
- You want a programme that’s simple to manage and straightforward for customers to use
Is demographics a factor?
Earn and burn works well with all age groups that are familiar with your brand. Make sure to keep the rewards simple though. A good rule of thumb is to reward customers with 1 or 10 points with every pound spent. Avoid reward models such as “£5.00 spend gives you 72 points”.
Keeping conversions simple makes it easier for you to track, and guarantees ease of use for customers.
Challenges of Earn & Burn
- Harder to differentiate your offer since point systems are the most common type of loyalty programmes used
- Focus on extracting short term value may delay increased spending over time
- Without the right tool that offers viable, unique and exciting offers, earn and burn loyalty programmes can often lack in innovation which eventually causes customer attrition
3) Tiered Loyalty Programmes
A tiered loyalty programme works similar to earn and burn in that customers earn points in both. The main difference here is customers don’t start on an even footing. Where a points-based programme typically yields points fairly, a tiered loyalty programme promotes higher value purchases in return for more valuable perks.
Two customers may subscribe to the same service for the same amount of time but the one who pays for a higher tier receives better rewards. Subscribers to higher tiers tend to get recognition from titles too. For example, British Airways inject a sense of social status with their Executive Club. This appeals to your customers’ competitive streaks as they’ll want to reach higher, more exclusive tiers to get their hands on added features and products.
Another great example of a tiered loyalty programme is the status-based benefits on offer at The Nordy Club.
Does it work well in your industry?
Typically, tiered rewards are used by companies whose customers spend more but purchase infrequently. For example, the automotive industry offers programmes that incentivise drivers to accessorise their cars. Similarly, the hospitality and travel sectors offer customers opportunities to earn and redeem points when they book holidays. High quality brands with more expensive products often use tier-based loyalty programmes too.
Does it align with your goals?
Since tiered loyalty programmes are commonplace in industries that offer more expensive products or services, some of these goals may be relevant to you:
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You want to keep customers engaged between long term purchase decisions
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You want to fortify brand resilience and shield top spenders against competitors
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You prioritise a high-quality shopping experience for your customers
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You want to tie “social status” to tier levels to make customers feel valued
Is demographics a factor?
We’ve found no conclusive studies or research that suggests tiered loyalty programmes appeal to certain demographics. However, since this type of loyalty programme is associated with more expensive brands, it’s worth noting that 62% of affluent consumers ranked quality most important when making purchases. No doubt that also factors in their shopping experience too!
Challenges of Tiered Loyalty
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Lower tiered members may feel the task of upgrading to higher ranks daunting
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Requires resources (such as CRMs and marketing) to maintain engagement with customers between purchase decisions
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Ranks and their associated rewards must be carefully considered, as well as make sense and appear valuable to customers
4) Premium Loyalty Programme
Otherwise known as VIP or paid loyalty, premium programmes see customers pay upfront, monthly or annual costs in return for benefits such as free shipping. Amazon Prime is a good example of this type of loyalty programme.
These types of loyalty programmes give your brand greater flexibility of enhancing the customer experience. Offering a premium loyalty programme deepens emotional relationships with customers and opens access to special treatment for customers who are willing to pay for these extra benefits.
With a premium based loyalty programme you can send customers special birthday messages. Or offer them discounts on the anniversary they became a customer. Other options include early access to new products or services and free samples of favourites they've not yet tried. Attaching these types of hyper-personalised rewards to a premium loyalty programme gets your customers advocating membership.
Does it work well in your industry?
The Wise Marketer shared some excellent data originally collected by Clarus Commerce. In which they ascertained categories that performed the best using premium loyalty programmes. Most of which seemed to be focused around essential products and services that we need for our day to day.
The list goes as followed:
Groceries: 58%
Clothes & Accessories: 49%
Health & Beauty: 36%
Fuel: 35%
Travel & Hospitality: 29%
Entertainment: 28%
Furniture: 22%
If your business falls into any of these categories, think of ways to divide your product or service into a premium programme. For example, a health and beauty brand could offer premium subscribers early access to a new make up product. Similarly, a fashion e-commerce store might offer a single item of clothing on a customer's anniversary.
Does it align with your goals?
Premium loyalty programmes aim to centre the brand’s unique value proposition around the customer. Effectively increasing overall customer lifetime value by providing rewards that nurture an emotional connection between brands and customers. It’s an ideal option if:
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You want to differentiate from other companies in highly competitive markets e.g., fashion and clothing, health and wellness products and professional development courses
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You want to foster a high perceived value of your products or services
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You want to attract experience-driven customers, identify the most valuable subscribers, and convert them with cross-sells and up-sells
Is demographics a factor?
Premium loyalty is popular across all different age groups. According to Retail Customer Experience:
- 87% of Gen-Zers
- 85% of Millennials
- 76% of Gen-X
- 61% of Baby Boomers
- And 46% of the Silent Generation
Plan to join a premium loyalty programme when offered. Of course, there's more of a case to use these loyalty programme type the younger your customer base is. Still, even half of Baby Boomers desire a premium loyalty programme.
Challenges of Premium-based Loyalty Programmes
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Benefits and rewards need regular rotation, maintenance and ideation to keep subscribers delighted
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Premium loyalty programmes require double the amount of effort, time and resources; since subscribers have already paid, they’ll expect consistent value of money throughout the duration of their subscription
- Membership rates tends to be lower for newer businesses that have little to no social proof
5) Loyalty Partnerships
Loyalty partnership programmes reward customers for shopping with or using the services of a partnered business. The aim is to attract existing customers of partnered brands. Encouraging their customers to take advantage of hyper-relevant and exclusive promotions and offers.
For example, airline companies often team up with hotel chains, and promote package holidays. Loyalty partnerships are a great way of boosting customer retention due to unique offers between brands. Not only that, your business could benefit greatly from mass exposure to a partner’s customer base.
An example of this is the genius Nike Run Club on Spotify.
Does it work well in your industry?
The beauty of loyalty partnerships is that they work well in pretty much every industry. Often it’s the heavyweight brands that take advantage of this type of loyalty programme. Those that are the most well known and boast huge audience reach. That’s not to say smaller enterprises can’t take advantage of loyalty partnerships.
Does it align with your goals?
Aside from the obvious benefits of strategic alliance between brands, loyalty programmes also offer some great solutions that may be relevant to your business goals. Let’s take a look:
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You want a cost-effective method of growing your marketing reach
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You want to quickly collect customer data and information that you can leverage to better understand new audiences
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You’re actively interested in working with other brands to co-create value
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You want to build a unique, cross-brand journey
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You want to enhance your brand’s reputation through association with well known and credible brands
Is demographics a factor?
Demographics is essential when it comes to loyalty partnerships. You need to make sure that customers of both brands are genuinely interested. Therefore, it’s often the case that collaborating companies need to conduct research as to whether their customers will see value in the alliance. Above all, it needs to make sense to customers, otherwise all the work put into facilitating the joint venture will be undone.
Challenges of Loyalty Partnerships
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Identifying like-minded companies who are willing to engage in partner marketing without resources such as brand catalogues and matrix to ascertain alliance strength and relevance
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Rewards must be mutually beneficial to both brands and can become subjects of disputes and long-winding negotiations
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Some form of tech is required for integration and to facilitate transparency of results
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Goals between partners can often become misaligned
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Can lead to a lack of trust or commitment due to suspected hidden agendas
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Some partners may need educating on your value proposition and customer base
6) Gamified Loyalty Programmes
We’re currently in the middle of a gamification craze. The global game-based products and service market is set to grow by 12.9% between now and 2025. Plus, since 2016, mass adoption of gamification is abundantly clear with 70% of Global 2000 Companies getting in on the action. It comes as no surprise that loyalty programmes are also seeing an increase of gamification elements.
Gamified loyalty programmes seek to engage customers using interactivity. Challenges and badges encourage customers to take part in repeat behaviours. This can be something as simple as leaving a review or actually making lifestyle changes such as jogging. It’s easy for customers to take part and yet it engages their competitive streak whilst being fun.
"What’s more, it’s proving to be a hit with customers. 81% of those surveyed said gamified elements to their activities boosted engagement with brands. This is absolutely crucial for retention and the reported increased sense of belonging is ideal for community building."
Does it work well in your industry?
Businesses from all sectors can benefit greatly from gamified loyalty programmes. Customers purchasing products or services, rewarded with engaging multi-step challenges, significantly ramps up engagement. It’s just a matter of building a game that’s relevant to your brand. For example, companies in the healthcare industry use gamified elements to combat work-related stress. Employees are encouraged to take part in app challenges that reward wellbeing and healthy choices.
For a more B2C angle, the food service sector is another great example where gamified loyalty programmes shine. McDonalds were far ahead of the game when they gamified loyalty using monopoly all the way back in 1987!
Does it align with your goals?
Gamified loyalty programmes are almost unmatched in their ability to boost customer engagement. It’s the type of programme you should consider if consistent customer engagement with your brand is a priority. Yet, they can offer so much more if:
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You want to give customers an interactive incentive to repeat desired behaviours
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You want to encourage engagement that’s not related to purchases
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You want to use more than one loyalty programme type
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You generally want to offer some form of gamified content
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You want to focus on building connection with customers
Is demographics a factor?
Most research on gamification has focused on workplace employees. An increasing number of companies are using gamified elements to boost employee engagement and productivity. Therefore, a substantial amount of study is oriented around the adult workforce.
Now, children shouldn’t really be a target audience for gamified content, especially since they aren’t old enough to typically make purchases autonomously. On the other hand, a review on apps for older people showed that 30% of them contained gamified elements. This certainly indicates a trend in the coming decades of more older people becoming familiar with technology.
From this we can deduce that adults between the ages of 18 – 55 are the most likely ideal demographic for gamified programmes.
Challenges of Gamified Loyalty Programmes
- May be expensive to develop
- Expensive to maintain, to keep updated and fresh therefore loses value over time
- Some familiarity with game design may be required to keep gamified loyalty programme simple and fun to use
7) Referral Loyalty Programmes
Referral loyalty programmes reward customers who are essentially brand advocates. These are customers who recommend your company to their family, friends, colleagues, even online strangers who may be conducting some pre-purchase research.
Rewards can vary between special discounts and early access to new products or services. The latter in particular is often used on influencers who in return give businesses mass exposure to their social media followers.
A well-structured referral loyalty programme promises huge ROI for your business. Give your customers a reason to champion your brand and in return they’ll minimise the cost of acquisition.
"After all, 77% of consumers trust recommendations from friends or family.
Dropbox offers additional cloud space to customers who refer a friend.
Does it work well in your industry?
Every business needs positive reviews. And it’s probably not a stretch to assume that every business has benefitted from some form of referral. Referrals are pretty much a “must” if you’re in a business or started your own company.
But does that mean you need to leverage referrals to build loyalty? Not necessarily. Let’s take a look at whether this type of loyalty programme aligns with your goals.
Does it align with your goals?
No matter what happens in business, one thing is for certain; customers will always share reviews and refer others. If it’s going to happen, why not build something that guarantees customer loyalty? Referral programmes are particularly useful if:
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You want to expand your customer base with little cost because incentivised brand advocates will be acquiring new prospects
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You want an effective method of identifying your most loyal customers and targeting them with great rewards
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You want to build strong relationships and deepen connection with loyal customers by converting them to brand ambassadors
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You want to leverage the ultimate form of brand credibility which is social proof and customer testimonials
Is demographics a factor?
It may come as a surprise to learn that demographics absolutely plays a role in referral programmes. Millennials were the main focus for companies who wanted to capture new leads via referrals. Now that the buying power of Gen Z is increasing, the focus has switched somewhat. One thing is for certain; referrals are more effective amongst Millennials and Gen Zers.
Challenges of Referrals
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Referral programmes are useless if products or services are nothing to rave about; your product must be top tier and blow the competition out of the water
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You’ll need to make the referral process seamless, engaging and rewarding for customers which may be difficult without the correct platform
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Simply asking a customer for a referral can undo all the work you’ve put into building a relationship with them; they’ve already given you their money and their time is a valuable commodity
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Tech to manage, track, report, protect against fraud, robust portals for referrers to operate in, can be costly and time-consuming
Download the Customer Loyalty Programme Comparison Guide today for essential insights of how to choose the right loyalty programme for your brand.
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