Loyalty & Reward Programmes
January 31, 2024

7 Types of Loyalty Programmes: Which is Right for Your Brand?

Types of Loyalty Programs

Loyalty programmes are some of the most effective methods of increasing customer retention and revenue. Many customers agree that loyalty and reward systems incentivise long term engagement with brands. In fact, emotionally engaged customers annually spend 60% more with brands that they’re loyal to. 

Then we come to another benefit of implementing loyalty programmes; retention, significantly cheaper than acquisition and often results in brand advocacy.

Higher retention, increased brand advocacy and customers willing to increase and alter their spending behaviours. Clearly, loyalty programmes have a lot to offer businesses. But the question remains, which type of programme is right for your business?



Contents:

 

1) Always On Loyalty Programmes

2) Earn & Burn Loyalty Programmes

3) Tiered Loyalty Programmes

4) Premium-based Loyalty Programmes

5) Loyalty Partnerships

6) Gamified Loyalty Programmes

7) Referral Loyalty Programmes




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Download the Customer Loyalty Programme Comparison Guide to find 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. First we must understand:

  • What each type of customer loyalty programme does and how that benefits your business 

  • How well it works in your sector, industry or niche

  • Whether it aligns with your goals 

  • Which demographics it resonates with the most

  • Challenges of implementing the loyalty programme



1) Always On Loyalty Programmes (Instant Reward Programmes)

 

Always On Loyalty Programmes are part of the experience with a brand. The brand offers customers access to rewards for as long as they are interested.

The customer can opt out any time. But if they choose to stay, the loyalty programme will offer rewards such as discounts and special exclusives. Always On rewards can be redeemed any time and in real time.

Always On programmes keep brands top of mind with customers outside the purchase cycle. Plus, "impromptu" rewards surprise and delight customers, encouraging brand interaction and redemption of rewards. 

61% of customers agree that surprises increase engagement.


An Always on Loyalty Programme also serves as a retention tool, increasing upsells and reducing customer churn. Additionally, it is worth mentioning that Instant Reward programmes do not have a direct link to customer spend. Making them highly accessible and attractive to a wider pool of customers.

HelloFresh Instant Reward Program

HelloFres Mobile Instant Reward Program

Healthy meal kit subscription business, HelloFresh, offers it's customers a range of relevant rewards, such as money of cookware and savings on fitness equipment, through complimentary partner brands. 


 

Does it work well in your industry? 

Because of their flexibility, Always On programmes work well in most industries. Regarding business models, brands operating on a membership or subscription model also benefit greatly. And for those brands just starting to nurture customer loyalty, Always On is the best programme to start with. 

Does it align with your goals?

An Always On programme might be the perfect fit for a small business with budget constraints. Over time you can develop 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 them constantly engaged with your brand, even outside the sales cycle, increase retention? 

  • Is your priority to retain, engage or convert more customers with up-sells and cross-sells to increase revenue and lifetime value?

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 need loyalty programme management experience to scale their in-house Always On services for larger audiences. 

  • Delivering a seamless and secure experience also requires technical 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

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2) Earn & Burn Loyalty Programmes

Earn and burn or point-based programmes are the traditional means of nurturing customer loyalty. Customers earn a number of points every time they take action, such as making repeat purchases. Once customers gather enough points, they receive reward offers such as discounts, gift cards and other incentives.

Earn and burn loyalty programmes are a simple but effective tool to motivate customers. Transactional in nature and simple for customers to follow, points-based loyalty programmes uplift transactions per customer every year. Rewards of increasing value incentivise happy customers to keep on making purchases. Customer satisfaction promotes a healthier bottom line.

A well-known example of this type of loyalty model is Starbucks Rewards.

Starbucks earn and burn points rewards programme


Does it work well in your industry? 

Many businesses use point programmes because they find them to be 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? 

A points-based loyalty programme is ideal if your business is just starting as they are quick to set up and cost-effective.

  • 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 for every 1 spent unit of currency. 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 a good tool, loyalty programmes that let customers earn and use points can become boring and lose customers. 

For a more detailed analysis, please visit:  Earn and Burn Loyalty Programmes: A Comprehensive Guide

 

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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. A points-based programme gives points fairly, while tiered loyalty programmes encourages more valuable purchases for better perks. However, points can be combined with tiered programmes. The more points you earn, the higher tier you can reach. 

Two customers can subscribe to the same service for the same amount of time. However, the one who purchases more both in terms of value and frequency will unlock rewards at higher tiers. 

Subscribers to higher tiers tend to get recognition from titles too. For example, British Airways inject a sense of social status within their Executive Club. This motivates customers to compete and strive for access to higher levels with more features and products. Retaining customers this way provides competitive advantage because tiered loyalty are very unique to the brand.

Another great example of a tiered loyalty programme (with points) is the status-based benefits on offer at The Nordy Club.

Nordy Club Tiered Membership


Does it work well in your industry?

Companies that have customers who spend more but purchase infrequently typically use tiered rewards. 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 to offer complementary, free products.

Does it align with your goals? 

Loyalty programmes with different levels are common in industries with pricier products or services. Some of these goals may apply to you. 

  • You want to keep customers engaged between long term purchase decisions 

  • You want to fortify brand resilience and shield top spenders against competitors 

  • You prioritise a high-quality shopping experience for your customers

  • 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.

It’s worth noting however, 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 

  • Lower tiered members may feel the task of upgrading to higher ranks daunting 

  • Requires resources (such as CRMs and marketing) to maintain engagement with customers between purchase decisions

  • Carefully consider ranks and their associated rewards, ensuring that they make sense and appear valuable to customers.

For a more detailed analysis, please visit:  The Power of Tiered Loyalty Programmes: Elevating Customer Engagement

 

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4) Premium Loyalty Programme

Premium, VIP or paid programmes require customers to pay a fee on a monthly or yearly basis. This grants them access to benefits like 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. A premium loyalty programme strengthens customer relationships and gives paying customers special treatment and 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 them appeared to focus on 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 fits into these categories, find ways to split your product or service into a high-quality 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: 

  • You want to stand out in competitive markets e.g., fashion, health, and professional development.

  • You want to develop a high perceived value of your products or services 

  • You want to attract experience-driven customers and convert them with cross-sells and up-sells

JD Gyms Plus Premium Loyalty Programme 1
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JD Gyms Premium loyalty Programme 2
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JD Gyms Premium Loyalty Programme 3
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JD Gyms PLUS+ members gain access to all JD Gyms throughout the UK.  Members also get access to extra savings on related products from carefully selected brand partners. 

 


 

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 types the younger your customer base is. Still, even half of Baby Boomers desire a premium loyalty programme. 

Challenges of Premium-based Loyalty Programmes

  • Benefits and rewards need regular rotation, maintenance and ideation to keep subscribers delighted

  • 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


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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 because of unique offers between brands. Not only that, your business could benefit greatly from mass exposure to a partner’s customer base.

Another example of this is the genius of Nike Run Club on Spotify.
Nike Spotify Loyalty Partnership Programme 2

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?

Loyalty programmes have benefits for brands and can help achieve business goals through strategic alliances. Let’s take a look: 

  • You want a cost-effective method of growing your marketing reach 

  • You want to quickly collect customer data and information that you can leverage to better understand new audiences 

  • You’re actively interested in working with other brands to co-create value

  • You want to build a unique, cross-brand journey

  • You want to enhance your brand’s reputation through association with well known and credible brands 

Is demographics a factor?

Demographics plays a huge role in loyalty partnerships as high resonance with potential customers is essential. You need to make sure that audiences of both brands are genuinely interested. Collaborating companies should conduct research  to see whether customers find value in the alliance. Consider using customer feedback as part of your partnership marketing strategy.

Above all, loyalty partnerships should make sense to customers. Otherwise all the work put into the partnership will be for nothing.  
 

Challenges of Loyalty Partnerships 

  • Identifying like-minded companies who are willing to engage in partner marketing.

  • Rewards must be mutually beneficial to both brands and can become subjects of disputes and long-winding negotiations 

  • Tech required for integration and to facilitate transparency of results

  • Goals between partners can often become misaligned 

  • Some partners may need educating on your value proposition and customer base

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6) Gamified Loyalty Programmes

Gamified loyalty programmes 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.


Gamification is also highly popular with consumers. 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.

 

Conditional Rewards in Gamification


Does it work well in your industry?

Businesses from all sectors benefit greatly from gamified loyalty programmes. Customers purchasing products or services, rewarded with engaging multi-step challenges, significantly ramps up engagement.

To nurture brand loyalty build a game that is relevant to your brand. For example, companies in the healthcare industry use gamified elements to combat work-related stress. App challenges that reward wellbeing and healthy choices encourage employees to take part.

The food service sector is another great example where gamified loyalty programmes offer a positive experience.

 

Does it align with your goals?

Gamified loyalty programmes are almost unmatched in their ability to boost customer engagement. Consider this type of programme if consistent customer engagement within your brand is a priority. They also offer so much more if: 

  • You want to give customers an interactive incentive to repeat desired behaviours 

  • You want to encourage engagement that’s not related to purchases 

  • You want to use more than one loyalty programme type 

  • You generally want to offer some form of gamified content 

  • 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. Bear in mind also that most loyalty programmes require a minimum age of 18.

Mass adoption in the workplace and adult age requirements makes people aged 18 to 45 the perfect demographic.

Challenges of Gamified Loyalty Programmes 

  • May be expensive to develop internally

  • Expensive to maintain, to keep updated and fresh therefore loses value over time 

  • Game design experienced required

 

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7) Referral Loyalty Programmes

Referral loyalty programmes reward customers who are essentially brand advocates. These are customers who recommend your company to others.

Rewards can vary between special discounts and early access to new products or services. Influencers often receive the latter in return for giving businesses mass exposure. 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. 
Dropbox referral program

 

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?

 

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: 

  • You want to expand your customer base with little cost because motivated brand advocates will be acquiring new prospects 

  • You want an effective method of identifying your most loyal customers and targeting them with great rewards 

  • You want to build strong relationships and deepen connection with loyal customers by converting them to brand ambassadors 

  • You want to leverage the ultimate form of brand credibility which is social proof

 

Is demographics a factor?

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. However, people of all ages will share a positive customer service with others.


Challenges of Referrals
 

  • Referral programmes are pointless if your product or service fails to surpass competitors
  • You must make the referral process easy, interesting, and rewarding for customers
  • Asking a customer for a referral too early can ruin the relationship you've built with them
  • Using technology to handle, monitor, document, and prevent fraud can be expensive and require a lot of time.

For a more detailed analysis, please visit:  Insider Tips for Building a Successful Customer Referral Programme

 

 




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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