Loyalty programs are an effective way to reward customers for continuing to buy from your business while also helping you retain their business. Understanding the different types of loyalty programs available can help you select one that best meets your needs. Let this guide walk you through each type, highlighting the advantages and disadvantages of each.
Points-Based Loyalty Programs
Points-based loyalty programs reward customers with points each time they shop. These points can be exchanged for rewards such as discounts, gift cards, or prizes. This type of program is popular among businesses that frequently deal with recurring customers and have frequent purchases due to its ease of use. Points-based loyalty programs are also suited to companies that offer multiple services as it encourages customers to sample all products and services.
- Starbucks Rewards: Starbucks has a popular loyalty program that rewards customers for making purchases at Starbucks locations. Customers earn stars for each purchase, which can be redeemed for free food and drinks, personalized offers, and other perks.
- Delta SkyMiles: Delta's loyalty program rewards customers with SkyMiles for flying with Delta or using the airline's partners. These miles can be redeemed for flights, hotel stays, car rentals, and other travel perks.
These are just a few examples of points-based loyalty programs that have been successful in rewarding customers and building loyalty to a brand. Other popular examples include Macy's, Best Buy, and Marriott.
Tiered Loyalty Programs
Tiered loyalty programs are slightly different from the traditional point-based program and typically allow customers to unlock advanced rewards as they reach higher statuses. This type of program provides various tiers that customers must climb, where each tier presents new perks such as exclusive discounts, early access to events, or special recognition. Companies that are looking for a way to encourage customer retention and boost customer lifetime value often opt for tiered loyalty programs as customers can easily see the value being presented – increase spending levels for bigger rewards.
- Hilton Honors: Hilton's loyalty program also has a tiered structure, with four levels of membership: Member, Silver, Gold, and Diamond. Customers move up to higher tiers based on the number of nights they stay at Hilton hotels and resorts. Each tier offers a greater number of benefits and perks.
- Best Buy: Best Buy has a tiered loyalty program called My Best Buy, which rewards customers for making purchases at Best Buy stores and online. Customers earn points for each purchase, and as they reach certain thresholds of points, they move up to higher tiers with more benefits and perks.
Discount-Based Loyalty Programs
Discount-based loyalty programs use discounts to reward customers for their loyalty. In this type of program, customers deserve a certain percentage off their purchase when they've accumulated a certain amount of money or points in their account. This kind of program works especially well for retail and ecommerce businesses as customers can easily see the benefits and actively working to gain bigger discounts by buying more products.
- Amazon Prime: Amazon Prime is a subscription-based loyalty program that offers customers a number of benefits, including free two-day shipping, access to streaming services, and discounts on certain products.
- Target Circle: Target's loyalty program, Target Circle, offers customers discounts on products as a reward for their loyalty. Customers earn points for each purchase they make at Target stores and online, and these points can be redeemed for discounts on future purchases. Customers also receive personalized offers and deals based on their shopping history.
Cashback Loyalty Programs
Cashback loyalty programs are also a type of discount-based program, but instead of giving customers discounts, they will get cashback. This means that for every purchase, a certain amount of the cost is refunded back to the customer’s account or returned as store credit. These are very popular with online retailers who sell expensive products because it gives the buyer a sense of “getting something back”.
- Discover: Discover is a credit card company that offers a cashback loyalty program called Cashback Match. Customers earn cashback on their purchases, and Discover will match the cashback earned in the first year.
- Capital One: Capital One is another credit card company that offers a cashback loyalty program called Capital One Rewards. Customers earn points for each purchase they make with their Capital One card, and these points can be redeemed for cashback or other rewards.
Community Loyalty Programs
Community loyalty programs are another type of loyalty program, but this one focuses more on building a relationship between the customer and the business. These types of programs encourage customers to interact with the business by becoming fans or followers, participating in polls and surveys, attending events hosted by the company, or covering their experiences on social media. Customers will often receive points for each activity they complete and can then redeem these points at a later date.
- NikePlus: Nike's loyalty program, NikePlus, focuses on building a community of athletic and fitness-minded individuals. The program offers a variety of perks and benefits, including personalized product recommendations, early access to new product releases, and access to exclusive events.
- Sephora Beauty Insider: Sephora's loyalty program, Beauty Insider, focuses on building a community of beauty enthusiasts. The program offers a variety of perks and benefits, including personalized product recommendations, early access to new product releases, and access to exclusive events.
- Patagonia Worn Wear: Patagonia's loyalty program, Worn Wear, focuses on building a community of environmentally conscious individuals. The program offers a variety of perks and benefits, including access to repair and maintenance services, discounts on recycled products, and access to exclusive events.
- REI Co-op: REI's loyalty program, Co-op, focuses on building a community of outdoor enthusiasts. The program offers a variety of perks and benefits, including personalized product recommendations, discounts on gear rentals, and access to exclusive events.
Choosing the right loyalty program
Deciding on the type of loyalty program that is right for your business will depend on a number of factors, including the nature of your business, your target audience, and your overall business goals. Here are a few steps you can take to help determine what type of loyalty program is right for your business:
- Define your business goals: The first step in deciding on a loyalty program is to define your business goals. What are you hoping to achieve with your loyalty program? Are you looking to increase customer retention, drive sales, or build a sense of community among your customers? Understanding your goals will help you determine the type of loyalty program that is right for your business.
- Consider your target audience: Another important factor to consider is your target audience. What do your customers value most? Are they looking for discounts, cashback, or personalized experiences? Understanding what your customers value will help you determine the type of loyalty program that will be most appealing to them.
- Determine your budget: Another factor to consider is your budget. Loyalty programs can vary in terms of cost, so it's important to determine how much you are willing to invest in your loyalty program. This will help you narrow down your options and choose a loyalty program that is within your budget.
- Evaluate your resources: It's also important to evaluate your resources when deciding on a loyalty program. Do you have the staff and technology to support a points-based loyalty program, or do you have the resources to host events and experiences for a community-based loyalty program? Understanding your resources will help you determine the type of loyalty program that is feasible for your business.
- Consider your competition: Finally, it's a good idea to consider your competition when deciding on a loyalty program. What are other businesses in your industry doing in terms of loyalty programs? Understanding your competition can help you determine the type of loyalty program that will be most effective in differentiating your business and attracting customers.
Overall, there are many factors to consider when deciding on the type of loyalty program that is right for your business. By taking the time to define your business goals, consider your target audience, determine your budget, evaluate your resources, and consider your competition, you can choose a loyalty program that will be most effective in rewarding customers and building loyalty to your brand.
The loyalty landscape is constantly changing as technology evolves. Typically the large enterprises have been able to build a tremendous advantage when it comes to loyalty. Let's face it, these programs are costly to do well. The good news is that more and more tools are becoming available to help smaller companies compete.