Loyalty program

What is a loyalty program?

Types of loyalty programs

• Point-based: This is one of the most popular loyalty program types. Members earn points for their actions and redeem them for rewards.

• Tier-based: To make their programs more tempting, some businesses rank their loyal members based on their spending levels. Members in higher tiers benefit from more exclusive rewards.

• Cashback: When a member spends a certain amount, they receive a certain percentage back as cash or coupon to be used in next purchases. 

• Paid (subscription): Members pay a recurring fee to receive the benefits of the program.

• Punch cards: Members receive physical cards that are stamped after every transaction and exchanged for certain awards.

• Hybrid: Combining several loyalty types is a great strategy to create an outstanding journey for loyal customers. Hybrid programs also offer a variety of financial and experiential rewards.

• Group: Group or multi-brand loyalty program is an umbrella scheme where a parent company allows members to use their points at any of the brands owned by the group.

• Coalition: This type of loyalty program is usually used by malls and shopping centers. In a coalition loyalty program, unrelated brands team up in a partnership. 

Types of loyalty rewards

• Free, exclusive or limited products

• Cashback or store/app credit

• Discounts

• Birthday gifts or gift cards

• Free shipping

• Partnership perks

• VIP experiences (exclusive events such as invite to a to a movie premiere or event sponsored by the brand)

• Charity donations

Benefits of loyalty programs

• Rewards for loyalty: Loyalty programs offer incentives for repeat customers, giving them rewards such as discounts, freebies, or exclusive access to special events. This encourages customers to keep coming back, enjoying perks for their continued support.

• Enhanced customer experience: By participating in a loyalty program, customers feel appreciated and valued by the business. This personalized attention fosters a positive relationship, leading to a better overall experience with the brand.

• Cost-effective marketing: Loyalty programs serve as a form of marketing that targets existing customers. It's often more cost-effective to retain current customers than to acquire new ones, making these programs a savvy investment for businesses.

• Data insights: Through loyalty programs, businesses can gather valuable data on customer preferences, purchase behaviors, and demographics. This information allows for more targeted marketing efforts and product offerings, improving the overall effectiveness of business strategies.

• Competitive advantage: Offering a robust loyalty program can differentiate a business from its competitors. Customers are more likely to choose a company that rewards their loyalty over one that doesn't, giving businesses a competitive edge in the market.

How to build a loyalty program

• Identify what your objective is. The first step is to identify why exactly you want to develop a loyalty program. Do you want to reduce customer acquisition cost or increase repurchase rate? Do you want to reduce customer churn or increase average order value (AOV)?

• Identify what data you have. To run your loyalty program successfully, you need to know what data is accessible to you: event data (purchase, login), behavioral data (shopping habits, value), business data (inventory, seasonality).

• Identify what resources you have. Developing a revenue-boosting loyalty scheme requires dedicating financial and IT resources of the company. Your decision to buy your loyalty feature from a reliable vendor saves your dev team from having to spend hours on creating and maintaining a loyalty program.

• Prioritize personalization. With your loyalty program you gain access to valuable first-party data, which you can use to tailor your rewards to what each individual customer wants.

• Go omnichannel. To maximize the delight and comfort of the shopping process, let your customers move seamlessly between your online and offline stores, receiving and redeeming points without having to change channels. 

How to measure loyalty program success

• Increased AOV

• Increased customer total orders

• Reduced customer acquisition cost (CAC)

• Increased customer lifetime value (CLV)

• Increased repurchase rate

• Reduced speed-to-market of new loyalty features