Everything you need to know about Customer Loyalty Programs
With modern loyalty platforms it's easy to build loyalty, collect data and create professional marketing campaigns
Let's start by pointing out that customer loyalty programs are not all the same thing. In some ways, you could compare them to the animals most people associate with loyalty - dogs.
Sure, they all have certain similarities, and they all come from a single ancestor, but they have also evolved as they spread around the globe, to the point where there are now thousands of different sizes and shapes, with different strengths and weaknesses.
Secondly, customer loyalty programs are no longer all about loyalty - these days a successful loyalty program can do so much more, from building customer databases, segmenting audiences and even creating marketing programs.
Thirdly, customer loyalty programs often fail. Sometimes spectacularly. Just think about how many loyalty programs you’ve signed up for over the years - now ask yourself how many loyalty programs are you still active with? How many membership cards do you have in your wallet? If you’re like most people, you might have one or two, of the dozens that you’ve enthusiastically joined, at one stage or another.
This article is going to explore everything you need to know about loyalty programs - and if you stick around to the end, we will try to reward you for your loyalty too.
What is a customer loyalty program?
A customer loyalty program is, by definition, a program designed to reward customers for performing selected actions. Usually, spending money, or making purchases.
By providing rewards, the company encourages the customer to make repeat purchases, and in the process a stronger bond is formed - which is described as building, or creating, loyalty.
The first modern customer loyalty programs were coffee cards, where customers would get a stamp every time they made a purchase - and if they collected 10 stamps, they could redeem their card for a free coffee.
Another early example are the air miles programs that really took off in the 2000s. Their popularity was global, however the basic formula was always the same - you receive points for every mile you fly, which you can then redeem for free flights, or seat upgrades.
In later years, airline passengers were given another channel to spend their points, in the form of in-flight purchases. Passengers could redeem their points for jewellery, or cologne, or hundreds of other desirable items.
Today, with the introduction of digital technology, loyalty programs have evolved beyond all recognition - but the simple premise behind them remains unchanged. Rewarding customers for performing a certain action.
Why are customer loyalty programs important?
Loyalty programs are incredibly important tools for businesses because they provide a number of vital advantages, including making customers feel special - an incredibly important aspect of any business, which can also be incredibly lucrative.
This is because human beings are not always rational. Often we make decisions, sometimes incredibly important decisions, based on our emotions.
How often have we driven an extra couple of kilometers to a shop we really like, rather than going to the closest option? How often have we paid a few Euros more at a shop we enjoy shopping at, rather than going to the cheapest option?
This is the reason why the local butcher might keep a jar of lollipops to hand out to children who visit the store with their parents. Or the local baker might include 13 cream donuts in the box, when the customer ordered 12.
These examples might not be defined as ‘loyalty programs’, they have the exact same results, in that they influence how people feel about a particular business or brand.
And while feelings are important, loyalty programs also provide more tangible benefits.
What are the benefits of a customer loyalty program?
Introducing a loyalty program to your customers can provide a huge range of established benefits. These include:
- Increasing average spend
As you can imagine, loyal customers tend to visit more often, however they also tend to spend more when they do. It all comes down to trust - and when you trust a company, you feel far more comfortable giving them your hard-earned cash.
- Increasing customer LifeTime Value (LTV)
Customer LifeTime Value is an important metric when measuring customer loyalty. Essentially, it’s a way for companies to work out how much money customers are likely to spend with them over the course of their relationship together. There are a few nuances, but it makes sense that the more time a customer spends shopping with the business, the more money they will spend, highlighting the long-term importance of loyalty.
- Providing valuable data
This benefit depends greatly on the sophistication of the loyalty program. Even the most basic loyalty programs can provide a name and an email address, which can be used to build a mailing list. More detailed, digital loyalty programs can provide a huge range of data, which can be used for customer segmentation, special promotions and more.
- Decreasing the cost of customer retention
Loyal customers are far less likely to start shopping at a customer (otherwise known as ‘churn’) and far more likely to become repeat customers. Offering a range of rewards can hugely reduce churn.
- Increasing word-of-mouth referrals
Another benefit of loyalty programs is that they increase the likelihood of your loyal customers recommending your business to their friends and family - and when you receive a recommendation from someone you respect, you’re more likely to act on it.
Are there different types of customer loyalty programs?
As we mentioned in the introduction, loyalty programs have evolved as they've spread around the world. Today there are far too many different types of loyalty programs to mention in a single blog post. We will, however, attempt to outline some of the most popular:
- Points-based customer loyalty programs
These programs are incredibly popular due to their simplicity. Every purchase is rewarded with ‘points’, depending on the total amount of the purchase. For example, customers might collect 1 point for every Euro they spend - and they can then redeem these points for pre-set rewards, when they have collected enough points.
Programs like this make it very easy for businesses to ensure that they are rewarding their best customers - and they make it very clear and simple for customers to understand exactly how much they need to spend in order to return a certain reward.
- Rebate-based customer loyalty programs
This program is also incredibly simple - whenever customers make a purchase, they receive a credit they can use to discount future purchases. The total amount of the credit will depend on the business, but the higher it is, the greater chance the customer will return.
This system can be very effective in certain circumstances because it doesn’t require the customer to save up a certain number of points. Instead they can redeem their credits the very next time they make a transaction.
- Altruistic-based customer loyalty program
While programs like this don’t reward customers as strongly as the previous two examples, they can, in fact, help to form a far stronger emotional bond by appealing to shared values.
How it works, in most cases, is that when the customer makes a purchase over a certain amount, the business promises to donate a fixed amount to a charitable cause that is important to both the business and the customer.
For example, a surf-shop might promise to donate €5 to the save-the-oceans charity, with every purchase over €50. While the customer isn’t directly benefited by this promotion, they may still choose to make regular purchases at the surf shop, over its competition, because they know that they are helping a charity that is close to their heart.
- Tier-based customer loyalty programs
These are programs that encourage customers to spend more in order to reach higher and higher tiers.
The most common format is to offer bronze, silver and gold tiers. The bronze category is open to all customers and is the entry level tier. When customers spend a certain amount with your business, usually within a certain timeframe, they are upgraded to silver tier - and then when they meet the next criteria they are upgraded to gold.
Each tier also offers better rewards, and higher levels of service, so customers may be tempted to spend more than they normally would simply to move up to the next tier.
This program is ideal when you want your best customers to feel really valued.
- Paid-membership customer loyalty programs
Another way to approach loyalty programs is to create a club, which customers can pay money to join.
Usually joining the club will give customers exclusive discounts, elevated customer service, as well as other perks such as early access to new products and new releases, or the chance to meet famous people.
Paid programs like this only work with specific industries - however they are extremely popular among brands that are loved, or create a lot of fan attention.
- Amalgamated customer loyalty programs
There are also a huge range of programs that incorporate a couple, or even a few, of the above programs into a single stand-alone program.
Often, these programs make up for the added complication by providing greater rewards, or even a degree of gamification - making the rules and criteria of the program itself part of the fun.
Are there customer loyalty programs for eCommerce?
Now, loyalty programs obviously work for traditional bricks-and-mortar businesses, but what about eCommerce? How do you build loyalty if you don’t even get to see who your customers are?
The easiest way is to register with an existing digital loyalty platform. That way, there’s a chance your customers may already be registered, and this will give them another reason to choose your webshop over the competition.
If you have competitors offering similar products at similar price-points, this could have a big effect on visits, sales and revenue.
Not only does this mechanism help build loyalty, but it also presents an opportunity for established members of the platform to find your business, therefore increasing your potential customer-base.
There are also a whole host of tips and tricks you can apply to help strengthen the bond you have with your customers and build customer loyalty.
In short, loyalty platforms are generally much more efficient and effective than traditional closed-loop loyalty programs.
What makes customer loyalty platforms so much better?
If you search online, you’re sure to find some examples of loyalty platforms that would be a good fit for your business. Some offer more opportunities for your brand to stand out, others offer low monthly payments, and yet others will offer sophisticated new approaches to refining the program like gamification, and digital integrations.
For example, at Piggy, we have a really simple set of solutions we offer to our clients:
- Increased customer retention and repeat customers
- Higher average cart value
- Enhanced data collection
- Simple, yet sophisticated marketing programs you can create and send yourself.
- Free access to the Piggy app
- All customer-service handled by the Piggy team
- In-house design department
- Ongoing knowledge sharing, including monthly Masterclasses
All for a low monthly cost, based on usage.
We don’t want to sound biased, but if you’re considering setting up a loyalty program for your business, it’s definitely worth reaching out to one of our customer loyalty experts by clicking here.