Types of Customer Loyalty Programs
Loyalty programs serve two purposes. The first is self-evident: customers are rewarded for being patrons of a particular retailer. The second is slightly furtive: businesses glean information and behavioral data about customers’ shopping habits in order to offer better products and services. It’s a win-win situation, resulting in an enhanced experience for the customer and a magnified bottom line for the vendor.
What forms of loyalty programs exist? Let’s consider five of the most common types out there.
Points Program. This is the simplest, most ubiquitous fidelity program we see across businesses. Points systems encourage frequent spend by offering customers the opportunity to accumulate points as a function of the transaction amount. Points can be accrued and traded for rewards, discounts, gifts, or future purchases. In some programs, we witness points being rewarded for activities other than buying, such as completing a survey or shopping online rather than in-store.
Tiered Systems. A shade more complex than the points system, tiered loyalty programs encourage repeat purchases and higher value spend in order to unlock valuable rewards and benefits. Basic participation allows the customer to cash in on basic rewards. With consistent and increased spend, customers ascend the ladder after attaining specific milestones. The beauty of a tiered system stems from both short-term rewards for immediate purchases and long-term rewards for graduating to a new level. But customers should be made acutely aware of the program benefits, their current status, and what they need to spend in order to continue climbing up the ranks. Communication, as always, is key.
Fee-based Programs. Some fidelity plans come with a price tag, where customers can gain access to exclusive rewards and incentives like free shipping, discounts, or experiential activities. Amazon Prime is one telling example, where customers fork over an annual fee in return for complimentary two-day shipping on millions of items. Costco membership is another illustration of paying your way into a world of private shopping at competitive prices and bundles. Surveys show that customers enrolled in these programs spend substantially more than customers who opt out.
Non-monetary programs. Some programs appeal to the pathos, or emotions, of customers by offering something wholly immaterial to the spender. Toms, the footwear brand, donates a pair of shoes to an underprivileged child for every footwear purchase rendered by a customer. This program taps into the core values and humanity of its clients to engage and retain them in a wholly innovative approach.
Reward Partnerships. For businesses that don’t necessarily have a client-facing portal – think credit card and insurance companies – teaming up with another brand to offer gifts or discounts is an alluring way of rewarding customers. This means customers can exploit a range of products and services beyond what the company in question offers. Credit card companies like American Express and Visa are known to present their VIP clients with captivating experiences such as concerts, fine dining, airport transfer, and concierge services.
No matter how you structure it, a loyalty program can be an effective means to connecting with customers and encouraging additional spend. Choosing the right program is not always so straightforward, but it should reflect versatility, transparency, and real rewards customers would be interested in claiming.
Contributed by Danielle Issa.
Image source: credibly.com.