It’s no secret that now consumers are more cost-conscious than ever.
In this blog, John Lincoln, a digital marketing expert, will explain what a loyalty program is and how to create one that will consistently keep your customers coming back for more.
What You’ll Learn:
- What is a Loyalty Program?
- 6 Types of Rewards and Loyalty Programs
- 3 Simple Steps to Build Your Own Loyalty Program
- 7 Best Practices to Build Loyalty With Your Customers
- FAQs About Loyalty Programs
My Expert Insights on Loyalty Programs
Loyalty programs are one of the best incentives companies can use to win over price-sensitive customers and secure recurring sales.
If you aren’t already running a loyalty program, I think this is the biggest initiative you should add to your digital marketing program in 2024.
Action Item: Brainstorm what types of offers or opportunities you could include in a loyalty program. Make a list of 5-10 that you can start with, and then decide how to incorporate them into your existing digital marketing program.
What is a Loyalty Program?
A loyalty program is a customer retention program designed to entice consumers to purchase consistently from one brand while rewarding them for their loyalty.
In exchange for their loyalty to a particular brand, customers receive access to exclusive discounts, bundles, and promotions that first-time customers don’t. The key to these types of programs is to really study and understand your customer base so that you know what they will like and what they will pass on.
These programs aim to attract more customers, increase the average order value of existing customer orders, improve retention rates, and encourage brand trust and awareness. When executed correctly, they can lead to big sales and customer loyalty like you’ve never seen before.
You can gain a competitive advantage by putting an emphasis on customer loyalty.
Harvard Business Review says that acquiring a new customer can be a whopping 25x more expensive than hanging on to an existing one.
That same report cites a Bain & Company study showing that increasing customer retention rates by as little as 5% can increase profitability as much as 95%.
There’s an old saying: “Make new friends but keep the old. One is silver, the other gold.”
6 Types of Rewards and Loyalty Programs
The type of program you decide to use depends on what your customer base will respond to more. Before developing your own program, I’ll go over the most common types, how they work, and how they can be incorporated into the rest of your marketing strategy.
1. Points Based Rewards Programs
Points-based programs work by assigning points to a customer’s spending. When customers have enough points, they can redeem them for free products or services.
They inspire customers to visit your business frequently, to rack up points toward cool prizes. Most points-based programs operate using a mobile app, which has pros and cons.
For example, a mobile app makes it easy to keep track of points. You can also use it to market to consumers through push notifications directly to their devices. However, some consumers aren’t willing to download another app on their phones, which may keep people from participating in the program.
Starbucks is one of the most popular points-based programs. Using the smartphone app, customers earn stars for every purchase and can redeem them for rewards such as free beverages, food items, or upgrades.
2. Tier Based Rewards Programs
Tier-based programs separate customers into tiers depending on certain metrics, such as how much they spend in a year or quarter. This type of program aims to entice customers to spend more to reach certain tiers and unlock new promotions.
This type of loyalty program will increase customer retention, as customers will continue to purchase if they want to reach a certain tier. However, some customers can become frustrated if the tiers are too hard to reach. To add some balance, you can offer points for things other than spending, such as sharing on social media or joining an email list.
3. Mission-Based Loyalty Program
Today’s consumer is extremely tuned into the missions and values of the companies they buy from. With mission-based marketing, you can tap into those values to inspire your customers to buy from you by sharing how their purchases can support causes close to their hearts.
The Body Shop recently hosted a mission-based program where customers could collect points and turn them into donations to select charities. This program will work for charity-minded consumers, but those driven by personal gain may not resonate with them as much.
4. Spend Based Loyalty Programs
Spend-based programs reward those who spend the most. Essentially, the more you spend, the more rewards you earn. Many airlines use this type of customer loyalty program model.
It works great for high-dollar, recurrent purchases but might not be the best for companies with lower-value products. Consumers who will spend more for a higher level of experience will resonate more with spend-based programs.
5. Subscription-Based Programs
Subscription-based programs work by having the consumer pay an upfront fee for access to certain perks or rewards.
Panera Bread’s famous Unlimited Sips Club is an example of a subscription-based program. Consumers spend a certain amount of money monthly or yearly to access exclusive rewards. This program works great for frequent visitors to your business but might not work for customers who don’t make frequent or consistent purchases.
6. Referral-Based Loyalty Programs
Referral programs reward consumers for referring people to your business. Sometimes tied into other types of programs, this strategy is a great way to reduce your per-customer acquisition cost, as your new leads come from existing customers and not marketing you’re paying for.
You can reward the referrer with cash or other incentives, such as free products or discounts on your services. Whatever you decide, it should encourage people to refer new customers to your business.
Like any other program, it comes with some downsides. For example, some people get so comfortable relying on referrals that they drop other types of marketing and narrow their lead sources, placing significant pressure on your base to keep supplying you with new leads. You also risk rewarding low-quality leads that aren’t right for your business.
3 Simple Steps to Build Your Own Loyalty Program
The process of creating a loyalty program can be broken down into three simple steps. Start by identifying what your customers value most, such as discounts, bundles, or other great deals. These key offers will be what creates the base of your program. Now, it’s time to design a program that will keep your customers happy, building their loyalty to your products.
Step 1: Outline Your Key Offers
The first step to designing an incredible loyalty program is to identify what your customers value most, such as discounts, bundles, or other great deals.
Be sure to pick items that are cost-effective for you but also excite your customers and inspire them to spend more.
Step 2: Create a Calendar
The next step is to create a promotional calendar of opportunities for your loyal customers to earn points toward your offers.
Outline this calendar at least a quarter in advance so that you have time to set up your promotional offers and share them with current customers.
Step 3: Find a Cadence
The last step is to develop a cadence. Not every cadence will work for every business. You know your customers better than anyone, so create a schedule that they will really respond to.
Lean into your consumer data and learn what worked and what didn’t. Try to incorporate new, fresh ideas while revisiting old ones that work.
7 Best Practices for Building Brand Loyalty
1. Practice Outstanding Customer Service
If you want loyal customers, make sure that your customer service is second to none. Start by looking at what your competitors are doing in terms of customer service. Then, do it better.
Also, if you want to know if your customer service is up to snuff, ask your customers.
Send out email surveys that give people the opportunity to offer feedback about your brand. Let them tell what they like and where you could improve.
Remember: criticism is your friend.
When customers tell you what’s wrong with your business, that’s a blessing. It’s information you can use to improve your quality of service and make future customers happy.
2. Get to Know Your Customers
Get to know your customers. Once you understand them, you can improve your quality of service by addressing their specific needs.
Learn about your customers’ pain points. Find out why they buy your product or service. Then, tailor your marketing message and customer care accordingly.
One of the easiest ways to keep up with your customers is with a great information system. Use it to collect important information about your customers, such as their reasons for purchasing your product and their demographic details.
Then, you can use reporting tools to aggregate that data and look for trends.
3. Build Customer Loyalty: Develop a Consistent Brand Personality
Your business probably has a mission statement. But does it have a personality people can relate to?
Why has Progressive Insurance been running commercials with Flo for years? Because she makes the company more relatable.
Even if you have a boring business model (like insurance), you can still spice it up with a human touch.
4. Offer “Prime Service” to Your Best Customers
Find the customers who are contributing most to your bottom line. What can you do to make them even happier?
Here are a few suggestions:
- Give them a dedicated account manager
- Offer extra perks like larger discounts on volume purchases
- Waive restrictions that you put on other customers
- Give them “first dibs” on new products or services you’re offering
- Let them try new offerings for free
- Give them your cell phone number so they can call you directly if there’s a problem
You can build customer loyalty by treating your best customers as partners. Ask them for advice before making big decisions that will affect your business.
5. Monitor Social Media and Respond
It’s often the case that people who have a question or complaint will reach out to your business on social media. Please note: they might do that even if you don’t explicitly state that you offer customer support via Instagram or Twitter.
When they reach out to you on social channels, make sure to respond.
Remember: Other people (including potential customers) watch how you respond on social media. Make sure you leave them with a good impression.
6. Give Your Frontline Employees the Ability to Deal With Complaints
Empower employees who deal directly with customers to handle complaints themselves. That way, customers don’t have to wait for management approval.
You might be worried that if you give your customer-facing employees too much authority, they’ll abuse it and disburse way too many refunds or free exchanges. That’s an understandable sentiment, but unfortunately, refunds and free exchanges are the cost of doing business.
7. Set Expectations at the Beginning
Tell your customers exactly what level of service is provided. In some cases, it might be necessary to inform them about what services aren’t provided as well.
Also, tell them about the cost upfront. That way, they have a chance to make an informed decision.
It’s also a great idea to follow up with a courtesy email or phone call after they’ve made a purchase. Check to make sure that everything is okay.
FAQs About Loyalty Programs
1. What types of loyalty programs should I run for my business?
All types of programs have pros and cons, but not all programs are right for every business. It’s important to research your customer base before deciding which program to run. Only start a loyalty program once you know what your customers value the most.
2. Why do businesses have loyalty programs?
Every business runs its program for different reasons, but most do so to increase customer spending, attract new customers, improve their retention rate, and build brand awareness and loyalty among their audience base.
3. What makes a successful loyalty program?
A successful program will offer exciting rewards, exclusive offers, and a hassle-free way to participate. Programs that fail are often hard to access or offer awards that their customers simply aren’t interested in.
4. What is the most successful loyalty program?
Most people believe that Starbucks has the most successful loyalty program. Currently, almost 30 million members worldwide participate in their Stars program.
Build Your Customer Loyalty with Ignite Visibility
No one knows more about customer loyalty than the experts here at Ignite Visibility. Our digital marketing experts can help you:
- Increase customer retention
- Encourage higher per-sale amounts
- Boost your referrals
- And more
Want to learn more about our digital marketing programs? Reach out today!
