Customer Loyalty Program: Types, Examples & Apps to Help YouJairene Cruz-Eusebio on Sep 23, 2021 7:31:28 AM
One of the most important considerations for a Shopify business is customer retention. Retaining a customer is much easier than constantly acquiring new customers, and figuring out ways to retain existing customers and ensure repeat business often plays an essential part in an online business’s marketing strategy.
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Among the most popular ways to increase customer retention is to employ a customer loyalty program. These programs are exactly what they sound like – they incentivize repeat business and customer loyalty to your company in exchange for certain benefits.
However, you also need to make sure that your customer loyalty program is effective. For example, if the program requires that a customer visit your store 20+ times before providing them with a benefit, there’s a good chance that it won’t be very attractive to your clients.
Wondering how to ensure your customer loyalty program is effective in ensuring customer retention? Read on for more information about these programs and some existing loyalty programs you can use as inspiration when designing your own.
What is a Customer Loyalty Program?
A customer loyalty program is defined as a retention strategy that makes use of material incentives that motivate customers to continue buying from your business rather than considering competitors.
Some common incentives include discounts, free add-ons, and rewards when you reach a certain spending threshold.
When implementing a customer loyalty program, it’s essential for businesses to keep in mind that rewards are not the only way in which they can ensure customer loyalty. This should be only one prong in the loyalty strategy.
Some other ways to build customer loyalty include:
Better Customer Service
Ensuring an effective, multi-channel customer service system that allows customers to get in touch with your team through a variety of platforms, including live chat, text customer service, an FAQ page, social media platforms, and so on.
It also means listening to your customer’s feedback and implementing their suggestions where possible.
Focus on Customer Needs
You should focus on the needs of your customers rather than trying to replicate your competition. For example, just because a competitor has introduced a new product line doesn’t mean you should – you should instead consider whether it is something that your customers will be interested in and whether including a new line can benefit or hamper their experience in your store.
You must have consistency across product and service quality so that customers always know what to expect when they shop with your business.
Building your brand’s credibility by acknowledging your mistakes and taking steps to rectify them is another important step. This is especially important when it comes to customer service.
Distinguish Your Business from Competitors
Offer added value that helps distinguish your brand from competitors. This doesn’t mean only a loyalty program – it can also include sponsorships, festivals, discounts during festival and peak season, creating an online community via forums, etc.
Collect and Share Positive Feedback
Share positive reviews and experiences that your brand generates so that customers know that other people had the same experiences they had at your store. This makes it easier for them to trust that you are consistent across time and for everyone who shops with you.
That said, rewarding your customers for their loyalty is extremely important as a way to reinforce all the above-mentioned trust-building exercises you implemented.
Rewards help boost the dopamine in a person’s brain, which helps them feel happy and blissful. We naturally seek out activities that boost our dopamine levels, which is why most people are so fond of foods like chocolate and why you feel good when you’re complimented.
This same system also comes into play when you reward your customers – the rewards boost their dopamine, which helps them feel good. This, in turn, motivates them to return to your store for the same reaction.
The best way to reward customers is, of course, a loyalty program.
While you can and should offer occasional “one-off” rewards (including deep discounts, promotions that entitle them to money savings when shopping with partner brands, etc.), a loyalty program is a long-term option that provides rewards at all times of the year.
Benefits of Loyalty Programs
Of course, you are not required to have a customer loyalty program, but you would be losing a lot if you don’t.
Loyalty programs are becoming more popular among businesses today, especially with the increasing influence of millennials on purchasing decisions for most companies.
Studies show that 44% of millennials say they would like to see personalized rewards and promotions, compared to only 36% of non-millennials (GenX). Millennials simply want more personalization when it come to their purchases, and they wouldn’t mind being rewarded for their loyalty if it’s something that interests them enough.
Loyalty programs are not only beneficial for the customer – they can also benefit your business in a variety of ways. These include:
- Refined Customer Engagement
A business that struggles with customer engagement will likely also struggle with customer retention and loyalty. Loyalty programs help solve this issue. For example, they motivate customers to open marketing emails and text messages to check whether you are offerings something special for program members, which, in turn, creates a stronger bond between your business and the client.
- Improved Customer Experience
One of the best ways to ensure customer retention is to create a great experience while shopping with your business, from the pre-sale process to the checkout. Customers in your loyalty program are more enthusiastic about shopping with you, as they anticipate benefits and rewards as a result of their patronage. This creates a better shopping experience for them.
- Better Customer Retention
Research indicates that 75% of all customers are more likely to make another purchase from a shop after receiving an incentive. This number is astonishingly high when it comes to customer retention – the “elite” retention rate in eCommerce is 35%.
Customer retention happens for a variety of reasons, including engagement, an emotional connection, the shopping experience, and the value provided by a business. As discussed above, loyalty programs address all these concerns – hence, better retention rates.
The CLV is the profit that you will make from a given customer from their first purchase from your store right up to their last purchase. A loyalty program directly boosts your CLV – customers have an incentive to purchase more, hence increasing both your sales and the CLV they bring to the table.
- Increased Referrals
Customers who enjoy shopping with a brand and more likely to refer that business to friends and family. As customer loyalty programs directly benefit a client’s shopping experience at your store, they result in more referrals. People are more likely to trust personal referrals from people they trust, as they don’t have to worry that the referrer is getting a financial benefit by recommending the store.
This not only makes customer acquisition easier, but it also makes it cost-effective as well – after all, the cost of word-of-mouth advertising is zero, which is the best marketing budget you could be faced with! Additionally, these referrals work out in the long-term as well as the short-term – referral marketing results in a 26% higher retention rate among newly acquired customers.
Businesses prefer to invest in customer retention over the long term rather than customer acquisition because acquisition is expensive. It costs anywhere between 5 and 25 times what retaining a customer will cost you.
Because loyalty programs boost customer retention, they also make running your business more cost-efficient. You may worry that the perks will cost you money – however, this price would be dwarfed by what you would have to spend to find new customers.
- Reviews and Other Content
One of the most common ways that people choose a website or brand to shop with is by checking out online reviews. These are seen as trustworthy and coming from real people, which helps boost their value.
Many loyalty programs are structured to reward customers when they provide reviews, ratings, and other desirable content on your store website and other online stores.
How Do Customer Loyalty Programs Work?
The structure of each customer loyalty program is unique to each business that implements it. There are some common incentives that businesses may offer, including:
- Early access to new products and sales
- Additional discounts
- Special services, such as quicker shipping or free shipping
- Free products
- Exclusive Acces
However, each business will offer these incentives in different ways. For example, business A’s loyalty program may only offer additional discounts, while business B’s program may offer a combination of discounts and free products.
Furthermore, the “trigger” event that provides these incentives will differ from business to business, often based on a brand’s goals.
For example, consider businesses looking to boost sales. Some businesses may offer additional discounts every time a given spending threshold is reached, while others may have different loyalty program tiers depending on how much a customer spends each year, with each tier offering different benefits.
All of these variables ensure that when you create a loyalty program, it will be truly one-of-a-kind.
15 Types of Customer Loyalty Programs
As discussed above, there are numerous types of loyalty programs you can consider. Which you choose will depend on your business goals, which will also affect how you implement the program.
While the final program will likely be unique to your business, there are some overarching loyalty program types you can consider if you’re looking for inspiration.
1. Point Programs
These are perhaps the most common customer loyalty programs out there. How they work is simple – customers accumulate points for each purchase they make, which can then be redeemed for discounts, giveaways, or free products.
These programs are based around a simple marketing principle: spend more to get more.
Points are usually tracked using loyalty program cards. These cards have the added benefit of boosting brand recognition every time your customer opens their wallet around another person.
However, not everyone is keen on carrying around a physical card or making their wallet/purse more full than it already is. Cards are also easy to misplace.
This is why many brands also allow for points to be tracked via an online account or mobile app.
The biggest benefit of this type of loyalty program for customers is that it is familiar. They know how to use it, and it serves as a seamless experience.
Businesses can tailor these programs by determining how many points a person gets per dollar spent (most businesses opt for an easy-to-remember $1 = 1 point, but some may also choose other options like $10 dollar = 1 point, and so on). Additionally, you also decide what the redemption value is – that is, does 1 point = $1 off on a purchase? 10 = $1 off? Will you instead offer a free product on redemption of 100 points? The possibilities are endless.
2. Spend-Based Programs
These programs are similar to point programs – they just cut out the middleman to make things easier for you.
Essentially, in a spend-based program, you get benefits depending on how much you spend. For example, spending over $5000 during one purchase may entitle you to a 20% discount, or each $100 you spend may give you one entry in a giveaway.
The points system is cut out in this type of program, and there is a simple equivalence between spending and reward. However, the challenge with these types of programs is that it can be difficult to offer “stacked” rewards to customers, and they are usually based on one-time purchases. Customers cannot “collect” purchases and redeem later the way they would points.
3. Multi-Tier Programs
Tiered programs are based on the idea of levels of loyalty. Essentially, the more you buy (and the more loyal you are to a business), the more you’ll be rewarded.
These programs are, on the face of it, similar to points programs – customers get points for each purchase, which they can accumulate before redeeming. However, when a customer hits a certain point threshold with tiered programs, they advance to the next tier. In this sense, they are similar to video games in that it is possible to “level up.”
Higher tiers mean better rewards for customers. This can include further discounts, early access to products and the opportunity to buy new releases earlier, the opportunity to vote on what products you should release next, and so on.
Such programs also offer businesses the opportunity to add an element of exclusivity. Customers at the top tiers of your program can have the opportunity to earn exclusive pricing, unique services, and other perks just for them. For example, if you run a clothing store, you may offer personal shopping services for your customers, where you recommend clothes according to their body shape and personal style.
The exclusivity of higher tiers also motivates customers on lower tiers to spend enough to climb up the program, boosting your sales and overall CLV.
4. Paid Loyalty Programs
Many businesses that offer loyalty programs allow customers to join up for free, at least for the base tier. However, this isn’t the only option available to you.
It is also possible to implement a paid membership program – some common examples include DoorDash and Amazon Prime. However, businesses need to keep in mind that these programs can be made or broken by the rewards offered.
Paid programs are only successful if the rewards you offer significantly offset the cost of signing up for the customer. Additionally, these rewards should be exclusive to program members, especially if you also offer a free loyalty program for other customers.
These are often paid programs that provide customers with perks in exchange for program membership. However, this payment is not a one-time cost – it is instead a monthly, half-yearly, or yearly subscription (or other custom schedule), with repeat payments. With such programs, your business gets an additional stream of income continuously.
One of the most popular subscription programs is Amazon Prime, which offers members expedited shipping, access to Amazon Prime Video, exclusive shopping deals, and more.
That said, your subscription program doesn’t have to be as cohesive as Amazon’s. As long as the perks of the subscription outweigh the cost, customers will think it’s worth it.
5. Mission or Charity-Based Programs
Customer retention is based on a variety of factors. One of the most important – and often overlooked – factors is shared values. People are more likely to shop from a brand that shares their values than those that go against them.
Mission-based programs don’t reward customers directly. Rather, they reward the values shared between the brand and the customer.
One option is to create a loyalty program where a customer’s purchases translate into quantifiable benefits to society. For example, if the value you’re highlighting is eco-friendliness, your program may involve donating $10 for every $100 a customer spends at your store.
This way, customers get the products they need, along with the feel-good factor of knowing they have made a change in the world or in other people’s lives.For maximum credibility, considering partnering with a trustworthy NGO. By doing so, customers have a clear idea of where their money is going and can be confident that the money is being used for maximum benefit.
One good example of an eCommerce store that has a mission-based rewards system is Tentree, an eco-conscious, and earth-first clothing brand. To give back, they plant ten trees for every item purchased in their store, hence their name “Ten Tree”.
6. Gaming-Based Loyalty Programs
These are precisely what they sound like – loyalty programs that introduce an element of gamification into shopping. These types of programs are especially helpful if purchasing from your business can be seen as a mundane and unexciting task, such as with takeaway restaurants.
Take for instance FoodPanda, a food delivery company that partners with multiple local restaurants for delivery services. They gamify the ordering process by providing a series of challenges, which upon completion, provides exciting rewards. As such, they encourage customers to purchase from them instead of connecting directly with the restaurant in mind.
The rewards can be discounts or freebies that still encourage customers to continue their patronage of the service.
Essentially, gamified loyalty programs serve as a way to ensure your customers are entertained throughout the purchase process, which is especially important if the products you sell are staples that are not themselves inherently exciting. They also increase customer engagement, as customers need to interact with your business in a variety of ways to redeem their rewards.
7. Partnered Programs
Another option for your loyalty program is to create strategic partnerships with other businesses, so you can then offer savings on not only your business but with other companies as well.
These programs allow customers to gain access to a range of benefits that often span not just different brands but different industries as well. It’s one of the most effective loyalty programs if you’re looking for maximum customer retention and also gives your business a chance to build relationships with other companies.
This type of loyalty program is often paired with paid loyalty and subscription programs. One example is Zomato, another food delivery app.
Aside from delivery, they also offer discounts when customers actually dine-in at partner restaurants and order their meals beforehand through the Zomato app.
8. Free Perks Programs
These are exactly what they sound like – in exchange for joining the program, customers get free products and services.
Most other loyalty programs primarily focus on offering customers the chance to redeem points in exchange for a reduced price or small discounts on each purchase. Free perks programs, however, focus on giving customers material products and services.
This type of program is common in a number of hotel chains and airlines. While they do offer points-based loyalty programs, they combine it with free perks programs and offer a free night’s stay or a free meal at an on-property restaurant.
9. Community-Based Loyalty Programs
Community-based programs combine the rewards and discounts offered by traditional loyalty programs with access to an exclusive community (usually through online forums on the brand’s website).
This community-based component provides members with access to like-minded people and serves as an emotional element to the loyalty program. It can be especially useful for businesses where customers can benefit from tips on how they can use purchases.
For example, if you are offering a business course, in exchange for subscribing to your course, you can provide access to a Member’s Only Facebook or Telegram group. This way, you can continue to provide exclusive content to your subscribers.
10. Referral Programs
As discussed above, direct referrals are among the most effective (and cost-effective!) ways of acquiring new customers. Referral programs take this advantage one step further.
These programs provide members perks every time a new friend they referred makes a purchase from your store. These are usually tracked using individual discount codes or referral links and can help turn your program members into strong brand advocates.
For example, consider Freshly. Freshly is a prepared-meal delivery company. Their loyalty program gives members a $40 discount for each new customer they refer who makes a purchase. Additionally, the referred person also gets a $40 discount on their purchase, which encourages them to make a bigger purchase and makes joining the loyalty program attractive for them as well.
11. Cashback Program
Cashback programs are exactly what they sound like – they give program members cash back that they can then spend however they want. Usually, this cashback comes in a format that is only accepted by the business that provides the rewards, motivating customers to purchase from that business, rather than spending their money on competitors.
For example, a store may provide cashback in the form of “store cash.” This is essential virtual money stored in an online wallet and is only valid when making a purchase from the same brand. It helps improve customer spending and CLV and also results in greater customer return and retention.
14. VIP Programs
A VIP program is a type of loyalty program that offers exclusive benefits to customers who are able to spend more money with your company over time. This type does not reward all customers; instead, it rewards only your most valuable clients, the one who has the highest Customer Lifetime Value.
Your VIP customers are likely to spend five to 20 times more than your average customer, which is why getting them to stay with you is of utmost importance.
VIP programs require a more complex infrastructure with personalized benefits and offers, perhaps even with dedicated staff to support these customers. However, if you can successfully retain your VIP customers, they will reward you by spending more over time.
This type of loyalty program follows the Exclusivity Strategy in marketing, making your brand more desirably by offering something that many will crave but only a select few will have access to. People will be willing to pay more or purchase more from your store just to become a VIP with luxurious rewards.
Take for instance the Platinum Rewards by American Express. These are sent “by invitation only”, which means you cannot apply for it. These are exclusive to Amex users that have reached a high average spending on a monthly basis. The VIP benefits include airport lounge access and access to elite, members-only clubs.
15. Hybrid Programs
They are exactly what they sound like – a combination of two or more of the above-mentioned types of loyalty programs. Hybrid programs allow businesses to tailor their loyalty programs to meet brand goals and customer needs at once.
Hybrid programs allow businesses to target different types of customers by offering them the most valuable benefits.
For instance, consider Starbucks’ membership program called My Starbucks Rewards (MSR). Members get exclusive discounts on products and special offers like free Wi-Fi or music downloads. MSR also allows members to earn points with every purchase that can be redeemed for free drinks, among other things.
On top of this, since it isn’t easy to become a member (you need to accumulate 30 stars before you can join), it is an exclusive loyalty program where people will want to spend more time in your store just because they’re part of this group.
Hybrid programs are self-explanatory, as they combine multiple types into one cohesive whole that makes it even easier to excel in customer retention.
Shopify Apps for Rewards Programs
Creating your own rewards program can be a daunting task. Thanks to third-party apps, however, this can be made simpler. Shopify has a number of apps that can help you create and implement your loyalty program on your e-commerce store.
Here are some of the most popular ones:
1. Yotpo Loyalty & Rewards by Swell Rewards
This app helps you create an exclusive rewards program for your VIP customers. Yotpo is a review platform that has already helped thousands of businesses build their brand and customer base, and the app will help you grow your loyalty rate as well.
It has more than two thousand installs and have an average of 4.7 stars.