What is a loyalty program?
A loyalty program is a strategy that companies use to encourage continued customer loyalty and long-term repeated business. Simply put, it’s a way to attract and retain customers by offering them rewards, which can include coupons, discounts, free merchandise, or advanced access to new products before their official release. To be eligible for a loyalty program and its rewards, customers are usually asked to register their personal information with the company and are given a unique ID number or membership card, which is used when making future purchases.
What is the value of using a loyalty program?
Loyalty programs benefit companies and small business owners by helping them develop and strengthen customer loyalty. This is a vital element to the long-term growth and success of any business. After all, customer loyalty signifies that a customer enjoys doing business with you and is interested in coming back to you again (and again), whether they are buying food, products or services. The more goodwill you create through your loyalty program, the more brand loyalty you generate and, consequently, the more repeat customers you will have. These customers will help grow your business.
While customer loyalty is a valuable benefit of having a loyalty program, it is not the only benefit. Having your customers sign up for a loyalty program means that they provide important details about their buying behavior. This is how companies collect information about how their customers are spending their money. Each time a customer who is part of a loyalty program makes a purchase, their loyalty ID is at checkout, which gives the company insight into what products, services or types of offers are most attractive to them. Not to mention the company can get a better understanding of whether there are certain products that are more often purchased together, or if some coupons are more effective than others. This data can help companies with planning their marketing and product strategies and operations.
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What are common types of loyalty programs?
There are a number of systems to choose from when initiating a loyalty program. Each is effective and it’s just a matter of what is right for your company and clientele. Here are three to consider:
01. A points-based system. This is the most common loyalty program. As the name suggests, repeat customers earn a certain number of points for each purchase. The points can then be used to redeem a reward in the form of a discount, a free gift, or other kind of special offer. Whether points equal dollar values or a percentage off a purchase, it’s important to keep the relationship between the points and the reward simple and straightforward. This type of loyalty program is common in businesses that encourage frequent purchases, like fast-food chains, cafes and bakeries, or pet supply stores.
02. A tier-based system. This type of loyalty program is intended and designed to reward a customer’s initial loyalty while encouraging more visits and purchases. For example, a store or venue may present small rewards in the form of discounts or freebies as a base offering for being a part of the program. Then, to entice customers to keep coming back, it will increase the value of the rewards as the customers move up the loyalty scale. This gradual and tiered system eliminates the issue of members forgetting how many points they have or never redeeming them when too much time passes between their last purchase and receiving the reward.
The biggest difference between this tiered system and the points-based loyalty program is timing. While the point-based system is short-term gratification, the tier-based system is long-term gratification. The latter tends to work better for businesses that demand higher commitment from customers, like hospitality businesses, insurance companies or airlines.
03. A system with a one-time upfront fee. It may seem counterintuitive to charge customers an initial fee to belong to a loyalty program. After all, the whole point is to win them over with rewards. However, charging a fee up front can be beneficial for both your business and your customers. Depending upon your business, charging a one-time or annual fee lets customers bypass common purchase barriers. For example, Costco may charge an annual membership fee, but their customers enjoy a return policy that is one of the most lenient and generous of any wholesaler or retailer out there. Another example is signing up and paying up front for Amazon’s Amazon Prime loyalty program grants customers with a free two-day shipping on their orders.