Loyalty Programs You Need to Know About

The main purpose of any brand’s loyalty program is to get their current customers to spend more, trust the brand and stay engaged. Successful loyalty programs not only keep the existing users coming back for more, but also encourage them to cross sell and up sell the product.

According to a study by the Harvard Business Review, loyal customers are worth up to 10 times as much as their first purchase. This highlights the importance of retaining customers in addition to acquiring new ones.

With the growing number of businesses offering loyalty programs, it is more important than ever to offer a well-designed program that effectively engages and rewards your customers.

A loyalty program also helps setting up 'Switching Costs'.

Did you know that a well-placed loyalty program can act as a barrier for an exiting customer?

The rewards and perks offered by a company through a loyalty program always makes it more attractive for a customer to stay with them.

Let's take an example to understand this:

Say you are a part of a brand's loyalty program and have earned an attractive amount of points/perks so far. As a member of the loyalty program, you are also a member of a community of people with similar interests as you.

A study by Accenture found that 46% of consumers would switch brands if offered a better loyalty program. This shows that a well-designed loyalty program can be a powerful tool for differentiating a business from its competitors.

Given the benefits of your loyalty membership with the brand, chances of you re-considering or even hesitating before making a switch to a competitor are higher. That is not only because the loyalty points that you have collected so far are going to go waste, but also because you have an attachment with the brand and it's community (emotional/psychological costs).

This is also why almost every airline runs aggressive loyalty programs. In an industry with intense competition and little differentiation the need to create “Switching Costs” backed by loyalty and trust becomes essential.

The gift that keeps on giving: Key Benefits of a Loyalty Program

Since your existing pool of users would already have experienced your product, getting them to buy more is a lot easier. Getting more out of these users customers, through repeat purchases, word of mouth, referral is also a lot more cost effective than constantly acquiring new users.

To summarise, by investing in a solid loyalty program you can:

1. Keep your current customers active and engaged.
2. Acquire new customers in a more cost-effective way, through up-sell, cross-sell.
3. Get customers to increase their average spend on your product.
4. Increase customer retention.
5. Gather brand loyalists and advocates.

Designing a loyalty program? Get the basics right!

You can build a complex loyalty program with 'tiers', 'points' etc., but there are some basic things to always keep in mind while designing a good loyalty program for your business-

1. Simple to understand- Over complicating might result in customers being overwhelmed and not participating in the program.
2. Rewards that customers value- Your rewards should be motivating enough for your customers to be a part of your loyalty program. Also, do consider personalising rewards while planning the loyalty transaction/program design!
3. Tie rewards back to your business- The entire idea is to get your existing customers, come back to you for more. Rewards planned should always direct the customer to your product/ service or experience. For example, cash that they can use anywhere is not an effective reward because the customer will probably move on. However, points that they can use to get a discount on their next purchase with you is highly effective.
4. Some easy to earn quick rewards- Not all rewards should be hard to earn, you could consider launching some easy ones to get the show started and rewards users with some quick wins.
5. Do the MATH- Track and check ROI, rebalance rewards if needed.

Some of the most successful loyalty programs out there:

#1 Starbucks:

The brand Starbucks runs one of the world's best loyalty programs by the name of "Starbucks Rewards". The brand gives you stars everytime you order from their app. Customers can earn stars for things like buying coffee, tea, or food items, and can redeem them for free beverages, food, and other items. As they earn stars, they can move up through different levels of the program, such as "Green," "Gold," and "Platinum." These levels offer different benefits, such as free in-store refills and personalized offers. Once members have collected a certain number of stars, they can redeem them for free food or drinks, personalized rewards or even discounts.

The Starbucks Reward program has achieved significant success, with an impressive 16 million active members recorded as of March 2019.

The brand's customer base has seen a significant increase of 11% during the second quarter of 2018. The program has also had a significant impact on the company's sales, with 40% of total sales being attributed to the Rewards Program.

With the success of their loyalty program, the brand has increased the 'switching costs' (If you have Starbucks Stars, you will try to go to a Starbucks and not a competitor so that you make the most out of your transaction). Starbucks has also tied back the reward to their own business (free starbucks drinks) making repeat purchases an obvious phenomena of the program.

On top of this, it allows Starbucks to get invaluable data insights into or ordering habits- Using which they can give out personalised rewards, making the program more enticing.

#2 Sephora:

Customers at Sephora get points for every purchase they make. They have a complete 'Rewards Bazaar' where customers get to decide how they want to redeem these points. As a member you will have access to exclusive products, mini-makeovers, skincare consultations and unique experiences (and more) to choose from.

As part of the program, members are also granted early access to select products, sales and events. And, depending on the level of membership, member can get additional perks like free samples, free expedited shipping, access to members-only promotions, and more.

Sephora's Rewards Bazaar is a great way for the company to encourage repeat business by rewarding it's customers for being 'loyal'

The program allows customers to earn rewards by engaging with the brand, and offers a wide range of exclusive products and experiences that can only be redeemed through the program.

Users also get a chance to be a part of an exclusive community where they can share tips, advice and reviews of products. This further helps build a deeper connection and trust in the brand.

#3 Designer Shoe Warehouse (DSW):

A classic example of a successful tier based loyalty program, DSW rewards its customers points against each purchase. As customers reach higher tiers of loyalty points, they get access to exclusive rewards from the brand.

What's most interesting about DSW's loyalty program is how on-point their communication is! Ensuring that the customers stay hooked to the program, DSW keeps the customer updated with personalised information on their current loyalty points, rewards they are eligible for, how much they have saved on their previous orders using these points etc. This way, the program continues to excite the customers and loops in their attention well in-time!

#4 The North Face:

It's great when a brand knows what excites its customers and rewards them with exactly that.

The apparel and outdoor gear brand, The North Face, allows its loyalty program members to earn points as they purchase. These points can be used towards aspirational benefits such as a free mountain climbing trip. Other than that, the members of the program also get access to exclusive gear, unreleased products and a lot more.

#5 Amazon Prime:

Right from guaranteed same day delivery, a vast reading catalog, unlimited ad-free music to exclusive deals to even video streaming - Amazon’s membership program offers immense value to its members. While it comes with an annual subscription fee, the membership’s well curated benefits make an attractive deal for the customers. Again, Amazon Prime got the basics right and focused on rewarding the customers in a way that they continue using their product more, even if that means paying a subscription fee for it!

While many of the products listed on Amazon are also available on other marketplaces, the membership program has also helped differentiate the brand from its many competitors.

Members of Amazon Prime purchase 4 times more than Amazon’s regular customers.

Basically, Loyalty is Royalty!

In conclusion, customer loyalty programs are an effective way for businesses to reward and retain their customers. These programs offer a wide range of benefits for both businesses and customers, including increased customer engagement, repeat business, and brand differentiation. Loyal customers can be worth many times as much as their first purchase and must be appreciated with meaningful rewards. By understanding and utilising the very basics of effective customer loyalty programs, businesses can create a loyal customer base that will drive growth and success in the long term.