Customer Loyalty Program

1. What is a customer loyalty program?

A customer loyalty program is a marketing strategy that identifies and rewards consumers who buy or engage with a brand regularly. A company can offer points or rewards and graduate customers with higher levels of loyalty the more they purchase. These incentives and particular benefits also result in the customer being a more regular client or more so, a promoter of a company. Benefits can include free merchandise, rewards, coupons, or insider benefits such as early access to new products. Throwing in an extra small product or purchasing service is an excellent way to validate the buying choice that your customer has just made. Everyone loves to get things for free. And for every cent an organization spends investing in a client loyalty program, rewards are likely to be reaped in return. By comparison, when a customer walks away from your company, their income stream is lost forever.

2. Why are customer loyalty programs important?

The benefits of customer loyalty programs include:

  • Improved customer retention: Today consumers make buying decisions not just on price, but also on common values, loyalty, and their overall brand experience.
  • More customer referrals: If your customers appreciate the benefits of your customer loyalty program, they can tell their friends and family about it.
  • Cost efficiency: It is more cost-effective for your company to maintain satisfied customers than to continually churn and recruit new ones.
  • User-generated content: Services that allow pleased consumers to post feedback and ratings on blogs and social media create true ambassadors for your company.

3. How to build loyalty in every phase of the customer journey

Customer loyalty is a desirable asset. If a rival comes up with a better deal, your consumers would take it even if they have a good relationship with your brand.

However, providing a well-designed customer loyalty program strengthens the customer's relationship with their brand. Of course, tossing a perk or two at the point of sale may be what prompts the customer to buy first.

However, a company will expect to create momentum as a consumer embarks on a lifelong relationship. Usually, this means that you will provide the customer with constant chances to optimize their loyalty rewards. You will also provide them with smart, tailored messages that celebrate their "milestones" with the brand, as well as their individual needs and preferences.

4. What are the key metrics for customer loyalty programs?

Customer retention rate

This shows how long your customers will stay with you. In a good loyalty program, this figure should rise over time as the number of members increases.

Negative churn:

Churn is the pace at which customers leave the business, whereas, negative churn tests customers who do the reverse by upgrading or buying additional services.

Net Promoter Score

This is a Customer Satisfaction metric that calculates, at a scale of 1–10, the degree to which people will recommend your business to others.

Customer Effort Score

The experience of this test, precisely how much effort a customer needs to make to solve a business issue.

5. What are some of the best customer loyalty programs?

The most basic form of loyalty programs gives consumers greater incentives the more they buy from a store or visit an establishment. Examples of brand-exclusive membership schemes include Balance Incentives, where shoppers earn cash back on most transactions that can be exchanged for future purchases. Becoming a paying customer of Amazon Prime essentially constitutes a promise of loyalty to the major online merchant and offers advantages such as free delivery and video streaming.

6. How do you start a customer loyalty program?

Here are some tips to help your company start a customer loyalty program.

(i) Establish a point system, but make it simple: Allowing regular customers to receive points that translate to rewards is the basic building block of a loyalty program. This works best for fast, inexpensive purchases at retailers such as fashion stores and grocery stores. It is crucial to make the relationship between points and tangible rewards as clear and intuitive as possible.

(ii) Offer Tiered Rewards: Usually, a Tiered Loyalty Program provides a slight incentive to make an initial purchase. The incentive value increases as the consumer progress up the loyalty ladder. This type of software appears to function well within higher-quality and price-performing businesses such as airlines, hotels, and insurance companies.

(iii) Pay an upfront fee: Asking clients to pay a one-time fee that helps them to circumvent traditional purchasing hurdles later on, can be a successful strategy. Amazon Prime's upfront subscription charge, for example, enables subscribers to make regular, repeated transactions without thinking about inconveniences such as taxes and delivery.

(iv) Partner with another company: Think of other businesses that would suit well. For example, if you're selling hiking backpacks, consider creating a loyalty program with a hiking boots manufacturer. It shows that your company cares for and respects the needs of its consumers when they get them the value that is important to them by going beyond what the company alone can deliver. Businesses should also extend their network to reach the clients of their partners, for example, Pottery Barn, Williams Sonoma, and West Elm, to list a few. Businesses with several brand names can also have a joint scheme, like “The Main Rewards”.

(v) Give distinctive rewards: A discount on potential sales does not need to be a bonus for buying a company's goods. Customers who spend a certain amount may obtain free event tickets or other product and service subscriptions. Bear in mind, that two-thirds of consumers are more likely to invest in brands that take positions on social and political topics that they care about. For example, a percentage of the amount from each purchase from your consumer could go to a particular charity. Customer loyalty programs will tap into this sense of altruism.

(vi) Come up with a memorable name: To attract attention, the name of your loyalty program should stand out from the crowd. For instance, with a clever twist on VIP, Sephora's Beauty Insider Program includes a level called VIB (Very Important Beauty Insider).

7. What are some types of customer loyalty programs?

Referral to a mate.


Lyft: In this rideshare company, drivers can get a $10 referral passenger bonus.

TheSkimm: Subscribers of this easy-to-read online newsletter who persuade their mates to earn referral points and prizes for a subscription.

Make the turn


NerdWallet: A cash reward may be obtained by clients who switch banks or open a new account and meet eligibility requirements.

Join the group of ours


REI: This outdoor merchandiser provides membership advantages known as an Annual Dividend to clients. This reflects their share of the annual profit of the organization. “The more the client spends, the more they add to the everyone wins" mindset.

Pairings of Brands


Starwood and Uber (no longer running): Customers who linked their Uber account were previously able to collect points for Starwood hotel accommodation, a loyalty agreement that made sense for travelers who wanted hotel and road transport services.

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