How to build a successful customer loyalty program

Acquiring new customers is about five times costlier than retaining existing ones. So, in addition to gaining new customers, every company should implement customer-retention strategies—one of which is to start a customer loyalty program.

Designing a program to recognize and reward customers’ loyalty is an effective marketing tactic every business should prioritize. In this guide, we reveal everything you need to know to build a successful customer loyalty program.

Let’s begin with the basics.

What is a loyalty program?

A customer loyalty program is a marketing strategy that businesses implement to retain their long-time customers. Companies utilize customer loyalty programs to recognize and reward customers who regularly purchase their products/services.

Customer loyalty programs come in various forms and can either feature fixed or varying rewards (i.e., rewards that increase in value as a customer purchases more products/services). In all cases, though, the goal is always to provide customers exclusive benefits or incentives to motivate them to become more frequent buyers—or, best of all, brand advocates.

Types of customer loyalty programs

Want to create an effective loyalty program to grow your B2C/B2B business? Below are seven types of customer loyalty programs you should know about.

1. Points-based loyalty program

This is undoubtedly the most common type of loyalty program. Customers earn points for every purchase they make and eventually cash them out in the form of discount codes and access to special offers.

The downside of the points system, however, is that it’s not feasible across all business industries. It’s most effective for certain B2C businesses, such as restaurants, where people tend to make regular purchases within short intervals.

2. Value-based loyalty program

Businesses need to understand the desires and values of their customers to create an enticing loyalty program. There’s more to loyalty rewards than monetary incentives. Let’s assume that a brand’s customers are passionate about environmental conservation. In that case, the ideal loyalty program would be one that rewards them with, say, $1 for purchases above $75—to be donated for the planting of trees.

Discount codes and promotional coupons are excellent rewards. However, businesses would get a more favorable result when they truly understand their customers’ desires and build their loyalty programs around them.

3. Game-based loyalty program

Many businesses use gamification in their marketing campaigns because it works like a charm—since people love games. You also can introduce games into your loyalty programs.

For example, you could offer customized badges (alongside other perks) to customers who purchase up to a certain amount. You can also create monthly challenges for customers and have a leaderboard to feature the names and rewards of those who complete theirs. Also, you could grant customers the opportunity to unlock a treasure box or take part in a spin-to-win game when they cross a purchase threshold.

Regardless of your gamification style, ensure that your game-based loyalty program is fun and the purchase requirements to participate in it are reasonable and attainable.

4. Tiered loyalty program

It can be tricky figuring out a reward that will satisfy a significant percentage of your customers. So, an intelligent way to deal with this challenge is to design a tiered loyalty program that rewards customers while compelling them to make more purchases to unlock higher-valued rewards.

For example, you could have a tiered system set up to ascend customers from a default tier (e.g., silver) to a higher one (e.g., gold or platinum) when their purchases accumulate to a specified amount, thereby earning them more benefits.

5. Hybrid loyalty program

This loyalty program combines elements from two or more types of loyalty programs. For example, you could establish a hybrid loyalty program by incorporating a point system in a tiered program. In this case, your customers will only move to a higher tier after their accumulated points reach a specified number.

The hybrid system is perfect for almost all businesses—spas, gyms, restaurants, etc. All you need to do is to ensure that the combined loyalty programs intersect properly.

6. Coalition loyalty program

Partnering with other brands to create an irresistible loyalty program is an effective way to grow your business. You can discover the best brand to partner with by closely studying your customer data to predict the services that they’d profit from the most.

For instance, if your company manufactures mattresses, you might partner with a sleep supplement company and offer your customers a co-branded deal that would benefit them and your brand.

Offering customers valuable services/products outside of what your company sells is one way to convince them that you genuinely care about their needs and challenges.

7. Paid loyalty program

One-time buyers might not jump on a paid loyalty program. However, frequent buyers will seize this opportunity to gain exclusive, VIP access to enticing benefits and offers.

An e-commerce store, for example, could set an annual one-time fee that frequent buyers could pay to gain access to exclusive benefits like free shipping of every product purchased, early access to new products, special discounts on purchases, etc.

3 tips for building a successful customer loyalty program

Customer loyalty programs are not one-size-fits-all. To make sure you implement the right one for your customers, keep these three tips in mind.

1. Focus on your customers’ needs

Frequent customers won’t hesitate to jump on a reward program that provides solutions to their needs. However, your customer loyalty program won’t yield positive results if it appears as a cheap attempt to make people spend more money.

An excellent way to discover your customers’ needs is by gathering first-party data and analyzing their interactions with your brand over a certain period. Afterward, you can use your findings to create a customer-centered loyalty program.

2. Make your rewards desirable and attainable

Nobody will sign up for a loyalty program when there is no juicy reward attached. Your customers should be able to read through your loyalty program’s terms and immediately picture the benefits that they stand to gain. So, once you’ve gathered sufficient relevant data about your customers, the next step is to brainstorm an enticing reward.

For example, you could offer customers who constantly buy your pet products a free consultation session with a veterinary specialist—after their purchases cross a certain threshold.

However, ensure that your reward requirements are simple and feasible. People won’t bother chasing after a reward they know will never be theirs.

3. Track your results (and make necessary tweaks)

A successful customer reward program should yield positive results—reduced churn rate and increased revenue—within a short period. So, ensure you closely monitor key statistics that measure your loyalty program’s performance.

If you observe that things aren’t so favorable, be swift to make necessary tweaks based on available data.

5 reward ideas for your customer loyalty program

It can be tough to brainstorm the perfect rewards to feature in your customer loyalty program. Thankfully, you don’t need to get caught in this cycle. Below are five amazing rewards to offer customers via your loyalty program:

1. Offer discounts on new products

Are you in the process of unveiling a new product? Give your loyal customers a heads up and offer them a special one-time discount. Discounts are effective incentives for retaining customers and increasing sales.

2. Create special offers for accumulated lifetime points

Discount coupons are common rewards brands offer their customers in exchange for points. However, you can take things a step further. Create a special offer for people who reach a certain point threshold (e.g., 1,000, 10,000, 100,000, etc.). This way, people will anticipate receiving a bigger special gift for reaching specific milestones.

3. Offer extended free trials

SaaS businesses can offer users extended free trials of their newly launched products. For example, if you have time-tracking software, you could offer your long-time customers an extended free trial of your new mindfulness app. This means that specific customers would get a 30-day free trial (instead of the seven days available to new users).

4. Reward customers for referrals

One smart way to make your loyalty program more attractive is to reward customers for various activities (beyond purchases). Word-of-mouth marketing can hugely impact your sales positively. So, reward customers for recommending your products to others. For example, you could give them extra points for referrals (if your customer loyalty program is points-based).

5. Celebrate customers’ birthdays with a reward

Special birthday surprises can make a frequent customer become a loyal brand advocate. You can analyze a customer’s data, uncover things that interest them, and then prepare a birthday gift based on your findings. Birthday rewards could be a discount coupon, a personalized greeting card, or anything they would find valuable.

Creative customer loyalty program examples

Petco Pals Rewards

Petco Pals Rewards is an example of a points-based customer loyalty program. Customers enroll in the program and earn one point for every $1 they spend. And once the points accumulate to 100, customers can exchange them for a $5 coupon.

Walgreens Health Goals

Walgreens offers its customers cash rewards when they hit their health goals. The simple, game-based loyalty program walks customers through a four-week health challenge where they are expected to do certain activities and track their progress. Customers earn a $0.25 cash reward when they complete a week’s challenge and a double bonus of $2 when they stay consistent for four weeks.

Amazon Prime

Amazon Prime is a paid customer loyalty program that costs an annual fee of $119. Members of the program enjoy free, expedited shipping on millions of products, alongside several other benefits.

Starbucks Rewards

Starbucks Rewards is another point-based loyalty program where members are offered two points (called “stars”) for every $1 spent. Customers interested in joining the program have to sign up online or download the Starbucks app to get started. Afterward, they can use their accumulated stars to purchase free or discounted beverages and food.

Beer Hawk Rewards

Beer Hawk constantly rewards customers who are passionate about product recycling and waste reduction. The company offers customers cash rewards (for their next beer) when they return their empty PerfectDraft kegs.

Barnes & Noble Membership

Barnes & Noble runs a paid customer loyalty program, so customers have to pay an annual fee of $25 to enroll in it.

Members of the Barnes & Nobles VIP program enjoy a range of benefits, including free shipping, discounts, special birthday offers, a 40% discount on hardcover bestseller purchases, and a variety of other exclusive benefits.

Marvel Insider

Marvel Insider is a hybrid loyalty program created to reward comic lovers. The company combines the points and tiered systems to offer its loyal customers exclusive benefits. Members earn points by performing a variety of actions and transition to higher tiers (with extra benefits) when they cross certain point thresholds.

TOMS Passport Rewards

TOMS Passport Rewards is another points-based customer loyalty program. Enrollment is free. So, customers can sign up, purchase products to earn points, and then use their accumulated points to unlock exclusive offers and purchase extra products. Members can also donate their points to support humanitarian services.

Create an irresistible customer loyalty program today

Customer loyalty programs can profit your brand in several ways—like promoting customer retention, reducing churn, increasing customer affinity, and boosting sales and revenue. However, you will only create an irresistible customer loyalty program when you perfectly understand your customers wants and needs.

Lytics is a data management platform that helps brands get relevant data about their customers—and create the perfect content, products, and offers to meet their needs. Want to eliminate all guesswork and create a successful customer loyalty program based on reliable customer data? Book a free demo here.