Do Customer Loyalty Programs Really Work?

It’s widely known that acquiring new customers is far more costly than keeping existing ones—anywhere from 5 to 25 times more expensive. Additionally, one recent study found that companies can increase their profits by a whopping 25 percent through a mere 5 percent increase in customer retention.

These are just some of the reasons why more and more companies are investing time and money into loyalty programs for their customers.

What is a customer loyalty program?

A customer loyalty program is a marketing strategy that retailers and other businesses use to reward repeat customers who purchase and use their goods and services. The benefits provided to the customers can come in different forms, such as rebates, discounts, coupons, merchandise or other promotions.

This marketing approach recognizes these repeat customers and encourages them to be loyal to the company. The more customers buy or engage with your brand, the more rewards they get.

Benefits of loyalty programs

Even though customer loyalty programs differ in their approach, they all have the potential to impact your sales. Each reward program is aimed at achieving the following goals:

  • Improve your company’s sales
  • Increase business through recommendations and referrals
  • Strengthen your relationship with your customers to retain them
  • Entice customers to keep returning to your company
  • Build your brand’s image
  • Encourage cross-product purchasing by existing customers

Types of loyalty programs

There’s no shortage of loyalty programs to choose from, so you’ll want to consider which one is best for your business and your customers. The following are 7 loyalty programs you may want to consider:

Point-based loyalty

Point-based loyalty programs are perhaps the simplest and most popular reward programs. In these programs, your customer base can earn points for things like repeat purchases, reviews or sharing a product on social media that can be redeemed for customer rewards and discounts on their next purchase.

Tiered loyalty

Tiered loyalty programs reward customers for their brand loyalty and for reaching certain milestones, which are usually based on the amount of money they spend. This type of program encourages customers to get to their next goal (by making more purchases) so they can get better perks, early access to deals and other loyalty rewards.

Paid loyalty

Paid loyalty programs, also known as fee-based programs, offer customers continuous advantages for a specified one-time or recurring fee. Companies that can convince customers to sign up are generally rewarded with customers who are actively engaged and frequently return to take full advantage of the benefits the program has to offer.

Value-based loyalty

Value-based loyalty programs are a way to incentivize customers based on their particular passions and values by offering to donate a percentage of their purchase to their favorite charity and enhancing the customer relationship. While these programs don’t reward customers directly, they tend to give customers a positive view of your brand and leave them feeling good about their purchases because they know they’re also helping a cause close to their hearts thus increasing customer value.

Cash-back loyalty

Cash-back loyalty programs operate through points whereby after spending a certain amount, a customer is entitled to money back that can be used toward future purchases at your business. These types of loyalty programs encourage customers to return to your business again and again, where they often spend additional money beyond their reward amount.

Another version of cash-back loyalty is when businesses offer credit cards designed to meet customer needs by evaluating the customer’s behavior and insights from customer data. For example, big box retailers may offer a credit card where customers save a percentage on their purchase every time they shop rather than reward points.

Punch card loyalty

While punch card loyalty programs were more popular when people did less of their shopping online, they can still be a fun and useful in-store incentive for certain businesses based on purchase frequency. In these loyalty programs, customers are typically issued a card that is “punched” every time they make a purchase that can be redeemed for a free treat after a specified number of purchases.

Coalition loyalty

Some companies may find it beneficial to join forces to offer a shared loyalty program where customers can earn combined rewards while shopping at both businesses. Partnering with another business that offers related products or services (such as a yoga studio and an essential oil company) not only increases cross-promotion, but it can show your customers that you’re attuned to their needs and thus increase customer engagement and create stronger brand advocates.

How to implement a loyalty program into your business

As a business owner, you need to prioritize the types of loyalty programs you want to implement to ensure you’re getting the best return on your investment. Here are a few tips for choosing the reward program that suits your business.

Use the right tools

The internet has made implementing loyalty programs easier since there are a variety of apps and platforms you can use to integrate them with your existing payment system. Remember to ensure that everything you schedule, digitally or offline, meets your budget target and is simple to apply.

In addition, it should provide a better customer experience.

Simplify your program

Try to keep it simple. Dealing with different types of customers requires that you implement a program that’s easy to use for everyone. For example, younger customers might not want to use older loyalty programs like punch cards, while older customers might feel uncomfortable with the modern app reward programs.

Consider the demographic of your customers, and try to choose a successful loyalty program that best suits their diverse needs.

Working with a professional marketing agency

Customer loyalty programs can help build your brand’s reputation, boost sales, create more awareness and emotional connections, and increase the number of loyal customers. If you’d like help creating a loyalty program or are interested in other marketing or design services to grow your business, the professionals at Brown Bag are here to help.

A great web design and marketing company should be dedicated to ensuring your site stands out among the crowd. Brown Bag is a full-service Atlanta marketing agency that is passionate about helping companies achieve their goals and reach that next level of success. Contact us today to see how we can help your business grow.