What are the benefits of a customer loyalty program?

By Indeed Editorial Team

Published 22 June 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Most businesses constantly find new ways to engage existing customers, attract new ones and increase awareness of their brand. One strategy that businesses across many different industries use to do this is having a customer loyalty programme. There are various types of loyalty programmes that reward customers and help businesses to increase sales and improve customer satisfaction. In this article, we explore what a customer loyalty program is how businesses can use loyalty programmes effectively.

What is a loyalty program?

A loyalty program is a marketing strategy designed to help businesses retain customers rather than have them make purchases from competitors. Customers need a reason to stay loyal to a particular brand. Rewarding them for their loyalty can be an effective strategy. Loyalty programmes that reward customers can help to build trust and make customers feel positive about a brand. They can also help to attract new customers, giving businesses an advantage over their competitors.

You can structure a loyalty programme in a range of different ways. The right approach depends on the nature of the business and the type of customers you have. Depending on what the company does, you might be able to design a new and innovative way to reward customers for their loyalty or combine more than one type of loyalty programme. Some companies offer more than one loyalty scheme to accommodate different types of customers with differing needs.

What is customer loyalty?

Customer loyalty is a customer's willingness to continue interacting with a specific brand over some time. This relates to making ongoing purchases, choosing the brand over other options and actively recommending the brand to others, either to friends and family or to a wider audience through positive online reviews. Loyal long-term customers often spend more money than new ones because they have more confidence in the brand based on positive previous experiences. This means that encouraging loyalty can have an impact on sales and profitability.

Related: What is customer satisfaction?

What are the benefits of customer loyalty programmes?

Customer loyalty programmes bring many benefits to businesses. The benefits of introducing a loyalty programme include:

  • making the brand stand out from its competitors by offering something different

  • encouraging existing customers to buy from you repeatedly by offering rewards if they do

  • increasing sales by increasing your customers' motivation to buy from your brand

  • improving customer satisfaction by offering desirable rewards and building trust

  • encouraging brand advocacy, which can itself help to increase sales

Types of loyalty programmes

There are various types of loyalty programmes. Some businesses have unique loyalty programmes that they tailor to the business and the needs of their customers. Generally, customer loyalty programmes fall under a few specific categories. If you're thinking about establishing a customer loyalty programme, these options might help you to decide which structure is right for your business.

Related: 10 ways to consistently offer good customer service

Points-based programmes

A points-based loyalty system is one that a lot of companies use. It rewards customers more as they spend more. With a points-based programme, customers usually receive points every time they make a purchase. After accumulating points, customers can convert them into rewards. This could be a discount on another purchase, free products or gifts.

A system like this helps the business to understand customer spending habits. This can be useful for offering personalised rewards or discounts to individual customers. Airlines often use points-based loyalty programmes. For example, every time you fly with a particular airline you earn points based on the distance you're travelling. You can earn more points for taking a long-haul flight. You can then redeem your points for a discount on another flight, exclusive gifts and merchandise or related services like car rental.

Tier-based programmes

A tier-based programme has several reward levels. As customers spend more money they receive more rewards. An example would be an online clothing brand that offers three tiers of rewards. You gain access to more rewards like discount vouchers, free delivery or gifts with purchases as you move through the programme.

Paid programmes

A paid programme centre around customers paying a monthly or annual fee to be VIP members. Membership entitles them to benefits like discounts, previews of new products or free delivery. Companies usually market paid programmes to old or existing customers.

A new customer is less likely to pay for membership with a brand they've only recently discovered. Inviting specific customers to pay for VIP membership also gives a feeling of exclusivity. A successful paid membership programme can also help to attract new customers. Programmes like this demonstrate that other customers feel the programme is worthwhile. You can also use positive testimonials from VIP customers to encourage others to sign up.

Community programmes

Community programmes offer customers access to a like-minded community and create a sense of belonging. This adds value to the brand and means the customer is more likely to remain loyal. Social media platforms can be a great way to create these exclusive communities and give customers a chance to discuss products, ask for advice or share their experiences.

Positive discussions about your brand and its products are also likely to encourage more people to make a purchase. Social media team members from the brand might also monitor discussions so that they can provide support. Community-based programmes are free to join and can have some similarities to VIP programmes. If many of your customers live in one city or region, community programmes can also provide access to exclusive events where customers can connect in person.

Related: How to become a social media manager: a step-by-step guide

Mission-driven programmes

A mission-driven programme can be a great strategy that creates a positive image of a brand. This can encourage more customers to choose that brand over competitors. With a mission-driven programme, the business donates a certain proportion of profits to charities.

You can choose charities that are relevant to your business or customers to encourage more interest. Customers appreciate mission-driven loyalty programmes because they feel that their purchase is doing something positive. You could donate a portion of overall profits or donate from the sales of specific items. For example, a restaurant could include a special dish on the menu and donate a certain amount to charity for every item sold. Keeping customers up-to-date about how much money other customers have already donated can also encourage them to buy more.

Progress programmes

Progress loyalty programmes work by making customers associate their success with the brand. An example is a gym offering an app to track how much time you spend on exercise and offer badges or other rewards when you reach certain milestones. This encourages customers to keep visiting the gym so they can make more progress. If they associate the brand with their success they're likely to continue choosing that brand over others.

Gaming programmes

Gaming programmes are accessible to a wide variety of brands. They involve developing a game that customers can play on the brand's website or app. As they make progress they unlock discounts or rewards that encourage them to make new purchases. This type of programme also gives customers an enjoyable experience, which can encourage positive feelings about the brand. This strategy also encourages website traffic and keeps customers engaged with the brand.

Subscription programmes

Subscription programmes encourage repeat customers and can be more profitable than a one-off purchase. For example, a coffee brand could offer a six-month subscription with customers receiving new coffee beans each month. Customers often purchase more if a subscription is available, especially if subscribing gives them products at a discounted rate. After they've used one brand's products over some time, they're more likely to renew their subscription or continue making purchases rather than choosing a competitor.

Related: What is email marketing? (tips on how to launch a campaign)

Refer-a-friend programmes

Refer-a-friend programmes are a useful strategy for encouraging your customers to advocate for your brand. These programmes typically offer existing customers a discount for each new customer they refer. They usually receive a discount when the new customer makes their first purchase. The new customer often receives a similar discount on their first purchase to encourage them to buy. That person then also becomes eligible for a referral discount. This method encourages customers to talk about and share your brand.

Cashback programmes

Cashback programmes give customers money back as a reward for making a purchase. This helps customers to feel like using the company gives them value. An example is a credit card company offering a certain percentage of cashback when customers make a particular type of purchase, for example, eating at certain restaurants. Cashback could also be available on all purchases as an introductory offer to encourage loyalty.

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