How to Retain Customers with Proven Loyalty Programs

A loyalty program is a way for brands to reward their customers for repeat purchases. Also, it’s a creative method to boost motivation, improve customer lifetime value, and boost the conversion rate. The ideal loyalty program aims to make your brand the number one choice for certain items in the minds of your existing customers.

While loyalty programs are nothing new, any experienced marketer will tell you that even a simple loyalty program can make a huge difference. After spending so much time and resources acquiring leads and converting them into customers, you want them to keep coming back for more. Return customers are one of the biggest – if not THE biggest – revenue generations for every business. This article will show some of the most solid, proven loyalty programs that you can use.

The Importance of Customer Retention

Loyalty programs are an excellent way to differentiate yourself from the competition, giving customers another reason to choose your brand over others. Also, over 80% of customers have reported that they are more likely to stick with a brand that offers a loyalty program. Furthermore, close to 50% of customers agree that they start spending more after joining a loyalty program.

Apart from the differentiation, loyalty programs also emphasize the emotional connection to your brand, and the values it stands for. Numerous studies have showcased and explained the importance of customer retention and its impact on revenue. For instance, one European study showed that the customers’ emotional perception towards a business, attributes to around 10% of total customer retention. Another study has found that loyalty programs increase total revenue by up to 10%. Also, loyal members spend up to 20% more than non-members and shop 20% more frequently. Finally, a business with 80% customer retention rate saves, on average, 3-4 times more customers than a business with a 60% retention rate.

To stress the point even further, let’s put it like this. On average, a 5% increase in customer retention can boost your profits by 50%. In other words, every person you’re able to retain is worth x10 their first purchase. Isn’t that crazy? Finally, loyalty programs can be an incredible tool to harvest customer data, delve into their buying habits, and use this information to create extremely strong marketing campaigns.

Here are the 7 most recommended customer loyalty programs.

1. The Points Program

The points program is extremely simple and is probably the most common loyalty program in the world. It revolves around the idea “the more you spend, the more points you get in return.” Every time customers make a purchase, they get a certain amount of points. Once you have enough points, you can spend them on various products.

Now the amount of points you get per purchase varies from brand to brand, but usually, $1 equals 10 points is a solid approach. The number of points required to redeem a certain item will vary depending on your business and industry. Whatever you do though, make sure that it’s easy for customers to understand and calculate their points per each purchase (for example, $100 equals 100 points), without actually using a calculator.

Another good idea is to give people a couple of choices on how they can redeem their points. For instance, Sephora, luxurious beauty and makeup store allows its users to redeem points not only via gift cards or products, but also limited edition products that aren’t available yet, or in-store beauty tutorials. If you’re looking to implement the points program, we advise you to check out ShopKeep POS system, which has built-in loyalty program features.

2. The Membership Program

Membership programs invite customers to pay a monthly or annual fee in exchange for exclusive benefits. For instance, at Barnes & Noble, the membership program costs $25/annually and offers discounts, free shipping, etc. Also, the brand clearly shows customers that the value of the loyalty program outweighs the cost:

“Join for $25 and receive a 20% discount on your first purchase. You’ll receive member-only coupons a couple of times through the year.”

Member-only coupons usually grant a 50% discount during a certain time period. The important thing to understand here is that it’s not about the $25, since it’s a fairly low price. Repeat purchases are what really the membership program is after.

3. The Tier Program

The tier program focuses on customer engagement by offering better rewards as they advance through the tier system. Frankly, it’s the same as the points program but certain benefits (like exclusive deals or earliest access to new products) can only be unlocked by reaching a certain loyalty level. Usually, three tiers are the way to go for most brands (silver, gold, and platinum, for instance). However, you can create more tiers depending on your business and industry.

Also, it’s a good idea to showcase how many customers have reached a certain tier. It installs a little spirit of competition among fellow customers and as you very well know, people LOVE competitions. What they love even more though, is demonstrating their achievements to others for that sweet feeling of aspiration and self-accomplishment.

4. The Charity Program

Not the most popular loyalty program, but very strong when implemented correctly. The charity program revolves around mutual values and focuses on the emotional relationship between the customers and your brand. This loyalty program should only be implemented if certain emotional values (like fighting cancer among children, environmental responsibility, thinking green, animal welfare, etc.) are a big part of your brand and your marketing strategy.

For instance, The Body Shop, an all-natural cosmetics brand, uses a classic points program, but with a neat addition: users can choose to donate their reward points to Born Free USA, a charity for animal welfare. On top of that, their cosmetics are never tested on animals and they are also avid evangelists of environmental responsibility. Together, these factors form an incredibly strong emotional connection with customers, who also share the same values as The Body Shop.

5. The Subscription Program

One of the most recently developed loyalty systems, the subscription program focuses primarily on providing convenience to repeat customers. The idea is that instead of benefits and reward points, you offer you products on subscription. For instance, Bean Box, an online coffee shop, invites customers to subscribe to their favorite coffee beans for a monthly fee, which will continuously be renewed. As a result, you don’t have to worry about ever running out of coffee. This is particularly suitable for offices.

This is an excellent way to increase customer lifetime value. Also, you could throw in a couple of subscription plans with discounts. For instance, a six month upfront subscription comes at a 20% discount, an annual subscription comes at a 35% discount, and so on. If your product is suitable, the subscription program can be incredibly profitable.

6. The Community Program

Another proven loyalty system, the community program, encourages customers to connect and interact with each other, share ideas, find inspiration, etc. Sephora, the beauty products store we mentioned earlier, has created a platform that allows like-minded people to get together, talk about their favorite products, brainstorm on products they’d like to have, sign-up for exclusive events, and so on.

This allows the brand to collect an incredible amount of customer insight that can later be used for product development and various benefits that ultimately improve conversion rates. Just in case you’re having second thoughts on the effectiveness of the method, Sephora’s loyalty program boasts over 17 million members, who account for 80% of Sephora’s annual sales. That’s how good it can be.

7. The Progress Program

For many, progress is a great motivator. The more we believe that our goal is near, the more effort we commit to achieving it. This is exactly what the progress program is about. Essentially, it is an effective psychological trigger that drives customers forward. And the best part is, people often associate their success and achievements with the brand that kept pushing them in the first place.

Nike utilizes the progress program to great effect. The Nike Run Club and the Nike Training Club apps reward users with various benefits whenever they reach a new milestone (like completing your first 10 miles run). As customers progress further and further, they get attached to Nike more and more, and naturally, keep coming back for sporting gear.

Conclusion

Over the past years, judging from multiple studies and feedback from experienced business owners, loyalty programs have become one of the best customer conversion tools at a marketer’s disposal. In addition, a well-designed program can be used in conjunction with leading POS systems like Lightspeed and TouchBistro. Together, these will positively affect customer lifetime value, conversion rate, and inspire some customers to become brand evangelists.

The key is to identify the program that suits your business best and make it easy to understand and use. Don’t be afraid to mix and match different techniques from multiple approaches, if those will bring value to your customers. Finally, if you’re looking to differentiate from the competition, a touch of uniqueness and innovation can go a long way.