Customer Loyalty Programs: Types and examples

Jan 23, 2023 | Blog

What is a Customer Loyalty Program?

A customer loyalty program is a type of rewards system used by businesses to reward their customers for their repeat purchases. It enables customers to earn points, discounts, and other rewards for buying the company’s products or services. These programs are designed to build customer relationships, encourage customer loyalty, and boost sales.

The idea behind customer loyalty programs is simple: companies want to make sure that their loyal customers keep coming back. They do this by offering incentives such as discounts, rewards points, free gifts, or special offers on future purchases. By creating an incentive structure that rewards frequent buyers with exclusive benefits and privileges, companies can help ensure a steady stream of returning customers. 

Additionally, these programs give businesses the opportunity to gather valuable data about their customers which can be used to develop more effective marketing strategies in the future. 

How does a Customer Loyalty Program work?

A customer loyalty program is an effective way to reward customers for their loyalty and encourages them to make repeat purchases. Loyalty programs come in many forms, including points-based systems, discounts and special offers. By understanding how a customer loyalty program works, businesses can use these programs to boost sales and build relationships with their customers.

When a customer signs up for a loyalty program, they are usually required to provide personal information such as name, address, and email address. This information is then used by the business to track purchases made by the customer over time. The more the customer shops with the business, the more points or rewards they accumulate that can be exchanged for goods or services from the business. Businesses also use this information to target customers with special promotions and offer tailored specifically for them. 

In addition to providing points and rewards, loyalty programs can also be used to keep track of customer purchases or shop history. This information can then be used by the business to identify potential customers who are likely to want more products or services from the company. 

Why are Customer Loyalty Programs important for your Retail Business?

Customer loyalty programs are an essential tool for any retail business looking to increase sales and attract new customers. Offering incentives to customers for repeat purchases is one of the simplest, yet most effective ways to boost customer satisfaction and ensure continued loyalty. Loyalty programs not only reward loyal customers with exclusive discounts but also allow businesses to better understand their customer base and make informed decisions when it comes to marketing and product offerings. 

When implemented correctly, customer loyalty programs can have a lasting impact on a business’s success. Not only will it help create a positive brand image, but it can also help increase revenues by encouraging more sales from existing customers. Additionally, the data collected through loyalty programs will provide valuable insights into what products customers prefer, allowing businesses to tailor their future offers accordingly. 

Types of Loyalty Programs

Not all loyalty programs are created equal though; there are many different types of loyalty programs that businesses can use to tailor their rewards to their customer base. 

The three main types of loyalty programs include points-based, tier-based, and hybrid. 

Points-based loyalty program

This is the most popular type and allows customers to earn points with each purchase they make, or even by leaving reviews, sharing them on social, or playing a game. These points can be redeemed for rewards like discounts or free products. 

Some examples of this kind of rewards programs are: 

  • Kohl’s Rewards: In general, with this Rewards Program you can earn 5% Kohl’s Rewards on every purchase, every day. The earnings are added to the Kohl’s Rewards balance and can be converted to Kohl’s cash to be spent on the store.  
  • Zappos VIP: This brand, globally known for its customer service, has a Rewards Program in which you can earn 1 point per 1 USD spent, 1 point extra if you have an Amazon Prime membership, or even 5 and 10 points for logging in and reviewing items you’ve bought.

Tier-based programs

This type of program organizes customers into levels based on how much they spend over certain periods of time, offering greater rewards as they move up in tiers. 

Spend-based loyalty programs

These programs are becoming an increasingly popular way for companies to reward their customers and build brand loyalty. These programs provide incentives based on how much customers spend, with discounts or access to exclusive products or services being offered as rewards. 

Hybrid loyalty programs

The hybrid loyalty programs combine elements from both points and tier systems in order to attract more customers and offer greater flexibility in terms of how rewards can be earned or redeemed. 

Some examples of these kinds of loyalty programs are: 

  • Starbucks Rewards: One of the best-known coffee shops in the world first launched a mobile app to manage its loyalty program, when this was not as common. In this program, you earn Stars every time you get a coffee or food at Starbucks, and you can redeem them for rewards like free food, drinks, and more. They also give you special levels. 
  • Sephora Beauty Insider: This wildly popular Rewards Program lets you earn points for each purchase like a traditional point system, but with the difference that you can choose how to use your rewards points. They also have special levels and benefits per level, from savings to special experiences.
  • Bloomingdale’s Loyallist Program: This Program allows you to earn points on every Bloomingdale’s purchase, giving you different Statuses like Loyalist, Top of the List, and Top of the List Unlocked, depending on your Annual Net Spend at Bloomingdale’s. Each Status has different perks from free shipping, to exclusive events.

    Paid loyalty programs

    The Paid Loyalty Programs require customers to pay a fee to join and receive rewards or exclusive offers. These may include discounted rates on products and services, bonus points, or even cashback opportunities. The cost to join can vary depending on the program’s structure; it could be a one-time fee, monthly subscription, or annual payment plan. Depending on the program, members may also receive extra perks such as priority access, upgraded services, or special discounts not available to non-members. 

    • Amazon Prime: Amazon’s Prime membership program is a very famous paid loyalty program with which you can get free delivery, popular movies and shows in Amazon’s streaming services, and exclusive deals, for $14.99 a month. Loyalty programs can become a big differentiator when most of the products you offer can be found in many places and at different prices, as with Amazon.
    • Bed Bad and Beyond: With this loyalty program, you can get a 20% off your entire purchase every time you shop, free standard shipping on every order, and many more benefits, for $29 a year. 
    • Uber One: in 2021, Uber introduced its new membership program that brings together the best of Uber rides, delivery, and groceries. With this membership, you can get an Unlimited $0 Delivery Fee on Uber Eats, Uber One Perks including special offers and promotions, and many more things for $27 per month. 

    Value-based Loyalty Programs

    In these programs, businesses have the opportunity to incentivize their customers with rewards that matter most to them. Customers can redeem points for products and services they already use or sign up for offers from participating partners. This not only helps retain existing customers but also encourages new ones by providing more value for their money. Additionally, these types of programs give businesses insight into customer behaviors, allowing them to better customize offerings according to customer preferences. 

    Game Loyalty Programs

    In a Game or Gaming Loyalty Program, players may earn points that can be redeemed for various items such as gift cards or discounts on digital content. Some loyalty initiatives might also offer access to exclusive tournaments or competitions with attractive prizes. Some brands have used gamification in their apps or websites, but it’s not yet very common to be introduced as part of loyalty programs. 

    Partnered programs

    are more than just discounts or freebies – they can help create long-term relationships between businesses and their customers by offering additional services like personalized advice and deals on products from partner companies. Businesses can also use these partnerships to gain access to new markets, increase visibility, and boost revenue streams. 

    • Three and easyJet. Three, a UK telco, partnered with easyJet to target young travelers with their package ‘Go Roam’ to allow customers to get free easyJet upgrades and go through easyJet data, calls, and texts in 71 destinations at no extra cost. This partnership, although it ended some years ago, was used by many people and it brought many benefits for both of the companies. 

    Conclusion. How the different types of Loyalty Programs can help your retail business? 

    Customer Loyalty Programs can offer a great way for companies to keep their customers coming back. These programs provide customers with incentives and rewards that they would not otherwise receive, making them beneficial to both the customer and the company. 

    In this blog, we offered you some examples and types of Customer Loyalty Pograms for you to get some inspiration and start building yours. Don’t forget that, along with Loyalty Programs, assuring a seamless shopping experience that focuses on customers is key to improving customer loyalty. In the long run, if you want your loyal customers to come back again, is important to first give them an experience they won’t forget. 

    Teamwork Commerce can help you improve Customer Loyalty. With Teamwork’s omnichannel solution, retailers gain a deeper understanding of their customers to provide personalized experiences through invisible technology. 

    Teamwork Commerce is a flexible tech stack for retailers that includes POS, OMS, Clienteling, Inventory Control, and Reporting – a cloud-based system that is constantly evolving to provide cutting-edge technology to meet the needs of the ever-changing retail landscape. 

    We are trusted by top retailers globally including, Moose Knuckles, Colorado Rockies, Asics, Milwaukee Bucks, and Catbird. Learn more at www.teamworkcommerce.com

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