Customer loyalty does more than signify the groundwork of a fruitful, long-term relationship between brand and customer; it provides a multitude of strategic benefits that improve the health and success of a brand. It costs 5x more to acquire a new customer than to retain an existing one. Not to mention that existing customers are 50% more likely to try new products and are willing to spend 31% more money. Whether you’re starting a new program from scratch, reassessing your approach, or considering a new strategic partnership, this breakdown of customer loyalty program marketing strategies will inform your next move.
For Customer Loyalty Programs, Marketing Strategy Matters
Different loyalty programs work for different companies, making the choice just that more difficult. Brands will need to do a bit of soul-searching to determine what their most prized marketing goals are. Are you looking to increase foot traffic? Do you want shoppers to spend more? Is it important for your brand to become as beloved as Starbucks, Sephora, and Apple? Do you want to steal market share from your competitors? While there is no simple “one-size-fits-all” solution, they are also not mutually exclusive; you are free to combine different components from each program to best fit your marketing strategy.
5 Popular Customer Loyalty Programs for Consideration
Below, we’ll discuss five prominent customer loyalty programs in further detail, taking a closer look at each marketing strategy’s pros and cons.
The Points-Based System
What it is: Points-based rewards are among the simplest programs by design. Each dollar a shopper spends corresponds to a point, with special bonuses “unlocked” after reaching a set number of points. Most programs are free to join, so there is no “selling” involved.
Example: At Petco, every $1 spent earns 1 point. Once “Pals Rewards” members earn 100 points, they receive a $5 coupon. Customers also receive a free birthday gift, free shipping, and extra points for bonus offers.
Why it might work: A points program encourages massive signups with its easy-to-understand proposition and works best for businesses where frequent, short-term purchases are the norm.
Why it might not work: There is no instant gratification; members are signed up for the long-haul process of collecting points. Also, points-based systems may not be as effective as other programs in securing long-term engagement due to low value and low differentiation, causing consumers to gravitate toward other brands offering more. Plus, infrequent shoppers won’t receive any advantage, especially if the points expire due to inactivity. Not to mention the lower engagement rate means there are fewer opportunities to gain consumer data.
Tiered Loyalty Program
What it is: Consumers receive a more valuable set of rewards once they reach certain spending thresholds. Tiers are designed based on annual spending amounts and usage of rewards like free shipping and promotions.
Example: Popular shoe retailer DSW has a three-tier loyalty program. Club members join for free and earn 1 point for every $1 spent on eligible products. They enjoy app personalization, free 4-7 day shipping, and a $5 birthday coupon. After spending over $200 in a year, Gold membership status is achieved. Gold members earn 1 point for every $1 spent, double points on two select days each year, free 60-day return shipping, a $5 birthday coupon, and access to periodic perks. Elite members who have spent more than $500 in a year receive 2 points for every $1 spent, triple points on one select day, free 365-day returns, free two-day shipping, a $10 birthday offer, and exclusive personal benefits through the MyPerks program.
Why it might work: Customers naturally strive to reach the “next level” of benefits. Engagement tends to be high among tiered loyalty members who perceive these programs as providing ample value and better experiences. Many programs are highly personalized to each individual participant. High-value customers are the focus of this program, which drives greater revenue.
Why it might not work: A tiered system is one of the more complex programs to manage because it involves analyzing customer purchase history, shopping patterns, and preferences. Low-tier customers are not likely to engage in the program and relationships can be damaged if memberships are downgraded.
Premium Fee-Based VIP Program
What it is: Customers pay a monthly or annual subscription fee in order to access “VIP” benefits, which vary greatly from program to program as a point of differentiation.
Example: Amazon Prime members pay $119 a year to access free two-day shipping, free TV/movie streaming through Prime Video, free books through Prime Reading, ad-free music streaming, and unlimited photo storage.
Why it might work: While there is a fee to join, highly engaged members will happily pay year after year because the differentiation possibilities are endless and the perceived value is so great.
Why it might not work: The upfront cost could be a barrier for some program participants. Companies need to explain the benefits and make sure users are getting the most from their subscriptions. Also, effective program management and keeping up with customer needs can be challenging tasks.
Cashback Reward Programs
What it is: Credit cards popularized the cashback method of rewards, but retailers and brands are now following suit and offering a percentage of money back on purchases as long as shoppers hit a certain spending threshold. The cash credit is typically redeemed on in-store purchases.
Example: The CVS ExtraCare program rewards members with 2% cashback on all purchases. Rewards are paid out in January, April, July, and October as long as members spend at least $50 during the earning period. Prescriptions and copays do not qualify for cashback. Members also receive exclusive deals via email.
Why it might work: Much like points programs, “cashback” is a simple concept to understand. Reward redemption in-store can also drive additional sales much like implementing buy online pickup in store or allowing “hassle-free” in-store returns do.
Why it might not work: There is no differentiation or instant gratification among these programs. There’s not a huge incentive to engage further, as big spenders and fairly infrequent shoppers are rewarded alike.
Partnership-Based Loyalty Programs
What it is: A strategic partnership-based loyalty program involves two companies working together for mutual benefit. Companies provide value that’s relevant to their customer base, but goes beyond their traditional offerings through their partnership affiliation.
Example: Shopkick is a popular mobile shopping rewards app that brands and retailers can partner with for increased brand awareness, customer engagement, and sales. Shopkickers are incentivized with “kicks” (rewards points) that are earned through a multitude of ways, including: entering partners’ stores, scanning certain product barcodes at-shelf, watching promotional videos, flipping through branded lookbooks, shopping online, and scanning purchase receipts. When enough kicks are accumulated, they are redeemed for gift cards of the shopper’s choosing. In the company’s first 10 years, Shopkick has driven over 300 million store visits to retail partners including Carter’s, Best Buy, TJ Maxx, Ulta, and more. Users earned over 29 billion kicks engaging with CPG brands like Unilever, Starbucks, General Mills, and Kraft-Heinz.
Why it might work: A partnership-based loyalty program can be the ideal way to retain customers and expand your reach to an incremental audience. Partners increase loyalty for their own base, but also tap into brand new markets. This is the only loyalty program with a core strategy of expanding consumer-base size. Compared to mergers, acquisitions, and new markets, a partnership-based loyalty program is a much more affordable way to extend reach. Technological barriers to entry are low since the infrastructure is already in place. Strategic partnerships can send a powerful signal that your brand is a leader that others want to align themselves with, creating a positive differentiating factor in a competitive market.
Why it might not work: A good partnership-based loyalty program needs to be customer-focused and brand-aligned. When poorly executed, it could result in loyalty to the program itself rather than the individual brands involved. Differentiation could also potentially be problematic if too many direct competitors join the program.
No matter which strategy(ies) you decide to choose, remember that building a loyalty program is not just about rewarding your customers with monetary gifts. It’s about providing shoppers with real personalized value for choosing your brand, and in return, receiving their continued business and loyalty.
Want a new or improved customer loyalty program that will redefine your marketing strategy? Learn more about Shopkick’s expertise in this field by reading our success stories or contacting us to become a partner.
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