Image source: "Photo Of People holding Their Phones", by fauxels, licensed under Free to Use
In today's highly competitive business landscape, it's more important than ever to ensure your customers keep coming back for more. But how do you foster that sense of loyalty and turn one-time shoppers into devoted fans?
Look no further, as we have the perfect solution for you. In this blog post, we will explore the eight most common types of loyalty programs and lay out their most notable pros and cons.
By implementing a well-designed and personalized loyalty program, you can not only strengthen your customer relationships but also set your business apart from the competition.
From points-based systems to tiered rewards, the possibilities are endless. So, whether you're an SMB or a large-size company, get ready to dive into the world of customer loyalty and unlock the secrets to long-lasting success!
#1 Points-Based Programs
One of the most commonly used types of loyalty programs is the points-based program. Points-based customer loyalty programs reward customers with points for their purchases or engagements. As points accumulate, customers can redeem them for discounts, free products, or exclusive benefits.
A points-based customer loyalty program should be used if your product or service involves frequent, repeat purchases so that you can allow customers to accumulate points regularly. This type of program is also ideal if you seek to build long-term relationships with customers and foster a sense of brand loyalty.
SoFi, a personal finance platform, incentivizes its customers to engage with the platform frequently through its rewards program, which operates on a points-based system. By enrolling in SoFi Member Rewards, logging into the app, referring friends, and spending on their SoFi credit card, users can accumulate points that can be redeemed for cash equivalents or other rewards.
Image source: SoFi
#2 Tiered Programs
Tiered customer loyalty programs categorize customers into different levels or tiers based on their spending or engagement. Each tier offers progressively better rewards and perks, incentivizing customers to spend more or engage further to reach higher tiers and enjoy enhanced benefits.
A business should use a tiered loyalty program when aiming to encourage higher spending, enhance customer segmentation, and cater to different customer preferences. These types of customer loyalty programs work well for businesses with diverse product offerings and customer bases or when seeking to reward long-term, high-value customers.
To encourage users to invest more into the platform, Robinhood, the widely-used stock trading app, has introduced a rewards program for customers who make deposits into their accounts. The size of the deposit determines the reward, ranging from $10 to $250. By offering tangible rewards, Robinhood can incentivize users to increase their investments while simultaneously providing them with a valuable benefit.
Image source: RobinHood
#3 Subscription-Based Programs
Subscription-based customer loyalty programs require customers to pay a recurring fee to access exclusive benefits, discounts, or services. These programs create a consistent revenue stream for businesses while offering subscribers value-added experiences that encourage long-term loyalty and engagement.
A business should use a subscription-based loyalty program when it can offer consistent, exclusive value to customers, such as product access, premium services, or special discounts. This approach is well-suited for businesses with recurring products or services that aim to create stable, predictable revenue streams.
Amazon offers a popular subscription-based customer loyalty program called "Amazon Prime." Subscribers pay an annual fee and receive various benefits, including free two-day shipping on eligible items, unlimited streaming of movies and TV shows, access to exclusive deals, and more.
Image source: Amazon
#4 Cash-Back Programs
Cash-back customer loyalty programs reward customers with a percentage of their purchases as cash or store credit. This encourages repeat business and higher spending, as customers perceive direct financial benefits from shopping with the brand, strengthening their loyalty and engagement.
A business should use a cash-back loyalty program when aiming to incentivize repeat purchases and higher spending with direct financial rewards. This approach works well for businesses with frequent purchase cycles, price-sensitive customers, or those seeking a simple, easy-to-understand loyalty program.
The investment app, Acorns, provides a rewards program called Acorns Earn to its customers. By shopping with select brands, users can earn cash back that gets automatically invested into their Acorns account. The program encourages users to increase their spending while motivating them to save and invest more through the platform, creating a mutually beneficial relationship between the user and the app.
Image source: Acorns
#5 Punch Card Programs
Punch card customer loyalty programs offer customers a reward after a specific number of purchases or visits. Each purchase or visit earns a "punch" on a physical or digital card, and once the card is complete, the customer receives a free product, discount, or other incentive.
A business should use a punch card loyalty program when targeting increased customer frequency or specific product promotion. Of all the different types of customer loyalty programs, these programs are the most suitable for businesses with low-cost, repeat purchases, where customers can quickly accumulate punches.
Starbucks uses a punch card customer loyalty program called "Starbucks Rewards." Customers receive a physical or digital "Star" card and earn one Star for every transaction made at Starbucks stores. After earning enough Stars, customers can redeem them for free food and drinks, exclusive merchandise, and other benefits.
Image source: Starbucks
#6 Gamified Programs
Gamified customer loyalty programs incorporate game-like elements, such as challenges and competitions, to engage customers and encourage brand interaction. These programs may involve earning points, badges, or other virtual rewards for various brand interactions.
The aim of the programs is to create a fun, immersive experience that fosters loyalty, stimulates customer participation and generates excitement around the brand.
A business should use a gamified loyalty program when aiming to create a fun, engaging experience that fosters customer loyalty and brand interaction. This approach works well for businesses with a younger or tech-savvy target audience or those seeking to differentiate themselves from competitors with a unique program.
Grab, a Southeast Asian ride-hailing, and food delivery platform, uses a gamified customer loyalty program called "GrabRewards." Users earn points for every ride or food order made through the platform, which can be redeemed for various rewards such as free rides, meals, and other perks. The program also includes gamified elements, such as levels, badges, and challenges, to incentivize continued usage and foster a sense of community among its users.
Image source: Grab
#7 Hybrid Programs
Hybrid customer loyalty programs combine elements from multiple loyalty program types, such as points-based, tiered, and gamified systems, to create a comprehensive and versatile rewards structure.
A business should use a hybrid loyalty program when targeting diverse customer segments or seeking to maximize engagement by offering various reward types and experiences. This approach is well-suited for businesses that want to create a comprehensive and adaptable loyalty program that caters to a wide range of customer preferences.
CVS Health offers a gamified customer loyalty program called "CVS CarePass." Members pay a monthly or annual fee and receive various benefits, including free one-to-two-day shipping on eligible items, exclusive discounts, and $10 worth of ExtraBucks rewards each month. The program also includes gamified elements, such as personalized challenges, bonuses, and rewards, to encourage continued usage and deepen customer engagement with the brand.
Image source: CVS Health
#8 Value-Based Programs
Value-based customer loyalty programs reward customers for aligning with a brand's values, mission, or social causes. These programs encourage loyalty by fostering emotional connections and a sense of shared purpose, offering rewards or incentives linked to the brand's values or philanthropic initiatives.
A business should use a value-based loyalty program when its target audience shares the brand's values, mission, or social causes. Value-based loyalty programs are ideal for businesses aiming to build emotional connections with customers and foster long-term loyalty through shared purpose and meaningful engagement.
Lemonade, an insurance company, uses a mission-based customer loyalty program called "Giveback." As part of the program, Lemonade donates a portion of its unused premiums to non-profit organizations chosen by its customers. The program aligns with Lemonade's mission to promote social good and encourage a more transparent and responsible insurance industry. By giving customers the power to choose the causes they care about, the program fosters a sense of community and shared purpose while also incentivizing continued usage of Lemonade's services.
Image source: Lemonade
As we have seen in this post, there's a wide range of loyalty programs available, each with its own set of benefits and drawbacks.
Before making a decision, you should consider factors such as your target audience, objectives, and available resources. Make sure to select a program that aligns with your budget, brand identity, and customer preferences.
In addition to implementing best practices, don't forget to regularly evaluate the program's performance to foster long-lasting customer loyalty, drive repeat business, and stand out in an increasingly competitive market.
By carefully selecting and consistently evaluating your loyalty program, you can build a strong, lasting relationship with your customers and improve your bottom line.
Once you choose the best loyalty program that fits your brand's ambitions, consider investing in a loyalty program software to help you manage all aspects of the program. Loyalty program software comes pre-packed with a range of features that can automate your entire loyalty program and rewards process from end to end.
Create your first loyalty program today
Sign up for a free trial of LoyaltySurf and get set up within an afternoon. Our no-code loyalty program software comes with an extensible API and integrations library.