Customer loyalty programs can be an extremely powerful retention tool when designed and used correctly. Consider these statistics:

  • More than half of consumers find rewards “very” or “extremely” important to their purchase decisions.
  • Only 8% don’t find rewards important at all.
  • The right incentive can make 93% of customers switch brands, even if they were previously loyal to a competitor.
  • Up to 75% of customers are more likely to make a repeat purchase after receiving a reward. [1]

Loyalty programs work, but they have to fit the brand. One size does not fit all. A rewards program needs to appeal to a company’s unique customer base, stand out among competitors in the market, and be profitable enough to justify the expense.

That’s why an effective loyalty strategy needs to start with analysis.

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Loyalty Program Design: The Process

To design a loyalty program that works, it’s best to start by figuring out what customers want. Inte Q begins this process by evaluating the competitive environment, looking at what stakeholders want to achieve, and surveying what else is out there on the market.

It’s also important to understand the customer, looking at factors like:

  • How often they buy
  • What types of offers they respond to
  • What channels they use to shop
  • What their retention rates are

Checking in with customers directly and finding out what values they appreciate in a loyalty program is also an effective research strategy. At Inte Q, that includes a deep dive into preferences like what motivates customers to enroll and how they prefer to get communications from loyalty programs.

The last piece is considering how a company can shoulder the financial demands of a loyalty program. For example:

  • What will the program cost?
  • How much is it expected to generate?
  • Are subsidies and discounts available from vendors that could make the program more affordable?

Once all of this information is in place, a company can have a better idea of what kind of loyalty program will work.

Points-Based Programs

Points-based programs are probably the most common type of loyalty program out there. According to Invesp, 69% of consumers join loyalty programs to earn points — that’s 10% more than those who join to save money. [2]

Points are popular because they’re convenient, easy to understand, and satisfying to accrue. The more a customer buys, the more points they earn, and the faster they earn rewards. Rewards often come in the form of discounts or freebies.

Points-based programs are convenient for companies as well. It’s easy to set the standard for how customers earn points — two points per dollar, for example, or tiered points based on order value — and companies can adjust the rules of the program as needed.

A points system encourages people to make repeat purchases, so it naturally generates loyalty. It also gives companies more information about where and how often their customers spend. The points system works for companies that attract frequent and repeat purchases, such as:

  • Clothing retailers
  • Grocers
  • Drugstores and pharmacies
  • Coffee shops

Points-based programs may be less attractive for companies with bigger-ticket items that customers buy infrequently — furniture stores, for example.

Cash-Back Programs

Like points programs, cash-back programs are best suited to companies with frequent, value-seeking shoppers. Many credit cards offer cash-back loyalty programs, allowing customers to build up a percentage of their purchases and redeem them later. Popular incentives include cash, partner gift cards, and statement credits.

Cash-back programs are easy for customers to understand and work well for frequent shoppers.

Loyalty Card Programs

Loyalty card programs make people feel like they’re getting exclusive access to something, even if they don’t pay to participate in the program. The customer scans their card or provides a loyalty number and gets exclusive offers or discounts.

Loyalty cards can work for almost any business. They’re easy to set up and convenient for customers, especially when there’s an option to have a digital version of the card on the customer’s smartphone.

Tiered Programs

In a tiered program, customers get more benefits as they spend more. One common structure is to have Bronze, Silver, and Gold levels, with minimum annual spending thresholds for each level. A tiered program tends to suit businesses that are interested in courting their highest spenders.

Membership and Subscription Programs

Membership and subscription loyalty programs require customers to pay to participate. The customer pays an upfront fee in exchange for exclusive rewards, coupons, and other offers.

Perhaps the most famous membership loyalty program is Amazon Prime. For a yearly fee, consumers get access to free two-day and same-day shipping on eligible purchases, a large library of streaming media, and more. Members express their appreciation through their wallets, spending more than double what non-prime members spend ($1,400 per year compared to $600, according to the most recent statistics.) [3]

Other companies have achieved similar success. GameStop, for example, offers its PowerUp Rewards card at a cost of $14.99. More than 50% of the store’s transactions now have a PowerUp account attached. [4]

These companies are proof that customers will pay for the right reward. In fact, according to Inte Q research, almost two-thirds of customers are willing to subscribe to a loyalty program. That includes 77% of 25- to 34-year-olds.

It may even be the case that paying for premium access encourages more spending, convincing customers that they need to get their money’s worth. The key to success is offering rewards that meet customer needs and marketing the loyalty program in a way that sets it apart from the rest.

Choosing the Right Partner

Loyalty programs can go a long way toward encouraging repeat purchases, improving customer retention, and increasing customer lifetime value. The main downside is that they require a time investment on the part of the sponsoring company. Rewards have to be structured and updated, promotional emails have to go out to remind customers to participate, and questions about the program will need answering.

The best solution is a rewards partner that understands an individual business and how a loyalty program will fit into it. Inte Q starts with a deep dive into a company’s data, finding out what works for its customers and what type of program would meet its goals. The result is a customer loyalty program that stands out from the pack.