It is likely that if you work in marketing, you are considering several kinds of loyalty program.
Retailers have tried to keep loyal consumers from the dawn of time by implementing point systems, tiered programs, and even paid membership loyalty programs. But do these initiatives foster loyalty?
Furthermore, how can you determine which kind of loyalty program is best for your company?
Do not fret. We’ll go over the most common kinds of loyalty programs, list their benefits and drawbacks, provide some real-world examples, and assist you in deciding which kind is best for your company.
1. Points Programs
Customers received copper tokens (the points) hundreds of years ago for their purchases. These tokens could then be exchanged for deals or even products. Later on, the tokens changed into plastic cards, box tops, and stamps, but other than that, not much about the programs has changed.
Points-based loyalty systems, often called earn-and-burn schemes, are unchanged from the 1700s to the present day. Spending by customers now earns rewards afterward.
There isn’t much of a barrier to entry for membership because point programs are free to sign up for. We all have a ton of loyalty cards in our wallets and on our keychains because of this.
Customers must accrue a significant number of points under point programs to see the value. They work wonders at getting users to opt in, but they don’t do as well at raising expenditure and engagement levels. It may therefore take a while to reach profitability.
Example – Petco Pals Rewards
One common point program is Petco Pals Rewards. For every $1 spent, members earn one point. Upon reaching 100 points, a $5 discount is awarded. In essence, members receive $5 off products after spending $100. The value proposition is straightforward.
The points do expire 45 days from the date of issuance, and the balance of points is lowered to 0 if a member’s account is dormant for 180 days without any purchases. Because of this, it could be challenging for infrequent consumers to benefit from the benefits.
Moreover, the $5 credit is not redeemable until the user makes a subsequent purchase if they spend $100 on a single purchase. That could be annoying at a time when getting satisfaction right away is so important.
In summary, the following are the advantages and disadvantages of a point system.
Strengths:
Free to join means there is less of a barrier to getting new customers.
Outstanding at gathering important first- and zero-party data The ideal starting point for your wider loyalty ecosystem – a terrifi
c method to leverage engagement strategies to convert i
nfrequent visitors into regular ones
Challenges:
More challenging to employ for brand distinction due to the funding requirement for rewards
Could not offer the instant satisfaction that contemporary customers desire (i.e., they must accumulate points gradually to receive rewards later)
Maybe not offering enough benefits to significantly raise client involvement
Summary
Points-based systems are an excellent means of attracting new clients and boosting involvement.
When carried out correctly, they focus on member involvement and value provision.
A points program that is updated regularly will stay relevant and top of your members.
Adding a premium loyalty tier to your points program is another option to explore to improve it.
Spend a particular amount and receive a corresponding amount, usually in the form of retailer-only vouchers or “cash.” They’re quite simple to keep up and comprehend. There isn’t much more to explain because the idea is essentially the same as point programs.
For instance, CVS ExtraCare
Every time an ExtraCare loyalty card is used, participants in the CVS ExtraCare program receive 2% back in ExtraBucks Rewards. At CVS, those “bucks” can be spent on nearly anything.
The catch is that members will not receive rewards or have their earnings carried over if they do not spend $50 on qualified products or if they do not otherwise accrue at least $1.00 in ExtraBucks Rewards by the end of each earning period. It may be challenging for infrequent customers to understand the value as a result.
Strengths:
Comparable to point systems
Redeeming store-exclusive awards is a simple process that can increase sales when “cash” is redeemed.
Challenges:
Gives incentives to both prosperous and unprofitable consumers.
doesn’t offer pleasure right away
Not as appealing to rare customers
Not much different from plans offered by competitors
Summary
Cash-back schemes offer value to your subscribers and have a low entrance barrier, similar to point programs.
Members who earn special store rewards may increase sales for your company.
3. Punch Card Programs
You can encourage recurring business from your devoted clientele by implementing punch card loyalty programs.
Companies used to provide members with real paper cards that were “punched” after they made purchases of goods or services. The card may be redeemed for a prize once the customer fills it out.
Many brands now utilize electronic cards instead of the traditional paper ones, however, some local mom-and-pop stores still use the former. Digital punch cards are far more convenient for customers to use than paper cards because of technology.
Punch card programs, like points and cash-back, demand members to make purchases now and receive benefits later.
Punch card loyalty programs encourage customers to make more purchases by using a digital punch card that piques their interest in your business.
You want to see your customers regularly once you’ve gained them. Programs for digital punch cards increase brand loyalty and repeat interaction.
Programs for digital punch cards give customers value that is simple to understand, and ongoing iteration makes it possible to design incentives that are specific to your customer’s preferences.
Domino’s Piece of the Pie Rewards, for instance
A member earns 10 points toward a free pizza when they utilize their pizza profile to place an order of $10 or more.
A member can add a free medium 2-topping pizza to their cart by clicking the “Redeem” option in their app or online dashboard after they have accumulated 60 points. You can use this prize at any participating Domino’s location that is participating by redeeming it online.
Strengths:
enhances the engagement of recurring customers
Value is simple for customers to comprehend.
minimal expense to the company (printed or digital)
Challenges:
may provide freebies and discounts without a requirement.
Fewer chances to collect consumer information, Rewards might not foster loyalty
Summary
Punch card loyalty schemes offer a low entrance barrier for new members, similar to point programs. They are an excellent means of increasing engagement and gaining new clients.
4. Tiered Loyalty Programs
Different benefits are offered by tier-based loyalty programs depending on the milestones that members reach. These benchmarks are often expressed in monetary terms. A member moves up the tier ladder based on how much they pay.
Because these milestones provide the program with additional layers of exclusivity, they can be a wonderful method to boost member engagement. Traditional point systems without tiers provide the same benefits to all participants. In programs with tiers, it becomes a status symbol.
Better rewards come with every stage. This incorporates gamification. Gamification is the process of integrating features of video games that are meant to be addictive into a loyalty program. Customers return time and time to accumulate points thanks to features like progress bars and milestones. They just add excitement to the program.
Members of certain effective tiered loyalty schemes can also see what proportion of all members are in each tier. This plays on the competitive drive for higher social status by letting participants see how they compare to others in the program.
Additionally, these programs naturally make your most valued customers feel even more valued because the higher tiers offer better benefits. They are aware that not everyone is eligible for the benefits they are receiving.
With good reason, Sephora’s Beauty Insider loyalty program is among the most talked-about. Members adore it not just for its tiered structure but also because, in contrast to straight point schemes, it offers experience benefits.
$350 in purchases gets members into the VIB category, which entitles them to one annual makeover and complimentary gifts. They can become Rouge members with an annual spend of $1000, which grants them access to private events and a private hotline.
Strengths:
prioritizes higher-value clients
can provide more favorable experiences than conventional point systems at every stage.
Greater room for differentiation and personalization
encourages more purchases because members desire to become more exclusive
Reward your finest clients with the greatest incentives
does not offer each member a margin
Membership cancellations are less common among higher-tier members.
Challenges:
Not as appealing to lower-tier clients who may spend less. Money connections between members may be compromised if they are demoted
more intricate, necessitating increased member status communication. These initiatives have the potential to become unclear, which lowers participation.
It could seem intimidating to start at the bottom tier and present a greater obstacle to entry than free point schemes.
Summary
In essence, tier-based loyalty programs are enhanced point systems with gamification features, exclusivity, and the potential to offer experiential benefits. The finest advantages still require spending, so they begin to stray into the premium loyalty zone, but they still demand expenditures up front to receive benefits afterward.
Top-tier customers do receive excellent value from them, and happy customers are more likely to become brand ambassadors. However, for lower-tier members, they usually don’t provide much value.
5. Coalition Loyalty Programs
The fact that multiple businesses run coalition initiatives makes them intriguing.
These programs seem good on paper. They give the impression of raising a brand’s transactional levels. They are ineffective, nevertheless, at fostering true loyalty.
Coalition initiatives encourage program loyalty as opposed to partner brand loyalty.
Programs for loyalty must be brand- and customer-aligned. They must be applied in order to distinguish. Since coalition approaches are one-size-fits-all initiatives, they fall short in that regard. The program itself comes into prominence rather than the retailers.
This explains why coalition initiatives haven’t been very effective in the United States.
In the United States, Plenti was arguably the most well-known coalition loyalty program.
Customers could accrue points at one participating retailer and redeem them at other participating retailers thanks to the program, which American Express introduced in 2015. It was independent of any specific retailer.
AT&T, Exxon / Mobil, Macy’s, Rite Aid, Nationwide Insurance, Direct Energy, and Hulu were among the brands that took part. During its three-year existence, brands began to withdraw as they made investments in their loyalty programs, with Macy’s putting the icing on the cake. Officially, the program was terminated in July 2018.
Strengths:
Consumers have more options for where to redeem their points and can accrue them more quickly.
Every brand has access to a larger pool of potential customers.
Numerous program operating expenses, such as marketing and incentives money, are split with external partners.
Rather than the individual brands, the coalition itself is in charge of managing the rewards redemption responsibility.
Challenges:
Typically, the coalition owns the data and keeps it segregated from the specific businesses.
No way for certain retailers to customize their reward programs
Coalition initiatives don’t offer you a competitive edge or set your business apart from competitors.
The danger of consumers accumulating points with your brand and using them to make purchases from a rival
Summary
Coalition loyalty programs appear to make sense in principle. Points can be accumulated and redeemed by members at any participating member brand. However, these initiatives foster brand loyalty to the programs themselves rather than the actual products, which is why the Plenti initiative ultimately failed.
To stand out from the competitors in today’s market, firms would be better served by investing in their loyalty programs.
A growing number of merchants are seeing premium loyalty as the most effective approach to fostering more consumer loyalty. These loyalty programs, in stark contrast to the aforementioned traditional programs, demand upfront payments from members in exchange for immediate access to perks.
Instant satisfaction is the hallmark of premium loyalty, and it’s more crucial than ever. Retailers find more engagement, higher order frequency, and higher average order value as a result of these programs’ outstanding value. They can also gather useful information about their most devoted clients.
A McKinsey analysis of loyalty programs states that although free loyalty programs only boost the possibility of spending more on your business by 30%, users of premium loyalty programs are 60% more likely to do so.
The average client would probably find it too difficult to join if they had to pay a membership fee, but that is just the objective. Your finest customer connections are strengthened and enhanced via premium loyalty. Customers who are willing to pay for it are those.
Compared to traditional loyalty, things like billing, bookkeeping, customer support, and employee training for retail stores are all much different and more complicated. Since your most loyal clients are paying for memberships, they should receive the greatest experience possible.
There aren’t many vendors that focus on premium loyalty programs, and not every business has the resources to run one of these efficiently. These programs are not the same as free programs in terms of member acquisition, retention, improved perks, billing, and specialist customer support.
The primary characteristic shared by all premium loyalty programs is their emphasis on the consumer. This is nothing new for Amazon, which is why Prime is the most well-known premium loyalty scheme.
Members are guaranteed the highest possible purchasing benefits at all times, regardless of when they shop, for only $119 each year. However, the advantages go beyond simple transactions. Membership includes experiential perks like streaming video. The program is very beneficial to members in their day-to-day lives.
Strengths:
draws in your finest clients
Highly involved clients recognize the benefits and participate more
The benefits are simple to comprehend
comprehensive data gathering on valuable clients
Provide the most alluring incentives you can
Challenges:
High entry barrier for clients in lower tiers
There is a possibility of an increase in the number of client inquiries and operational problems
It requires a very specific skill set to successfully develop and manage
Summary
Not everyone is suited for premium loyalty. The membership cost can be too much for lower-level or infrequent consumers, but if the advantages are substantial, your most valuable clients will become even more valuable.
The secret is to base the program on what your clients are requesting, so pay attention to what they have to say. If done correctly, it could necessitate working with a highly specialized vendor, but the benefits could be enormous.
Certain programs incorporate components from multiple loyalty methods. Tiered programs with points that blend transactional and experiential benefits are one example.
One excellent illustration of this is CVS CarePass.
It’s free to join CVS ExtraCare, a fantastic free loyalty program that gives members cash back and additional benefits.
CarePass was released for $5 per month for CVS’s best clients.
This premium reward tier offers fast, free shipping in addition to instant savings on select CVS Health brand products, free delivery on qualified prescriptions, and monthly incentives that can be utilized both in-person and online. Members also receive round-the-clock access to a live pharmacist chat line. If you appreciate those benefits, this program is excellent.
without CarePass, CarePass members spend three to four times as much on average.
Because of its low entrance barrier, the free program is attractive to the majority of its infrequent users. Its best consumers find the fee-based loyalty program appealing due to its excellent value proposition.
As a result, participants can go up and down without totally quitting the program.
Our 2022 Premium Loyalty Data Study found that 83% of participants are inclined to sign up for a premium loyalty program if they are currently a member of the free loyalty program offered by that retailer.
Related Article: Using a Premium Loyalty Tier to Boost Your Free Loyalty Program
Conclusion
In 2024, companies will have the chance to create loyalty programs that are innovative and focused on the needs of their customers. They can create enduring loyalty and propel growth in a market that is becoming more and more competitive by knowing their target demographic, providing customized rewards, and delivering outstanding customer experiences.
