5 Customer Loyalty Programs

1) Use a Simple Points System

This is the most common loyalty program methodology. Frequent customers earn points, which translate into some type of reward. Whether it’s a discount, a freebie, or special customer treatment, customers work toward a certain amount of points to redeem their reward. Where many companies falter in this method, however, is making the relationship between points and tangible rewards complex and confusing. Fourteen points equals one dollar, and twenty dollars earns 50% off your next purchase in April! That’s not rewarding, that’s a headache. If you opt for a points-based loyalty program, keep the conversions simple and intuitive.

One example of a company using a points-based loyalty program well is Boloco. They speak the language of their audience by measuring points in dollars, and rewards in food items. Customers swipe their stylish Boloco card at every purchase and the card tracks the amount of money spent. Every $50 spent earns the customer a free item. Doesn’t matter if they choose a super jumbo burrito or an extra small smoothie - it’s free after $50. This is an example of a company simplifying points with an accessible customer reward system.

Although a points system is perhaps the most common form of loyalty programs, it isn't applicable to all business types -- this type of loyalty program is most appropriate for businesses that encourage frequent, short-term purchases.

2) Use a Tier System to Reward Initial Loyalty and Encourage More Purchases

Finding a balance between attainable and desirable rewards is a challenge for most companies designing loyalty programs. One way to combat this is to implement a tiered system. Offer small rewards as a base offering for being a part of the program, and encourage repeat customers by increasing the value of the rewards as the customer moves up the loyalty ladder. This helps solve the problem of members forgetting about their points and never redeeming them because the time between purchase and gratification is too long.

Virgin Airlines’ Flying Club inducts members at the Club Red tier, then bumps them up through Club Silver and Club Gold. Club Red members earn miles on flights and get discounts on rental cars and hotels. Club Silver members earn 50% more points on flights, expedited check-in, and priority stand-by seating. Club Gold members get double miles, priority boarding, and access to exclusive clubhouses where they can grab a drink or get a massage before their flight. The key is to offer benefits in the early stages to hook the customer into coming back. Once they do, they’ll realize that "gold" status isn’t unattainable, and offers really cool benefits.

The difference between points and tiered systems is that customers extract short-term versus long-term value from the loyalty program. You may find tiered programs work better for high commitment, higher price-point businesses like airlines, hospitality businesses, or insurance companies.

3) Charge an Upfront Fee for VIP Benefits

Loyalty programs are meant to break down barriers between customers and your business -- are we seriously telling you to charge them a fee? In some circumstances, a one-time (or annual) fee that lets customers bypass common purchase blockers is actually quite beneficial for business and customer alike. By identifying the factors that may cause customers to leave, you can customize a fee-based loyalty program to address those specific barriers.

In 2011, eCommerce shopping cart abandonment hit a record high of 72%, and is still rising. This abandonment is often caused by "sticker shock" after tax and shipping prices have been applied. ECommerce giant Amazon found a way to combat this issue in their loyalty program called Prime. For $79 annually, Prime users get free 2-day shipping on millions of products with no minimum purchase, among other benefits.

This program is innovative because it charges loyal customers while providing enough in return for those frequent shoppers to realize the benefits. Analysts estimate that Amazon actually loses about $11 annually for each Prime subscriber, but makes up for it in increased transaction frequency that would not have otherwise happened without their exclusive benefits.

Clearly this system is most applicable to businesses that thrive on frequent, repeat purchases. For an upfront fee, your customers are relieved of inconveniences that could impede future purchases. Amazon has mastered this for eCommerce, but this loyalty program model also has potential to work for B2B businesses who deliver products to businesses on a regular basis.

4) Structure Non-Monetary Programs Around Your Customer's Values

Really understanding your customer means understanding their values and sense of worth. And depending on your industry, your customers may find more value in non-monetary or discounted rewards. Every company can offer promotional coupons and discount codes, but businesses that can provide value to the customer in ways other than dollars and cents have an opportunity to really connect with their audience.

Patagonia, an eco-friendly outdoor apparel company, realized that their customer needed more than just points and discounts from a loyalty program. Late last year, the company implemented its Common Threads Initiative. In it, they partnered with eBay to help customers to resell their highly-durable Patagonia clothing online through the company website. 

This program builds on their brand of sustainability and creating a high-quality product, and it matches perfectly with the company’s customer persona by providing a value that they really care about. So before implementing a loyalty program of this nature, be sure you’ve researched and designed an in-depth customer persona!

5) Partner With Another Company to Provide All-Inclusive Offers

Strategic partnerships for customer loyalty, also known as coalition programs, can be extremely effective for customer retention and company growth. Again, fully understanding your customers every-day lives and their purchase process will help determine which company is a good fit as a partner.

American Express has a huge partner base with companies across the country. Their recent Twitter Sync campaign rewards customers for tweeting about them by syncing discounts and deals with Twitter #hashtags. According to Visibli.com, cardholders have redeemed over $2,000,000 in rewards. Participating companies that are benefitting from their coalition with Amex include Whole Foods, Staples, and Zappos.

Luckily, you don’t have to be a multi-million dollar credit card company to implement a partnership plan. This methodology is applicable on a much smaller scale, as long as you understand how individual customers experience your product or service and what would fit best for them.

For example, if you’re a dog food company, partner with a veterinary office or pet grooming facility to offer co-branded deals for mutual benefits for your company and your customer. The target audience obviously owns a dog, so any services that dog will require offer added value from your company. Providing customers with value beyond even what your company can offer will show that you understand them, and grows your network to reach your partners’ customers, as well.

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