Loyalty programmes: How they work, tips and examples

Any business knows it can’t just open up shop and expect customers to come rolling in – they need to be motivated to buy. In many situations, an excellent product or an outstanding customer experience (CX) will do the trick. Sometimes, however, organisations need a dedicated strategy to entice customers to continue buying.

Customer loyalty programmes reward repeat customers with product discounts, special offers and other benefits. This guide covers how these programmes work, their benefits and how they contribute to positive CX.

More in this guide:

• How do loyalty programmes work?
• Benefits of customer loyalty programmes
• Types of loyalty programmes
• 5 examples of customer loyalty programmes
• Tips for creating a successful loyalty programme
• Frequently asked questions
• Boost customer loyalty with good customer service

How do loyalty programmes work?

Loyalty programmes are advantageous to both buyers and businesses. When a consumer makes repeat purchases, it boosts a business’s bottom line. In exchange for this customer loyalty, a business rewards consumers with exclusive benefits, free items or upgrades, early access to products and more.

Although each type of loyalty programme works differently, here’s the general process:

1. A new customer makes a purchase or gives their information to a company.

2. The company prompts the customer to sign up for its loyalty programme.

3. The customer signs up and starts to receive rewards for purchases.

4. As the customer continues to use the loyalty programme, they receive better and better rewards.

As we’ll cover later, businesses can implement different types of customer rewards programmes. These can be incentives based on a point system, a programme that encourages customer referrals or a system that combines different structures.

Benefits of customer loyalty programmes

When businesses start customer loyalty programmes, they can expect to see several benefits. Below are a few of the top examples.

Boosts revenue and retention

One of the main benefits of customer loyalty programmes is that they’re an effective way to increase revenue and customer retention. Loyalty programmes entice consumers to stay with your brand and make more purchases to get their rewards.

For example, a shopper may increase their order size to receive a discount or make more frequent purchases to obtain a higher tier in a loyalty programme. This helps a business build brand loyalty and increase customer lifetime value (CLV).

Builds stronger customer relationships

Establishing a loyalty programme can help you connect and build stronger relationships with your customers. When you go beyond a purely transactional interaction and offer rewards and incentives, it can show customers that you value their continued business and the relationship as a whole.

Differentiates a brand from its competitors

Implementing a customer loyalty programme is a great way to stand out from other brands that may not already have one. A loyalty programme can:

• Give customers another reason to engage with your brand

• Provide rewards that allow loyal customers to purchase products at a lower price than your competitors.

If a customer is trying to decide between two or more similar businesses, a loyalty programme may be a key differentiator in that decision.

Encourages word-of-mouth marketing

Customer loyalty programmes can also encourage word-of-mouth marketing, especially when customers get rewarded for telling others about your brand. For instance, you can reward customers with a discount for providing a review on Google.

This also plays into refer-a-friend customer loyalty programmes. When a customer refers a friend, for example, you can reward the customer with a free month of service if their friend makes a purchase.

Shows customers you appreciate them

A customer loyalty programme is one of the best ways to show customer appreciation. While many programmes are based on spending volume, you can get creative with the rewards you offer. Surprise customers with personalised discounts or acknowledge milestones like birthdays with an exclusive sale. Doing so gives you an opportunity to thank customers for their business.

Motivates consumer behaviour

These programmes can encourage customers to take certain actions. For example, you can motivate customers to sign up for a newsletter or text alerts by enticing them with a discount code in exchange.

Types of loyalty programmes

There are several types of loyalty programmes and it’s important to find one that best suits your organisation’s needs. Here are some of the most popular.

Points programmes

Point systems are among the most popular programmes. They reward customers with points for completing designated actions like purchasing or submitting feedback. Customers can redeem points for:

• Credit towards their next purchase

• Discounted services

• Giveaways

Customers can track points with a loyalty card, online account or mobile app. A points programme is a fairly recognisable reward format for customers. They understand how to take advantage of it, so it’s an easy way of building customer loyalty.

Tier-based programmes

Tier-based programmes give consumers rewards based on their level of spending. For example, a business could have a ‘diamond level’ tier that customers can access after spending £10,000 within a year. Customers at this level could earn exclusive pricing for your most expensive products and services.

A tier-based programme can motivate your customers in lower tiers to make an effort to reach the next level of spending. The more exclusive the reward, the greater the customer appeal.

Mission-based programmes

Not every rewards programme focuses on tiers and discount codes. If your company is highly mission-driven, you may want to try a customer loyalty programme with a cause. Mission-based programmes make offers like ‘5% of purchases go towards the charity of your choice’. These programmes can be more effective when you partner with a non-profit organisation that has a strong connection to your company’s mission.

Spend-based programmes

Spend-based customer rewards programmes allow businesses to recognise high-spend customers. The concept is simple: The more you spend, the more rewards and discounts you earn.

Airlines, in particular, are transitioning from points programmes to spend-based systems. It allows them to engage deeper with travellers who pay more for fewer flights.

Subscription programmes

A subscription programme, also known as a premium loyalty programme, is where customers subscribe and pay an upfront fee for a product or a service and receive rewards in return. Customers can redeem these rewards and use them toward future purchases.

Referral programmes

Referral programmes reward customers for referring their friends and family. This word-of-mouth strategy can help turn loyal buyers into brand advocates – plus, the referred customer may even refer your brand to someone else in the future. These programmes can also reduce your customer acquisition cost because the customer remains loyal to your brand while actively finding more customers on your behalf.

5 examples of customer loyalty programmes

If you need some inspiration, check out these examples of customer loyalty programmes.

Marriott Bonvoy

Marriott Bonvoy Benefits is a tier- and points-based loyalty programme that allows members to redeem free hotel nights, meals and other experiences with points. They can also earn points with car rentals and flights, share points with friends and family, and get free Wi-Fi and special rates.

DSW

DSW offers customer loyalty through a tier-based programme. The tiers are based on consumer buying behaviour and include rewards like free delivery and extra points for donating unwanted shoes. Tiers include:

• Club: Every customer is eligible for this tier.
• Gold: This tier is achieved when the customer spends $200 on eligible purchases.
• Elite: This is achieved when the customer spends $500 or more on eligible purchases.

Eligible purchases vary based on a business’s specifications, but this added parameter can help drive customers to a desired product or category. In DSW’s case, eligible purchases are ‘purchases of DSW products such as footwear, handbags and accessories’.

Delta Airlines

Delta SkyMiles Medallion is a tier- and spend-based programme that rewards users for booking flights with the airline. The tiers are based on how much Medallion Qualification Dollars (MQDs) the user spent during the previous year, which they can acquire through flights or partner credit card points.

• Silver: The customer spent at least $5,000 MQDs.
• Gold: The customer spent at least $10,000 MQDs.
• Platinum: The customer spent at least $15,000 MQDs.
• Diamond: The customer spent at least $28,000 MQDs.

With each tier, the customer is entitled to more and more benefits like travel vouchers, priority service and complimentary upgrades.

Amazon Prime

Amazon Prime is a great example of a paid programme. For a set annual fee, Prime members can access several benefits like free two-day shipping, video streaming, music, special deals on Prime Day and more. This encourages customers to choose Amazon for all their shopping and entertainment needs.

Ben & Jerry’s

Ben & Jerry’s ice cream has a mission-based loyalty programme. While the company doesn’t offer benefits like product discounts or gifts, consumers are enticed to buy pints because of shared values. For example, for every themed-pint purchase, the ice-cream company donates profits to charities that are aligned with its values, such as animal welfare, human rights, climate activism, social programmes and more.

Tips for creating a successful loyalty programme

Now that you’ve learned about the different customer loyalty programmes and seen examples from popular businesses, you’re better equipped to implement one of your own. To get started, follow these top tips:

• Establish your goals: Determine what you want to get from your loyalty programme. For example, you may want to focus on increasing referrals, sign-ups or revenue.
• Understand your audience: The key to a successful customer loyalty programme is ensuring that the rewards reflect what your customers want in a rewards programme. Take time to understand their needs and what would entice them to come back again and again.
• Choose the type of programme: After setting your strategy, select the programme type that aligns with your goals and customer interests. Also, decide whether you want to track it by hand or use customer loyalty software.
• Market your programme: Once your customer loyalty programme is in place, spread the word to attract your first rewards members. Consider doing this through email campaigns, messaging on receipts or pop-ups on your website.
• Review performance: Lastly, be sure to monitor how your customer loyalty programme performs and adjust based on what you see and any feedback you receive. You can gather insights from your customer loyalty programme software or calculate the programme participation rate.

While going through this process, take a customer-first approach. When you make every decision with your customer in mind, you’re more likely to find success.

Frequently asked questions

Boost customer loyalty with good customer service

Customer loyalty programmes can be the thing that sets your business apart and increases customer retention. However, before you develop and launch your programme, you must ensure your customer experience is perfect.

At Zendesk, we are CX experts and have helped more than 160,000 businesses create outstanding customer experiences and develop long-term customer relationships.

Try us for free today to delight your customers and improve customer loyalty.