Brands are always fighting for customer loyalty—it’s a highly competitive environment. Some seven out of 10 US consumers consider loyalty programs a leading factor in sticking with a brand.
While customer loyalty programs can be effective, they’re nothing new. Most fall into one of four categories: points, tiers, social media, and paid programs. That’s why some retailers are looking to shake things up and find innovative new ways to build rewards programs and inspire customer loyalty.
Ahead, you’ll learn how loyalty programs work, their benefits, and examples to inspire your own.
What is a loyalty program?
Loyalty programs reward a company’s repeat customers with discounts, free offers, and other incentives to encourage customers to come back.
How do customer loyalty programs work?
With a loyalty program, companies can offer points or benefits to customers. In return, customers redeem points for discounts, free products, rewards, or insider perks. The goal is to motivate repeat purchases and build trust between customer and business.
People will go the distance for brands they love, but they require perks in return. Some 60% of US shoppers wanted discounts in return for joining a loyalty program. The same poll found that respondents expect to earn points and rewards, and about 33% want exclusive or early access to products.
Running a customer loyalty program means you’ll need to give away something, be it discounts, sales, early access, etc. But the payoff for having rewards programs are huge:
- More customer referrals. If you have a great loyalty rewards program, people may tell their friends and family about it. More referrals equals more loyal customers.
- Higher customer retention. If people find value in your customer loyalty program, they’ll likely stick around longer.
- More sales. Want a higher average order value? A 2022 survey found that 79% of US consumers said loyalty programs impact their likelihood to keep doing business with a brand. Another poll found that 80% claim to purchase more frequently from a brand after joining its loyalty program.
- Brand advocacy. A successful loyalty program can turn regular customers into brand advocates. This group helps your company get in front of new customers through word of mouth, which is a low-cost marketing strategy versus paid ads.
But not every loyalty program is the same. There are different types of rewards programs you can use to build customer loyalty and earn repeat business.
📚 Read more: 6 Ways to Reinvent Customer Delight: Unexpected Extras that Increase Loyalty
Types of loyalty programs
Now that you know how rewards programs work, let’s look at a few common types you can adapt for your ecommerce store.
1. Points-based loyalty programs
Points programs are the most common type of rewards programs. They let customers accumulate reward points they can redeem for freebies, cashback, perks, etc. Rewards customers don’t just earn points from purchases. They can also earn loyalty points from sharing on social, leaving reviews, having a birthday, or through gamification.
2. Tiered loyalty programs
Tiered customer loyalty programs are a type of membership where customers get different benefits depending on their rank. Businesses often rank membership into groups depending on certain metrics like sales or engagement.
These customer rewards programs give customers a goal. The higher their tier, the more exclusive and better rewards they’ll receive.
3. Paid loyalty programs
Paid loyalty, or fee-based loyalty programs, give customers immediate and ongoing benefits for a participation fee. These fees can be recurring or one time.
Paid programs may need to require proof-of-value to get signups, but the business can gain higher customer value from members. The most common example of a paid loyalty program is Amazon Prime. While it seems like a hard model to mimic, paid loyalty can suit many different business models.
4. Value-based loyalty programs
The idea behind a value-based loyalty program is to connect with customers on a deeper level. It involves donating a percentage of purchases to charity or welfare programs. You can offer multiple options for different charities to choose from or have one that genuinely aligns with your customers’ values.
This program doesn’t actually reward customers. But it holds a special place for them, as the rewards are used to benefit society. Brands often create a hybrid loyalty program using this model.
So, for example, if you have 500 points, you can donate $10 to the organization; 1,000 points nets you a $20 donation, and so on.
Not sure where to start? Ask customers what they want from a rewards program. You can easily run a survey or poll with your customer base to find out. Then create a rewards program accordingly.
Successful customer loyalty program examples
GEM is a nutritional food and essentials brand focusing on plant-based products for vegans. Its loyalty program, the GEM Bite Club, features a tiered referral system, each offering unique benefits.
- Admirer: Entry-level tier, which is free to join.
- Believer: Reached by earning 500 GEM Bucks per year.
- VIP: Achieved by earning 1,000 GEM Bucks per year.
Benefits include learning about new products early, special events, surprise gifts, and more. Members earn GEM Bucks in different ways:
- With each monthly shipment of products
- By engaging with the GEM community
- Following the brand on Instagram
- Leaving a review
You can redeem points for credits, sleep booster packs, daily essential vitamins, and other products.
Bodycare retailer Blume uses a points system called Blume Bucks in its loyalty program, dubbed Blumetopia.
It’s pretty straight forward: Customers can earn Blume Bucks by following the brand on Instagram, placing an order, or telling friends about Blume. They can redeem their Blume Bucks for merch, free products, and other cool gifts from the brand.
LIVELY is clothing and accessories brand with a tiered rewards program. Customers are automatically enrolled in the program when they sign up for a LIVELY account. You can earn points through many different activities, such as following the brand on TikTok (10 points) or purchasing an item in-store (30 points).
You can use points to save money off your next purchase. For example, 100 points equals $10. Or, you can redeem points for products like totes, socks, and clips. LIVELY’s rewards program has different levels of membership based on annual spend:
- Insider: $1–$124
- Inner circle: $125–$324
- VIP: $325+
The more you spend, the better perks you get. For instance VIP members get free expedited shipping, upgrade offer discounts, and VIP customer care text service.
Mirenesse is Australia’s leading sustainable and cruelty-free cosmetics brand. Its loyalty program, Love Rewards, includes two tiers: Gold and Onyx.
The Gold tier earns two points for every $1 spent. It includes benefits like free shipping on all orders, double points for activities, a 200-point joining bonus, and conversion of 100 points into a $5 store credit. The Gold tier costs $18 per month, but includes additional perks like access to secret sales and the chance to be a tester for new products.
The Onyx tier is free. Members earn one point for every $1 spent. It offers a 100-point joining bonus and members get a birthday surprise.
100% Pure is a popular skin care and beauty brand with a tiered reward system. Customers earn points by engaging on social media channels and writing reviews, redeemable for shopping on their site.
The program has three tiers based on spend per calendar year:
- Enthusiast: $0
- Activist: $250
- Revolutionist: $750
Each tier has more benefits, such as early access to new products, free shipping, redeemable vouchers, and birthday gifts. You can earn points for actions like signing up for an account (50 points), writing a review (10 points), and engaging with the brand on Facebook and Instagram (20 points each).
Anyone can join the Purist Perk program. You can redeem points for vouchers, which serve as discount codes. For example, you can earn 15% off for 200 points at the Enthusiast level, and $20 off for 200 points at the Activist level. Discounts can be used during checkout and cannot be combined with other offers.
When to add a loyalty program for your business
Every business today is competing for customer trust. One of the best ways to build this trust is through gratitude and providing customers with an experience they can’t find anywhere else. Rather than spending your time finding new customers, you can start a loyalty program to grow the relationship with your existing customers.
If you have a Shopify store, creating a loyalty program online is easy. You can download an app like Smile or Yotpo from the Shopify App Store and start today.
For example, with an app like Smile, you can create rewards points and referral programs that engage customers in your store. It helps you with everything from program design to setting up a widget on your website to capture visitors’ attention and encourage them to sign up.
Customers will also have their own rewards portal on their phones, so they can manage their account, earn rewards, and redeem points anywhere.
Do things differently with your loyalty program
Over the last decade, customer loyalty programs and rewards programs have proven they’re an effective way to improve customer retention rates, boost customer lifetime value, provide good customer service, and inspire brand loyalty. While the low-key punch card has its place for some businesses, a truly innovative approach to customer loyalty programs can create huge value for retailers.
Illustration by Rachel Tunstall
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Loyalty rewards programs FAQ
What are the best loyalty programs?
- 100% Pure
What do loyalty programs mean?
A loyalty reward program gives repeat shoppers added benefits and promotions. Each purchase earns some sort of reward. Reward programs are great for customer retention and loyalty because they encourage future purchases.
What are the different types of loyalty programs?
Loyalty programs may be referral- or purchase-based (or both). Programs may be cash back, points-based, referral-based, tiered, or paid. You can run your loyalty program online or with a tangible item, like a punch card.
What is the purpose of a loyalty program?
The purpose of a loyalty program is to motivate customers to continue buying from your business, rather than from competitors.