Which Loyalty Program is Right for Your Small Business?

No matter how big or small your business is, a customer loyalty program can help your bottom line. Customer loyalty programs are proven to increase customer retention, and according to Harvard Business Review, increasing customer retention by 5 percent increases profits by 25 to 95 percent.

Customer loyalty programs come in many different forms. In this post, we’ll walk through some common types of loyalty programs so you can understand which makes the most sense for your business.

Points Program

A points program is one of the most popular customer loyalty programs. It’s based on a simple premise – spend more to get more. When a customer purchases a product or service, they will earn points which can be accumulated and used towards future purchases. 

Walgreens Balance Rewards is one example of a points based program. When a customer makes a purchase, they will receive “balance rewards”, which can be redeemed on future purchases.

This type of program is most effective for businesses who want to encourage their customers to make more frequent and short-term purchases. 

Pros:

• Flexible and customizable
• Free membership leads to a higher level of participation
• Encourages repeat spending
• Effective in gathering customer purchase data

Cons:

• Focuses on transactional benefits, so may not be as effective in building an emotional connection with customers 
• Customers may be discouraged if they do not see immediate benefits

Tiered Programs

A tiered loyalty program gives customers different rewards based on their loyalty tier. To reach a higher tier, customers much reach a certain milestone, which is generally based on the amount of money that they spend.  These types of loyalty programs give customers both short-term rewards for their immediate purchases and long-term rewards for working towards and hitting a new tier.

Marriott Bonvoy is one example of a tiered program. When a member stays a night in a Marriott brand hotel, they will earn credits. 10 nights leads to Silver Elite status, 25 nights leads to Gold Elite status, and 50 nights leads to Platinum Elite. As a member’s tier increases, they will receive more exclusive benefits such as late checkout, lounge access, and room upgrades.  

A tiered program is most effective for businesses who want to encourage higher commitment and long-term purchases.

Pros:

• Flexible and customizable
• Free membership leads to a higher level of participation
• Tiers are helpful in catering to your different customers’ needs
• Allows you to easily segment and focus on higher value customers

Cons:

• More difficult to gather customer purchase data
• Can lead to lower levels of engagement with lower tier customers
• Requires a high level of communication

Fee-based program

A fee-based program, or premium loyalty program, allows customers to pay a subscription fee in exchange for instant benefits and VIP service. Benefits offered in these programs range from discounts to free shipping. It’s important that these benefits are exclusive to customers who are members of the program and pay the fee.

Amazon Prime is an example of a fee-based program. By paying a fee, Amazon prime members will receive free overnight shipping on select items, streaming of movies and TV shows, and exclusive shopping deals on the Internet. For a Business, this can be a great way to build long-term loyalty with customers.

A fee-based program encourages higher commitment and frequent purchases.

Pros:

• Easy for customers to understand the benefits
• Fees can be used to offset the cost of the loyalty program
• Effective in engaging higher value customers

Cons:

• Difficult to attract new and moderately engaged customers
• Does not provide data to analyze potential growth customers
• The cost of membership can often act as a barrier to adoption

Value-Based Programs

Business’s with a value-based program will donate a portion of a customer’s purchase to a specific charity or cause. Businesses usually choose charities that align with their values or will resonate with their customer base. These types of programs give your customers a way to contribute to a meaningful cause and may encourage them to choose your business over your competitors.   

TOMS is a great example of a company with a value-based program. For every $3 a customer spends, TOMS gives away $1 to communities in need.

A value-based program is effective for businesses who want to connect with their customers on a deeper, more meaningful level while making a difference.

Pros:

• Great way for your business to give back to your community
• Allows your business to establish trust with your customers
• Often easier to execute than other programs

Cons:

• Lack of monetary rewards may drive some customers away
• Extensive research is required to ensure that you are selecting the right charities and welfare programs for your business 

A customer loyalty program is worth the investment and can create many long-term benefits from building deeper bonds with your best customers to increasing customer retention. Start your search for one that fits your budget and business needs today.