Customer loyalty is what keeps a company in business. Without loyal customers, organizations are unable to generate enough income to sustain operations and growth.
A great way to promote retention is by establishing a customer loyalty program that offers incentives to returning shoppers. There are different types of reward systems that brands can implement to increase loyalty and build a stable clientele.
Customer loyalty is a consumer's habit of frequently returning to a company or brand due to their exceptional customer service or experience.
In profitable businesses, loyal customers make up a bulk of the client base to generate steady revenue. Returning shoppers spend more time and money with companies they are devoted to, contributing 40% to the average retail store's entire revenue.
Without sufficient customer loyalty, a company cannot earn consistent profits, making it challenging to plan expansion efforts and marketing campaigns. Loyal customers also expand a business's marketing reach by advocating for the brand by word-of-mouth.
By building trusting relationships, customers share their positive experiences with friends and family, increasing traffic and the potential for more loyal shoppers. Through clever loyalty or rewards programs, businesses can offer incentives to returning consumers to boost retention and satisfaction rates.
While companies provide different benefits, reward systems make loyal customers feel appreciated and encourages them to return. When members rave to others about the exclusive deals the program provides, it generates more enrollment, building a larger customer base.
Organizations can choose from various types of loyalty programs to find which best fits their business model. The most popular customer reward systems include-
The point system encourages shoppers to spend more in order to receive more points. Some programs require customers to reach a specific limit to accumulate points, while others calculate the reward based on what was spent.
For example, The North Face gives customers 10 points for every dollar spent, regardless if it was online or in-store. However, shoppers only receive five points for every dollar spent in an outlet, encouraging consumers to purchase at the brand's establishment rather than distributors.
Program members can monitor their points via the mobile app, where they can also redeem their points, make a purchase, and browse products. The point system is an effective method to increase the average order value (AOV) and customer loyalty.
The paid program requires members to pay a monthly or yearly subscription fee to join a VIP club. However, this model is only effective if it is marketed to frequent shoppers and offers exclusive details. Customers that only visit a business a few times a year will see no need to spend more on a program than they do on regular purchases.
The paid program is typically only offered by major brands, such as Barnes & Noble. This bookstore holds a VIP program that costs $25 a year and offers exclusive discounts, benefits, and free shipping. It is essential that a paid program offers a value that outweighs its costs.
The charity program is a model that does not offer members discounts. Instead, it centralizes its reward system around mutual values to build strong customer relationships first, followed by incentives. This method is more likely to create brand loyalists, as it prioritizes ethics over sales.
However, charity programs are often partnered with other models, such as the point system. For example, the Body Shop incorporates Born Free USA, a non-profit organization that handles animal welfare, into their rewards program. This enables customers to redeem their earned points or donate them to charity.
The charity model allows companies to bond with shoppers over shared values, creating healthy relationships, and boosting customer loyalty.
The tier system groups members based on levels of loyalty. In other words, the more a customer spends with a business, the greater the reward.
The tier system rewards heavy spenders and uses the game model, where members are likely to spend more to reach a higher level. This is used by many beauty brands, including Ulta.
Ulta offers three tiers - regular members don't need to reach a minimum, platinum members have to spend at least $500 yearly, and diamond members need to reach $1,200 annually.
Each tier holds more benefits from the last, including a better point system, free birthday gifts, exclusive coupons, and free shipping. The tier program creates a hierarchy and gives shoppers something to aspire to.
The partner system uses motivation and encouragement to promote customer engagement. It uses the Endowed Progress Effect, which states that people are more committed to their goals when they believe they are close to completing them.
For example, Nike offers several apps, such as the Nike Run Club and Nike Training Club, to take part in helping members reach their fitness goals.
Within these programs, members earn badges and rewards whenever they reach a milestone, such as completing a run. This makes customers believe the brand cares about their personal ambitions and wants to help, building a strong loyalty base.
The community program incorporates a sense of community among its members while incorporating another reward system.
For example, Sephora uses the tier and point models that offer customers various benefits depending on how much they spend. However, all members are able to interact with each other through the app by sharing beauty tips, pictures, and product reviews. Sephora even throws special events for loyalty members where they can meet other customers and receive exclusive discounts.
By creating an actual community of loyal customers that interact with each other, businesses can collect data on reviews, preferences, and product development.
The newest type of loyalty program model that has gained traction is the subscription program. Instead of offering members rewards and other benefits, customers can receive a discount on their favorite items by signing up for an automated subscription.
For example, Butcher Box offers quality meat for families of all sizes through a monthly subscription. Members can customize their boxes, purchase add-ons, and change their preferences through the membership dashboard. Packages are delivered monthly, offering a convenient way for people to shop for meat.
However, this model often requires customers to commit to a plan, such as six months or a year, instead of month-to-month.
Offering customer loyalty programs enables businesses to build their client base by rewarding frequent shopping, boosting sales, and revenue.