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Loyalty Programs 101: What You Should Know

Hailey Cady by Hailey Cady
2 years ago
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Loyalty Programs 101: What You Should Know
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Loyalty programs can be a powerful tool for building customer relationships and driving repeat business. But before you launch your first program, there are a few things to consider.

You should know what loyalty programs work best in your industry, how to tailor the program. Hence, it is relevant for your customers and effectively communicates the program’s benefits through marketing efforts.

To know all these, you have to learn the basics of the program. For example, how does it work?

What Is a Loyalty Program?

Loyalty programs are incentives extended to customers to encourage them to be repeat customers. They are a great way to build customer relationships. They can also be rewarding for both the business and the customers.

They have been shown to:

  • Increase customer retention rates
  • Reduce costs per customer acquisition
  • Boost revenue

Loyalty programs also offer an opportunity for businesses to develop strong brand recognition with their customers through rewards that deliver value beyond simply financial compensation.

Some historians believe that the concept of loyalty programs is not new. It can even be as old as ancient Egypt. Although the civilization didn’t have money at this time, the pharaoh rewarded its workers with commodity tokens, depending on their job position and the amount of time worked. Some pieces of evidence suggest that higher-tiered jobs also received better bonuses.

However, most marketers acknowledge that the Frequent Flyer program launched by American Airlines in 1981 could have been the first full-scale loyalty plan for customers.

How to Create the Right Kind of Loyalty Program

Have you ever wondered how to create a loyalty program that’s right for your business or how to make the most of existing points programs? At this point, we’ll explore the dos and don’ts of creating effective customer-loyalty programs.

  1. Know Their Reasons for Staying

It is important to remember that different people have different motivations when it comes to becoming loyal customers. Your rewards and incentives should be tailored based on what will motivate the customers you are trying to attract.

For example, if you want student gamers as frequent visitors, offer them an incentive like free game time in return for being a repeat customer at your restaurant or arcade. It also pays off not just in increasing sales but also in providing better service for current customers.

Starbucks offers members of its loyalty program free coffee or tea refills on brewed hot beverages within 30 minutes after their first purchase of any size. This is just one example of how Starbucks has developed a unique reward that provides more than monetary benefits to its loyal customers.

However, the best strategy for this is to start with an established customer base and ask them what they want out of their loyalty program. Send out a survey or a questionnaire with questions about their experiences with the product of service.

Ask them to share the challenges they experience with using what you’re offering and the barriers that might have prevented them from being repeat customers.

This requires hard work, but it is still beneficial for the business in two ways. First, you are in a better position to match your offers with their needs and wants. Second, even if they don’t sign up, the surveys alone can help you improve your products and services and, most of all, customer experience.

  1. Reward as Many Actions as You Can

Give points for every purchase or action that you want to track (e.g., visit) so people can accumulate points for future discounts on purchases or other rewards like gift cards, free products, etc.

Newer prepaid cards will help loyalty program members to use their points while businesses can generate data to track the performance of their incentive plan.

Car rental companies are also experts in this. Often, they reward their renters for every mile their car traveled, the frequency of rentals, and the value of their lease. They can then convert their accumulated points to extra free days and free upgrades to more luxurious vehicles. National brands can allow customers to gather and use their points anywhere in the world.

  1. Create Tiers

Creating tiers is another great option so that people have something at stake when they reach a certain point level (e.g., bronze tier after 100 points). You might also offer special deals once someone reaches 500+ points in the silver tier, as well as 1,000+ for gold.

Loyalty programs have the potential to offer a lot of benefits for both your business and customers. But before you launch, it’s important to think about what will really make your program stand out in the marketplace. Learning the basics is a smart move to achieve this objective.

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