Are you thinking of implementing a loyalty program for your business? Here is some information on the different types of programs, what type of businesses benefit most from using it, and tips to think about in creating the best program for you.

Small businesses tend to rely heavily on their returning customer base to stay in operation, and for good reason. It is 6-7 times more expensive to acquire a new customer than it is to keep one. The goal should be to attract the right customers, and create profitable long-term relationships with them. But if you focus too much on the money and have no intent of understanding your customer and meeting their needs, you’ll fail.

Lets explore the different types of customer loyalty programs and how to design a loyalty program that attracts the right type of customers for your business.

Points programs

Points programs are the most popular loyalty programs. They’re easy to use and can encourage specific consumer behaviors.

Loyalty point programs let customers accumulate points that they can redeem for rewards or free products/services. They’re so easy to set up that 73% of loyalty programs are points based, making this the most popular type of loyalty program by far.

Why is may work for you

•             Tangible value for the consumer

•             Flexible and customizable

•             Easy to understand

•             Avoids price discounting

Who does it work best for:

 It works best for businesses that encourage frequent, short-term purchases

Tips for success

If you opt for a points-based loyalty program, keep the conversions simple and intuitive

Spend Programs

In spend programs, customers get loyalty credit for the amount they spend at your business. This kind of program is very easy to understand, create, and maintain. This can be an effective way to cut your churn rate and increase transaction amounts. The simplicity makes it easier to get customers to sign up.

Why is may work for you

•             Tangible value

•             Intuitive rewards system

•             Encourage repeat business

•             Increase transaction amounts

•             Easy to set up

•             Easy to maintain

Who does it work best for:

This works well in an industry that rely on high numbers of transactions and retail products with high markup.

Tiered Programs

Tiered loyalty programs give customers rewards based on different levels of spending or points. This program can be highly targeted and customized easily, and customer segments can be target pre and post-payment. In some tiered programs, customers are offered gifts, free products/services, privileges, or exclusive products.

Finding a balance between attainable and desirable rewards is a challenge for most companies designing loyalty programs. One way to combat this is to implement a tiered system which rewards initial loyalty and encourages more purchases.

The biggest difference between the points system and the tiered system is that customers extract short-term as well as long-term value from the loyalty program.

Tips for success

Present small rewards as a base offering for being a part of the program, and then encourage repeat customers by increasing the value of the rewards as the customer moves up the loyalty ladder. This helps solve the problem of members forgetting about their points and never redeeming them because the time between purchase and gratification is too long.

Who does it work best for:

Retailers in the luxury market

Why is may work for you

•             Decreases churn rate for most valuable customers

•             You don’t invest in low-end customers

•             Uses gamification to motivate customers to higher levels

Paid Programs

Paid loyalty programs provide an exclusive feel by incorporating a monthly or annual fee that members pay for access to special services, discounts, or unique opportunities. For an upfront fee, your customers are relieved of inconveniences that could impede future purchases.

Why is may work for you

•             Higher spend per customer

•             Easy to understand

•             Provides additional revenue stream

•             Highly-targeted

•             Value is obvious to subscribers

Tips for success

As first-time visitors most likely won’t see value, incent them with provide free for 30 days.

Who does it work best for:

Larger retailers, and also for luxury retailers and service sites

Businesses that thrive on frequent, repeat purchases.

When designing your loyalty program, this is what we recommend

  • Keep it simple - If your program is difficult to understand and use, it won’t be used by your customers
  • Make it easy to join - Auto prompt at the POS so the cashier will introduce the program to each customer
  • Make earning rules simple - If no one understands how to earn in your program, they may ignore it. The simpler the rules are, the more likely your customers are to actively try to earn.
  • Make spending rules simple - Don’t overwhelm customers with options
  • Keep your rewards transparent, worthwhile for your customer, and easy to use or acquire.
  • Have your end goal in mind - You started your business with a solid foundation – a business plan that helped you see the viability of your vision and a clear path to your goals. The loyalty program deserves equal attention. It’s the path to keeping your customers, and your bottom line profitable.
  • Use automation - You focused on simplicity for the customer. Don’t forget simplicity for you, too. Automation can reduce the workload on your end, while helping your customers to feel appreciated and in touch with your business. That personal touch is important.
  • Make it about your customer, not about money - From the rewards you offer to the way your program feels to the customer, make it about them. If you’re only thinking about earning on your end, you’ll miss the mark and you might destroy your credibility with the customer in the process. People crave a personal connection.

Something to think about:

Truly understanding your customer means understanding their values and sense of worth. Depending on your industry, your customers may find more value in non-monetary or discounted rewards. While any company can offer promotional coupons and discount codes if they want to, businesses that can provide value to the customer in ways other than dollars and cents have a unique opportunity to connect with their audience.