What Are Customer Loyalty Programs And How Do They Work
I was recently at my favorite restaurant and they had a sign up for a loyalty program. I thought to myself, why would I want to sign up for another loyalty program? I already have so many cards in my wallet! But then I thought about how often I go to that particular restaurant and how much money I spend there every month. And it dawned on me that a loyalty program could actually save me money in the long run. So, even though it’s yet another card to keep track of, signing up for the loyalty program ended up being worth it. Customer loyalty programs can offer some great benefits for both businesses and customers alike. Here are just a few reasons why having a customer loyalty program can be beneficial.
What Are Customer Loyalty Programs?
A customer loyalty program is a great way to show your customers that you appreciate their business. By offering rewards for frequent purchases, you can encourage customers to keep coming back to your business. There are lots of different types of customer loyalty programs, so you can tailor the program to fit your business’ needs.
Refer-a-friend programs offer customers a discount for referring new business, while reward points programs provide customers with points that can be redeemed for future purchases.
Additionally, some programs offer free perks such as access to exclusive events or merchandise.
We’ll explore these topics (and others) in more depth later on in this post.
It can cost up to five times as much to bring in a new customer than to keep an existing one. This is why small businesses must make sure that one-time buyers turn into loyal, repeat customers.
If you want to keep your customers coming back, customer loyalty programs are your secret weapon.
According to Mention Me’s 2021 Customer Advocacy Report, 40% of customers are likely to buy again from brands that offer rewards for loyalty. So if you want repeat business, start offering incentives for your best customers!
Let’s take a closer look at the different loyalty programs, including examples from companies in a variety of industries, each offering different products.
How Customer Loyalty Programs Work
Customer loyalty programs are a great way to reward customers who repeatedly interact with your brand. By offering incentives, such as discounts or exclusive access to new products, you can encourage customers to continue doing business with you rather than your competitors.
The more that customers buy or engage with your brand, the more loyalty points they accumulate.
Companies can offer customers points or benefits that they can redeem for discounts, free products, rewards, or insider perks. This is a great way to show your appreciation for your loyal customers and keep them coming back for more!
The goal is to make customers want to keep buying from the business and to build trust between them.
95% of customers say trusting a company increases their loyalty. Trends in Customer Trust Report, Salesforce Research
Types of Customer Loyalty Programs for Small Businesses
Here are five different types of customer loyalty programs with five examples to inspire you.
1. Customer Loyalty Points Programs
Customer loyalty programs are a popular way to encourage repeat business. These programs reward customers for spending money with your business, and customers can then use their rewards to purchase items at a discount or for other special perks.
The Atlas Coffee Club rewards program is a great way to be rewarded for buying coffee.
Subscribers earn points for a variety of actions, including inviting their friends, purchasing a gift subscription, visiting different countries, and saving money.
These points are then used for things like free shipping on the next purchase, a discount on a future order, or a lifelong discount on all future orders.
Loyalty programs are great because they encourage customers to make frequent, repeated purchases of your product or service.
When offering rewards in exchange for points, it is important to encourage customers to make repeat purchases, but not so many that the reward points seem valueless. By finding the right balance, businesses can create a loyalty program that incentivizes customers without seeming excessive.
If it takes a customer a long time to earn the rewards in your loyalty program, they may never bother. If, for example, they need to accrue 10,000 points to qualify for a $100 reward, then they’re probably not going to spend $100 on your business.
2. Mission-Driven Customer Loyalty Programs
Not all customer loyalty programs reward customers with discounts and free products.
A mission-driven customer loyalty program makes your customers feel as though their purchase or use of your product helps to improve the world we live in. This type of program can be a great way to build customer loyalty and engagement, as it shows that you care about more than just making a profit.
Whereby has a program that plants a tree for every video meeting held on its platform.
“Living a more climate-positive lifestyle is something we think we should all be thinking more about. Every conversation held on Whereby is one less journey to a meeting; so why not double down on that effort and plant part of a tree while you do it, too?”
Partnering with a nonprofit that shares your values can be a great way to align your loyalty strategy with your company’s mission. In Whereby’s example, they worked with the nonprofit Brynk to help plant trees on behalf of their customers.
This is a great way for Whereby to differentiate itself from other brands. By creating a customer loyalty program that is mission-driven, Whereby can get people to start using its product and create a positive first impression. Customers feel good about using the product because they know they are supporting a good cause.
3. Subscription Programs
A subscription program builds loyalty by automatically charging a customer’s credit card regularly.
A subscription service is a way for businesses to offer discounts to loyal customers, as well as offer exclusive content, services, or products that are not available to non-members.
If your business offers products that customers purchase regularly, then a subscription-based loyalty program could be a great way to keep those buyers coming back.
There are many different types of subscription programs available, and you might already be subscribed to one or two.
A great example is Birchbox, a monthly beauty subscription box. Birchbox offers plenty of benefits to all its subscribers, plus an added incentive for customers to stick around with their VIP loyalty program.
Subscribers to BirchBox get tons of benefits, including exclusive access to new products, free shipping, and free samples. Plus, they earn points for every dollar they spend, which can be redeemed for even more products.
This loyalty program is only triggered once customers have been subscribers for 6 months, which incentivizes them to stay subscribed.
4. Community Programs
All of your customers have a few things in common with you — you’re both human, after all. But they probably also have some common interests, challenges, and hobbies.
A community program is a great way to bring together customers who share similar interests and goals. By engaging with and learning from each other, customers can get the most out of your company’s products and services
Community programs are a great way for customers to connect with like-minded people. They offer a chance to share tips, learn from each other, and discuss related topics. While community programs don’t offer any tangible rewards like discounts or special offers, they can be a real differentiator compared with other companies or products in your space.
5. Refer-a-Friend Customer Loyalty Programs
Refer-a-friend loyalty programs are a great way to reward customers for referring their friends, family, or colleagues. By offering discounts or special offers, these programs encourage customers to continue doing business with the company.
Mahabis, a company that uses a refer-a-friend loyalty program, offers different referral offers for different regions.
If you’re based in the U.S., you and a friend can each get 10% off your next purchase. If you’re in the U.K., you’ll each get £10 off.
These sales programs, such as BOGOF or buy one get one free, are a great way to build customer trust, especially if you don’t have a physical storefront.
According to research, consumers are most influenced by recommendations made by friends.
What Makes Customer Loyalty so Important?
For small businesses, we understand that sometimes budgets are tight. That’s why it’s important to know where you should focus your limited funds.
Should it be on getting new sales or on keeping existing customers?
Customer loyalty is an important part of retention.
If you’re on the fence about whether to focus on acquiring new customers or retaining existing ones, consider this: 75% of customers say they would switch brands for a better loyalty program. In other words, existing customers are crucial to your success.
And our own research shows that 52% of consumers will prioritize – and buy from – the brands that reward them with points or loyalty schemes. Loyalty is the lifeblood of any business.
Benefits of Having a Customer Loyalty Program
A customer loyalty program rewards customers for buying your products or services. This can help increase sales, attract new customers, and keep existing customers coming back.
Other benefits include improving customer retention, encouraging repeat business, increasing customer lifetime value, building stronger relationships with customers, increasing customer satisfaction, providing a differentiator with your competitors, and boosting revenue.
According to Accenture, customers who belong to loyalty programs usually end up spending 12% to 18% more than regular customers.
A customer loyalty program can help your small business stand out from the competition by rewarding your best customers. By offering incentives for repeat business, you can encourage customers to keep coming back, which can help increase your bottom line.
How to Measure Customer Loyalty
There are a few ways to measure customer loyalty.
The first is the customer retention rate, which measures the percentage of customers who stick with a company over time.
Another key metric is negative churn, which measures the number of customers who cancel their service minus the number of new customers acquired.
The Net Promoter Score® is also a popular way to measure customer loyalty. This score rates customers on a scale from -100 to 100 based on how likely they are to recommend a company’s products or services to others.
Finally, the customer effort score measures how much effort customers feel they need to put forth to use a company’s products or services.
Though customer loyalty programs may increase customer delight, happiness, and retention, it is important to have some way to measure these outcomes. These include surveys, comparing customer data before and after the program is implemented, or simply asking customers how they feel about the program.
Various businesses and services have different analytics needs, but there are a few general metrics that most companies pay attention to when launching a loyalty program. These include measuring customer engagement, calculating program ROI, and tracking redemption rates.
1. Customer Retention Rate
Customer retention is a key metric for any business. It indicates how well a company keeps its customers over time. A successful loyalty program can help to increase customer retention rates by encouraging customers to remain loyal to the brand.
A 5% improvement in your retention rates can result in a 25% to 100% boost in profits.
AB testing can help you understand how effective your loyalty initiative is for both program members and non-program customers. By understanding the customer retention rate for each group, you can make necessary changes to improve your business.
2. Negative Churn
Negative churn is the rate at which customers are upgrading or purchasing additional services. This is the opposite of customer churn, which is the rate at which customers leave your company. By measuring negative churn, you can get a sense of how well your company is doing in terms of customer retention and growth.
Negative churn is a key metric to track, especially if you opt for a tiered loyalty program. This helps to ensure your business is growing despite the natural churn that occurs in most businesses.
3. Net Promoter Score®
Net Promoter Score is a customer loyalty survey that asks customers how likely they are to recommend your business to friends, family, or colleagues.
NPS is a measure of customer loyalty. It is calculated by subtracting the percentage of detractors (customers who would not recommend your product) from the percentage of promoters (customers who would recommend you).
The fewer detractors you have, the better off you’ll be. Improving your net promoter score is one way to establish benchmarks, measure customer loyalty over time, and calculate the effects of your loyalty program.
By improving your NPS, you can improve customer loyalty and satisfaction levels, which in turn can lead to more business and repeat customers.
4. Customer Effort Score
CES measures how much effort a customer has to put into solving a problem.
Some companies prefer the Customer Effort Score (CES) metric over Net Promoter Score (NPS) because it measures the actual experience of the customer rather than the emotional delight of the customer.
If your loyalty program addresses customer service issues, you can measure success by looking at how it impacts customer acquisition and customer retention.
5. Purchase Habits
How long are your customers taking to purchase from you again? How many times are they returning to you?
What are some purchase habits that let you know whether customers are loyal to your brand?
It’s important to understand your customer’s needs and wants. By conducting customer satisfaction surveys, you can get feedback on what is causing a return or delaying a repeat purchase. This way, you can improve your products or services to better suit your customers’ needs.
6. Referral Traffic
Any traffic to your website that comes from sources other than a search engine (such as Google) is considered “referral” or “direct”. This includes social media, news sites, and other online resources.
Display ads don’t matter when it comes to referral traffic. What’s important is the number of customers who are linking to your site or talking about you on social media. You can measure referral traffic using a tool like Google Analytics.
7. Social Media Mentions
What are other people posting about you online? Is it positive or negative?
Are they spreading the word about your brand? While this isn’t so much of a quantitative measurement as others on this list, it’s still an excellent way to track customer loyalty.
You can track your social media posts using tools like Hubspot.
Tracking social media mentions is an important part of any social listening strategy. This is one of the best ways to see whether customers are loyal and what they think about your brand in comparison to your competitors.
Small Business Loyalty Programs
You don’t have to be a big brand to offer customer loyalty programs. Many small businesses use paper punchcards or simple digital apps to track customer loyalty. Here are some examples of small businesses with successful loyalty programs.
1. The Daily Cut – Salad Quick Service Restaurant Loyalty Program
The Daily Cut is a salad quick-service restaurant in Singapore that offers a loyalty program for its customers. For every $10 spent, customers receive a stamp and for every 5 stamps redeemed, they get $5 off. This is an excellent way to enjoy nutritious meals while saving money.
2. Bubbleology – Bubble Tea and Desserts Loyalty Card
Bubbleology is a great place to enjoy delicious bubble tea and desserts. With our loyalty card, you can earn points towards free drinks and store credit.
For every £10 you spend on your card, you’ll get an extra £1 in-store credit. So come by today and treat yourself to something sweet!
3. Plain Vanilla – Small Business Cafe Loyalty Program
Their loyalty program offers a great incentive for customers to visit their cafes every day! After every 10 cups of coffee purchased, customers can enjoy a free cup on their next visit. This makes their cafes the perfect place to take a break and relax with friends.
4. Mission Juice – Juice Bar Restaurant Loyalty Program
At Mission Juice, you can order cold-pressed juices, smoothies, and frozen yogurt. All of their drinks are made fresh and cold-pressed for the best flavor and nutrition. They have only one outlet, so you’ll always be assured of freshness.
5. Muchachos – Tex-Mex Quick Service Restaurant Customer Loyalty Program
Fast-casual Mexican restaurant Muchachos serves Mexican classics such as tacos, burritos, and quesadillas to hungry customers.
When Muchachos reopened in a new location after being closed for a year, they used a loyalty program to rebuild their customer base and reward past customers. The loyalty program was successful in bringing back old customers and creating new ones.
6. Fiddler’s Green Dispensary Small Business Retail Loyalty Program
The Cannabis Dispensary on the Island of Walpole, Ontario, is aptly named “Fiddler’s Green”.
Fiddler’s Green Dispensary offers a loyalty program to give customers an incentive to visit again after every purchase.
7. MK Wine & Liquors Small Business Retail Loyalty Program
The family-owned and operated business, known as “MK”, offers a selection of beer, wine, and spirits from around the world.
In the face of online sales competition, MK Wine & Liquor created a loyalty program to keep customers coming back to its brick-and-mortar location.
8. Twist Ice Cream Parlour Loyalty Program
Larry Gardiner founded Twist in St. Mary, Jamaica intending to create healthy, guilt-free ice cream desserts.
He was looking for a way to increase brand awareness and deepen customer relationships. When customers kept forgetting to bring their paper punch cards, he switched to a digital loyalty program and never looked back.
9. Fruce – Small Business F&B Loyalty Program
A restaurant called Fruce blends traditional Japanese desserts with fruit. They have two locations in a busy shopping mall.
10. Tokyo Chopped Salad Small Business Restaurant Loyalty Program
At Tokyo Chopped Salad, you can experience Japan’s first and finest chop salads. The ingredients have been cut into bite-sized pieces, so you can enjoy them with just a spoon.
The dressing and salads were designed by renowned Chef, Mr.Teppei Yamashita.
Faced with competition from the many food outlets in the same shopping mall, the salad restaurant used customer loyalty programs to increase business.
How to End a Loyalty Program
Loyalty programs are not meant to remain static; they should evolve, both for your benefit and your customers’. The marketing and benefits associated with these programs should also change accordingly.
However, it’s important to not leave customers feeling betrayed by ending the loyalty rewards program. One way to avoid this is by establishing a time frame for the program at the beginning, and reminding users as time draws near.
You can also give a small gift or one-time bonus to those who have been loyal to your program. This will help to counteract any negative feelings that may come from losing the benefit.
Overall, customer loyalty programs are a great way to reward your best customers and keep them coming back. If you’re not already using one, it’s definitely worth considering implementing a program at your business. Not only will it show your customers that you appreciate their business, but it can also help you save money in the long run.