customer loyalty programs

Top Customer Loyalty Programs to Keep Them Coming Back in 2022

August 27, 2022

Having a good customer loyalty program in place is a very cost-effective strategy for retaining clients and increasing sales and referrals. A loyalty program is great at making companies’ products stickier and enhancing the likelihood of increasing customer lifetime value. Customer loyalty programs for small businesses also have the potential to reduce customer acquisition costs depending on the loyalty program that is implemented.

The crux of a customer loyalty program is that business owners realize that it is much more efficient to keep an existing customer than it is to acquire a new one. Due to this, businesses are already doing what they can to keep those clients by offering stellar products and a tremendous customer experience. 

Customer loyalty programs ideas are no longer limited to just airlines, gas stations, and grocery stores. Many different businesses are incentivized to offer a great product, supplement it with an outstanding customer experience, envision building that relationship for the long term and execute on that vision by incentivizing customers to continue using the companies product or service. 

There are several options for customer loyalty programs for small businesses which we’ll review in this article. We will also explain why good customer loyalty programs cannot survive on their own. They must be a companywide initiative in which Support, Sales, Product, and Management teams work in tandem to truly realize value from their loyalty program ideas and retain customers. Additionally, we will also highlight companies which are executing this strategy well.

What are customer loyalty programs for small businesses?

A loyalty program offered by businesses is a mechanism that rewards customers to shop with the business and to continue doing so over a long period of time. As a merchant, the aim of loyalty programs for small businesses is to have repeat business for a specific customer base that can also eventually serve as your advocates for referrals, testimonials, and a steady stream of profits. 

There are many ways to implement good customer loyalty programs and can include options such as referral programs, tiered plans of hierarchy to segment the most loyal, and strategies such as points-based loyalty initiatives. 

Companies have just started to take a wholesome customer experience strategic view in serving their clients. Yet, loyalty initiatives aren’t paid sufficient enough attention when building a relationship with those clients. 

Based on market research by the Harvard Business Review, the implementation of customer loyalty programs is accepting the fact that all clients are different. This acceptance allows for the maximization of income for the company while also offering the best value to customers based on their specific needs. This realization and resulting segmentation may require the company to allocate resources to both reward and build on that loyalty by offering concierge-level service. 

What makes for good customer loyalty programs?

There are several different loyalty program ideas that businesses can decide between. They all have their merits and should be all carefully assessed. Often merchants do not need to choose only one but can choose a combination of a few.

One of the greatest factors of good customer loyalty programs is not a loyalty program at all. It’s all about the customer experience. We are evolving towards being a hyper-social species that our ubiquitous technology is greatly facilitating. Today social media can help spread word of mouth across the globe in real-time. Our ability to differentiate right and wrong coupled with the tools to do something about it has not only accelerated corporate creativity but has also affected ownership changes. 

Just a little over a decade ago, it was sufficient to have a customer service desk and the differentiator was how much a company emphasized training in empathy, expertise, and timeliness. No longer!

Some of the most effective businesses executing the customer experience well are now bifurcating support roles from client onboarding and that of ongoing relationship building. Just as businesses did with the sales function decades ago. 

Someone must be dedicated to understanding the clients’ use cases and pain points. Who ensures what your clients’ true needs are? How many employees do they have (and potential users)? Are they all using your product? This is especially relevant at the beginning to ensure that there is sufficient utilization right from the start to emphasize value and stickiness. If not, what do your customers use your competitors for? What are the competitive displacement opportunities? 

The more your company answers these questions, the less research you need to implement your loyalty program ideas effectively. Personalization has a major impact on effectiveness, turning good customer loyalty programs into great ones. According to The Loyalty Report by Bond Brand Loyalty, efficient communication and personalization can increase the effectiveness of a loyalty program anywhere from 6.8 times to 10.1 times, depending on personalization of the right channel, place, time of day, and messaging. 

The importance of having loyalty programs for small businesses

Everyone loves a good deal. Over the past three decades, companies have introduced behavioral finance nudges to prompt customers to make more purchases and become repeat customers buyers. Those nudges usually include offering some form of discount available to every so often, usually around holidays or specific events, and encourage repeat shopping. A loyalty program basically combines both these elements and rewards longevity with a specific merchant or vendor. 

According to the 2019 Digital Transformation of Rewards, Rebates, and Loyalty report by FinTech platform Wirecard, more than half of those surveyed stated that a company with good customer loyalty programs was either “very” or “extremely” important to them when making both large and small daily purchase decisions. Only 8% of those surveyed said that loyalty programs had no influence in their decision-making. The report cited that 75% of customers are likely to make another purchase from a vendor that has offered them a loyalty reward or incentive. In fact, 45% of respondents made anywhere from one to three purchases influenced specifically by the loyalty program.

Such consumer sentiment and behavior have a significant impact to companies’ bottom line. According to Harvard Business Review, companies that incorporate good customer loyalty programs into their leadership and strategic mission operate differently, resulting in revenue growth 2.5 times faster than other companies in the same sector. 

Types of customer loyalty programs

Below are a few common examples of the different types of customer loyalty programs used by businesses.

Points-based system

A points-based system is a loyalty program is the most used among merchants. Basically, consumers are rewarded points based on the frequency and size of purchases made at a business. Customers can use these rewards points to redeem them for either discounts towards future purchases, free products, to level up to the next rung of the loyalty program or to qualify for specifically curated promotions. 

Spending program 

A spending program is a type of loyalty program that sets specific client spending targets based on data of prior spending history. Cash back offers are an example spending program. The more customers spend the more they earn in the loyalty program. Like the points-based system, the spending reward can be in the form of discounts, free products and giveaways, specific promotions, or the qualification of a raffle or other form of lottery offering.

Tiered Loyalty Program

A tiered loyalty program is one of the most coveted loyalty programs among consumers. The tiered loyalty program is a status-based program based on the spending patterns of a customer. An example of a spending program being implemented is certain clients being granted a bronze level based on X amount of dollar spending in a year by the customer. The customer can move up to silver status if the spending increases, entitling them to additional perks, or bragging rights. 

The brand must have some degree of scale and a following for a tiered loyalty program for all its benefits to work effectively. The idea of a tiered loyalty program is that every new level or tier offers additional exclusive and VIP benefits. Either those benefits are tremendous or the vendor offering them is ubiquitous and sought after. 

The American Express card is a perfect example of this. Amex has a card for all income thresholds and use cases. Starting with the American Express Green Card, all the way up to American Express Centurion. The annual fee for a Green Card is $150 a year, whereas it costs $5,000 for the black card, once you’ve paid a $10,000 application fee after having the privilege of being invited to apply for it. The black card is seen purely as a status symbol. Even the company’s own marketing material and website position it as such.

Of course, it is important to note that the company’s cards are its products. However, it has astutely embedded loyalty into the product. Every card mentions how long you’ve had the card with the ever so subtle ‘Member Since’. Plus, every new tier showers cardholders with additional rewards and benefits. 

A Hybrid Model

The hybrid loyalty program model combines various features of all the other loyalty options already mentioned. Merchants offering this option may utilize internal data to determine which loyalty program idea bests suits which consumer segment. For some it may be appropriate to offer certain discounts based on existing use case and understanding of certain clients. Others may be offered more curated experiences and deals.

The Community Model

There is another way to incentivize your customers to become more loyal to your product offering. Although there is no tangible financial gain from a community model, the benefits are still very real. There is a reason why Google Search is the equivalent of god to many people around the globe – it has all the answers. Often it presents the answer even before you ask! The questions have been asked, and the answers curated, repeatedly. All over the world. 

The Python programming language is one of the most used and learned programming languages available. It comes with millions of pre-built libraries of use cases from all industries and domains globally. 

WordPress is the most popular way to set up a website without any coding or technical expertise. Any question you may need an answer to, there are dedicated specialists of the system to help you through the problem. For free! There’s an overabundance of resources available if you wish to design additional customization into your website beyond the default templates available. Also, many for free, or at very minimal costs. 

All these platforms have one thing in common – a community. It is a location and time zone agnostic group of individuals sharing their experiences and expertise that draw in more users into the ecosystem and thereby becoming a self-sustaining growth model. 

Imagine having to replicate a Google search. It’s very hard to compete against a pre-existing community of likeminded individuals that a customer can rely on for advice, share qualms, air out grievances, and seek technical answers at any time they need to. It builds a degree of stickiness into your product and sells itself. 

Referral Programs

Referral programs are another great way to build loyalty among your client base. It’s hard to recommend a product to someone you’re not sure about yourself. A referral program offers discounts or other benefits for referring new customers to the business. Such programs are one of the most cost-efficient ways of acquiring new customers and have one of the highest level of conversations rates. A major reason driving this efficiency is that word of mouth from family and friends is the most reliable in influencing purchase decisions

Examples of good customer loyalty programs implemented by companies

There are many great examples of very well executed loyalty program ideas. Below are some of the following.

Amazon Prime

The retail industry has razor-thin margins because pricing is a major competitive force, especially at present given the current inflation environment. Amazon has multiple sources of revenue and has traditional invested in operations and infrastructure than pay attention to profitability. As a result, the company has been able to offer a very differentiated customer experience, based on their ease of use with their patented one-click ordering, to the convenience of being a one-stop shop for some many different people around the world. 

The company has a fee-based loyalty program called Amazon Prime that gives members free 2-day shipping, exclusive sales events such as the Prime Day sale, and a streaming service mushrooming in popularity.

Amazon Prime is ideal for all its perks, and it gives the company some breathing room by having a consistent stream of cashflow annually to use for investments in additional offerings and more streaming programs. 

The upfront cost of the program is part of the reason of its success. Members are fully vested in making the most of their annual fee. Prime users have an average spend of more than four times as much as non-Prime Amazon shoppers.

Starbucks Rewards

The Starbucks Rewards loyalty program is a case study of how launch a rewards program and implement a mobile app. A culmination of numerous rewards offerings combined into a single program and offered via a mobile app which allows users to seamlessly access the system and quickly pay for purchases without any card data entry. 

Starbucks offers stars as their loyalty points, and they must use the app to accumulate them. All the company’s data points on their most loyal customers are gathered from users’ smartphones into a centralized depository. The program is a treasure trove of transactional and behavioral data for Starbucks, giving it access to who purchases what, when, where and with how much frequency.

Conclusion

A good customer loyalty program is one of the best ways to scale a business by incentivizing your customers to stay loyal to your company for the long term. It is widely used in all types of industries, ranging from hotels to grocery chains. Budgets allocated to such initiatives can be more effective than marketing spend to gain new clients. Such strategies are best implemented with broader company missions such as focusing on the customer experience since they have similar outcomes, and building a long-term relationship with customers. 

Customer loyalty program ideas can also incorporate new product launches and even user acceptance research. The business already has access to vital consumer sentiment with existing customers, so that market share can be easily scaled to cross-sell or upsell via the backdrop of a customer loyalty program.

The mark of a good customer loyalty program are how effective they are at the company overall. Are different teams working cohesively to achieve a common goal? It’s pointless to build a great product but have terrible customer service that drives clients away. Similarly, if there’s no feedback loop established between the client, the support and success teams, and product development, loyalty program ideas are mere band-aids to much bigger problems.

Good customer loyalty programs have the potential to increase the customers lifetime value while simultaneously increasing the likelihood of referrals from the customer. All options should be carefully considered and should be customer centric. Consider A/B testing various loyalty program strategies and carefully evaluate the results of each implementation with clear KPIs to track in order to decide what moves the needle in a positive direction for you business.

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