Did you know that companies that invest in loyalty programs report up to a 40% increase in revenue? The concept of customer loyalty is nothing new, and its benefits have been proven time and again – yet so many businesses struggle to actually capitalize on them.
One possible reason is that they simply don’t know which type of loyalty program to choose. For some, it may even be a surprise to learn that there is more than just one. Sounds like something that could relate to you? Find out what are the most common types of loyalty & rewards programs – and how to decide which will be the best fit for your industry.
Top 7 types of customer loyalty programs
1. Points-based loyalty program
Perhaps the most basic and best-known type of loyalty program is the point-based kind, which is what we usually think of when talking about loyalty in general. The premise is simple – customers collect points for each purchase or activity and later exchange them for discounts, free products, or other benefits. It’s great for boosting purchases but can be challenging when it comes to building engagement.
Key points:
- Customers earn points for every purchase or interaction.
- Points can be redeemed for rewards, discounts, or exclusive perks.
- Encourages frequent purchases and long-term engagement.
Example:
- Starbucks Rewards: Customers earn “stars” for every dollar spent, which can be redeemed for free drinks and food.
Best for:
- Retail, food & beverage, travel, e-commerce
2. Tiered loyalty program
Tiered programs motivate customers to spend more by offering escalating rewards as they move through different levels. They’re great at increasing engagement as they encourage a bit of competitiveness. According to Technology Advice, consumers are 56% more likely to join customer loyalty programs that offer tiered rewards and exclusive treatment for top members.
Key points:
- Customers progress through different levels or “tiers” based on their spending or engagement.
- Higher tiers offer more exclusive rewards, such as VIP access or premium services.
- Encourages higher spending to unlock better benefits.
Example:
- Sephora Beauty Insider: The program offers three tiers—Insider, VIB, and Rouge—with increasing perks like free shipping, special discounts, and exclusive products.
Best for:
- luxury brands, beauty & cosmetics, hospitality, airlines
3. Paid or subscription loyalty program
Even though most customers enroll in loyalty programs to save money, oddly enough, they’re also willing to pay in order to reap the loyalty benefits. In fact, premium members are often more valuable than non-paid ones, as they can spend twice as much on your brand as those enrolled in free loyalty initiatives. That’s why paid loyalty programs are one of the most advantageous types – though they’re not going to work for every brand.
Key points:
- Customers pay a recurring fee (monthly or annually) to access premium benefits.
- Offers exclusive services, early access, or additional savings.
- Attracts highly committed customers willing to pay for enhanced perks.
Example:
- Amazon Prime: Members pay a yearly fee to receive benefits like free shipping, Prime Video streaming, and early access to deals.
Best for:
- e-commerce, media & entertainment, retail, fitness & wellness
4. Cashback loyalty program
Cashback programs offer customers a percentage of their purchase back as cash or store credit. Though they’re not the most popular type out there, they’re effective at attracting value-conscious customers looking for tangible, immediate benefits from their spending.
Key points:
- Customers get some of their purchases back in the form of cash or store credit.
- Appeals to shoppers seeking immediate value from their purchases.
- Cashback can be used for future purchases, fostering repeat business.
Example:
- Rakuten: Offers cashback on online purchases from partnered retailers, with customers receiving cash payouts.
Best for:
- e-commerce, credit cards, retail
5. Coalition Loyalty Program
Coalition programs involve partnerships between multiple brands that partner together to offer a shared loyalty system. This type of program enhances customer engagement across multiple industries and encourages brand cross-promotion. Loyalty partnerships are quite popular, with over 2 billion consumers worldwide likely to participate in them.
Key points:
- Several brands or businesses collaborate in a shared loyalty program, allowing customers to earn and redeem points across multiple companies.
- Increases reach and customer engagement across different industries.
Example:
- Air Miles: A program where members earn points from a variety of partner brands (travel, retail, gas stations) and redeem them for rewards.
Best for:
- travel, retail, financial services, telecommunications
6. Punch Card Loyalty Program
Though loyalty programs have undergone massive digitization, there’s something to be said about the original punch cards. Often used by small businesses, they’re very good at creating a sense of accomplishment for the customer after a set number of purchases – and reclaiming the personal touch of making a purchase. For some customers, they’re also the easier alternative for downloading an app.
Key points:
- Customers receive a “punch” or stamp for each purchase, leading to a free item or discount after a set number of visits.
- Simple and easy to implement, often used by small businesses.
Example:
- Subway: Traditional punch cards where customers earn a free sandwich after a certain number of purchases.
Best for:
- small businesses, cafés, quick-service restaurants, fitness studios
7. Gamified loyalty program
Many customer loyalty trends come and go, but one that’s been proven consistently effective is gamification. It’s not just a buzzword – in the marketing sphere, it’s a highly effective tool for engaging, activating, and incentivizing customers. In fact, gamified loyalty programs report around 30% higher retention rates than their non-gamified counterparts. By incorporating game mechanics such as challenges or quizzes, they add a layer of fun and tap into customers’ competitive and playful instincts.
Key points:
- Introduces elements of gaming, such as challenges, levels, or achievements, to engage customers.
- Rewards customers for completing actions, increasing interaction and enjoyment.
- Often uses apps and digital platforms to keep customers engaged.
Example:
- Nike Run Club: This program combines fitness tracking with rewards for milestones and challenges, encouraging users to stay active.
Best for:
- fitness & wellness, mobile apps, tech, retail
How to choose a loyalty program type for your brand?
Given how many types of loyalty programs are there, how do you choose one that’s right for your brand? There isn’t any one clear-cut answer, but long story short, you should start by considering your goals, audience, and budget.
What are your objectives? Is it to drive customer retention? Or maybe boost brand awareness?
Also – who’s your audience? What are their preferences and motivations? Why do they even choose your brand to begin with?
Research successful programs within your industry for inspiration. Consider your available resources and budget to make sure your chosen type of program matches your business’s capacity. Lastly, test it, gather feedback, and track the results with metrics such as loyalty ROI – after all, that’s the only surefire way to know whether whatever program you’ve picked is working.
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