8 Types of Loyalty Programs That Work for Your Business

Everybody knows loyalty programs are one of the most effective marketing tools to retain customers if implemented correctly. But, considering there are many loyalty programs out there, do you know which one is suitable for your business? In this article, we are going to explore the various types of customer loyalty programs, with examples from the retail niches.

First of all, let’s look at the factors to consider when you choose a loyalty program

  • Your business type
  • Your budget
  • Your preference

Loyalty programs come in many forms, ranging from simple stamp cards to sophisticated, point- based reward systems, but all are geared toward bringing customers back to engage with a brand.

A well-thought-out loyalty program can:

  • Attract new customers;
  • Retain existing customers;
  • Reactivate dormant customers; and
  • Nudge them to spend more.

Let’s see how to do that.

1. Point programs

A point program is a form of reward program built using points as a currency for every dollar spent, so that customers can use them to redeem rewards.

Normally, customers are collecting points via each transaction, engagement, or visit. Also, many points programs are rewarding non-transactional behavior, including downloading a mobile app, subscribing to an e-newsletter, liking a Facebook page, etc.

Pros

  • Low barrier to join
  • Easily accessible for customers
  • Low risk for your business
  • Can to collect customers’ data

Cons

  • The loyalty built is mainly for your client to get a good deals but not for true brand loyalty
  • Customers may not stay as motivated as it takes time to accumulate points to redeem a reward
  • It May take longer to increase
    instant

Who is this program suitable for

This program suits most business types, especially for the simple purchase business model. A point program works best for high-frequency purchases or interactions.

Tips

Make sure to use a simple points conversion system.

points program

Example: L’occittane’s Loyalty Program

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2. Punch card programs

You may be familiar with getting a free Starbucks espresso for every 10 cups of espresso purchased. This is the modern type of punch card program, which the old schools are using actual cards. Low cost and low maintenance – this program is a no-brainer!

Pros

  • Lowest cost, low maintenance program
  • Easy to build brand loyalty
  • Low risks for your business
  • The system is easy to understand by customers

Cons

  • The customisation of the program is very limited
  • Hard to capture customers’ data
  • Fraud can happen easily, especially you are using a physical card

Who is this program suitable for

Punch card loyalty programs are ideal for small businesses like food and beverage businesses or small retail stores.

Tips

It is tiring and bothersome for customers to keep dozens of physical cards in their wallets. So, create a virtual card instead so your customers will not have to worry about forgetting to bring their card to your store.

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3. Tiered customer rewards programs

A tiered customer rewards program is a program that rewards customers based on their loyalty. Members are offered different rewards based on different purchase milestones. Usually, the more a member spends, the higher the tier they enter.

Pros

  • Highly customisable
  • Encourages more purchases as the customer wants to achieve a more premium status
  • Can to identify and can focus on higher-end customers

Cons

  • Consistency in maintaining the in the highest tier seems challenging and maybe demotivating for infrequent customers
  • The entry barrier from the lowest tier to the highest one may seem difficult to achieve

Who is this program suitable for

Businesses who sell higher tickets yet make infrequent purchases, like companies in the travel industry.

Tips

Award more rewards to higher-tier customers. Also, make sure each tier is achievable and is not separated by a large gap.

agoda loyalty program

Example: Agoda’s Loyalty Program

Agoda loyalty program benefits

Agoda’s loyalty benefits

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4. Paid loyalty programs

Unlike traditional loyalty programs you can join once you have made a purchase and submitted your details, a paid loyalty program requires members to pay upfront to be entitled to exclusive discounts, products, sales, or services they can use anytime. However, note that it only works when the value outweighs the cost. So, make sure your customers feel exclusive with the best possible service and receive unique discounts.

Pros

  • Encourage regular customers to spend more
  • Add value to highly-engaged customers
  • Collect the data of high-value customers

Cons

  • Not for everyone
  • Additional costs in terms of human resources due to the need for a special team to set up and manage the system

Who is this program suitable for

Usually for businesses with a high-volume regular customer base like Amazon Prime.

Amazon Loyalty Program

Example: Amazon Prime

Tips

Make sure the insider perks are truly exclusive, easy to use, and offer added value to regular customers.

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5. Value-based loyalty programs

A value-based loyalty program offers special value that includes more than earning points for discounts or special rates. It increases the loyalty index with customers by giving back a portion of the company’s earnings to those in need.

Pros

  • Easy to execute
  • Your customers may be your brand ambassadors if your business’ value genuinely aligns with their values

Cons

  • Not all customers are willing to turn their rewards into charitable acts
  • Extensive research is needed to shortlist the charity channels

Who is this program suitable for

Suitable for e-commerce businesses or retails

value-based loyalty

Example: P&G Shiksha

Tips

It is best to combine this sort of program with other loyalty programs so that customers can get rewards or discounts while having a chance to do a good deed.

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6. Coalition program

A coalition program is a program that forms alliances from different businesses as loyalty program partners, providing customers with a platform to earn points for rewards across all associated brands.

Pros

  • Easier for customers to earn rewards
  • The loyalty program operation costs are shared with other partners
  • The rewards redemption liability is managed by the coalition itself instead of you
  • Opportunity to get broader customers base

Cons

  • A one-size-fits-all program that does not promote brands but only the loyalty program
  • The customers’ data is usually collected and owned by the coalition provider and not you
  • Your competitors’ customers may redeem rewards from you

Who is this program suitable for

It is suitable for businesses that run multiple brands.

Coalition programs

Example: BonusLink

Tips

Examine the types of businesses already in the coalition to avoid programs that include direct competitors and bring disadvantages to your business.

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7. Game-based loyalty programs

A game-based loyalty program, also known as a gamification loyalty program, uses gaming to encourage engagement. This fun and interactive program magically helps customers form a new habit to engage with you. For example, spin a wheel or shake your phone for each purchase to get rewards.

Game base loyalty

Example: Shopee’s Loyalty Program

Pros

  • Interesting and easy engage customers
  • Easy to attract new customers

Cons

  • Customers engagement rate is unpredictable
  • Customers will stop playing the same game after some time

Who is this program suitable for

It is usually adopted by big brands because the gaming elements are quite expensive to design and create.

Tips

Do not make the game a mandated program after purchase or each time your customers log in, as not every customer is keen on games or the selected rewards.

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8. Hybrid loyalty rewards programs

A hybrid loyalty program is a combination of two or more loyalty programs’ structures. For instance, you might decide to merge a tiered program and a points-based program where customers reach new levels of loyalty by accumulating a certain number of points. This makes it easier for them to calculate points and encourages them to pursue the next loyalty level, which means more purchases for you!

Pros

  • Better customers experience
  • Can move different KPIs based on the characteristics of each program
  • Encourage more purchase

Cons

  • Require expertise to keep managing and adjusting the program
  • If not done right, it can easily be confusing

Who is this program suitable for

Any businesses that would like to push certain KPIs.

Tips

Beware that you may over-complicate the program easily when combining two or more loyalty programs. So, make sure the program is simple to use and easy to understand by customers.

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Key takeaways

The aforementioned programs are only the tip of the iceberg. There exists a multitude of loyalty programs to encourage your customers to keep choosing your brand over others. Whichever program you decide to go with, make sure it only provides your business and customers with the best. Your loyalty program should always align with your activity, be understandable and easy to operate. Good luck!

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