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In today's competitive business landscape, retaining loyal customers is more critical than ever. Did you know the cost of gaining a new customer can be up to 25 times higher than maintaining a current one?
Despite this fact, only 18% of businesses focus on customer retention as their top priority. That's where loyalty programs come in. Not only can loyalty programs increase customer retention, but they also lead to valuable word-of-mouth marketing.
In this article, we look at the power of loyalty programs and how they can benefit your business. We will cover:
- Different types of loyalty programs
- Examples of companies with loyalty programs
- Key steps for creating a program that drives customer loyalty and helps you stand out
By the end, you will be equipped with the knowledge and tools to unlock the full potential of sizzling up your successful loyalty program strategy.
What is a Loyalty Program?
A loyalty program is a marketing strategy businesses use to encourage customers to make repeat purchases or take other actions that drive engagement with the brand.
Loyalty programs typically offer rewards, incentives, or exclusive benefits to customers who meet specific criteria, such as making certain purchases or referring friends to the business.
A loyalty program aims to build a base of loyal customers who are more likely to continue doing business with the brand and to recommend it to others. Loyalty programs can take many forms to meet each business's needs and goals.
How Do Loyalty Programs Work?
Loyalty programs are a powerful tool for businesses looking to keep customers returning for more. At their core, these programs offer customers rewards or incentives for continued patronage.
But how do they work, exactly? Here are the typical steps involved in a loyalty program marketing campaign.
- Sign up: Customers sign up for a loyalty program, often by providing basic information such as their name, email address, and contact information.
- Earn points: Customers earn points or rewards by making purchases or engaging with the business in other ways, such as referring friends or leaving reviews.
- Accumulate points: Customers can exchange their accumulated points for rewards, such as complimentary products, discounted services, and exclusive perks or invitations to special events.
- Unlock higher tiers: Some loyalty programs offer tiered rewards, where customers can unlock additional benefits or perks as they move up to higher program levels.
- Personalized marketing: Businesses can use data from loyalty programs to personalize marketing efforts and improve customer satisfaction.
- Repeat purchases: By offering incentives for continued patronage, businesses can encourage customers to make repeat purchases and build a loyal customer base.
- Retain customers: Loyalty programs can help businesses retain customers, boost sales, and stand out in a crowded marketplace.
Loyalty programs work by creating a win-win situation for both businesses and customers. By offering incentives for continued patronage, companies can retain clients and boost sales, while customers can enjoy valuable rewards and perks for their loyalty.
Types of Loyalty Programs
Businesses can use several loyalty programs to achieve these goals, each with unique benefits and drawbacks.
- Points-based programs: Points-based loyalty programs are one of the most common types. Customers earn points for each purchase or action, which can be redeemed for rewards like discounts, free products, or exclusive experiences. Points-based programs are easy to understand and can effectively incentivize customers to make repeat purchases.
- Tiered programs: Tiered loyalty programs offer customers different rewards based on their level of engagement with the brand. As customers reach higher tiers, they earn more valuable prizes and perks. This program can effectively generate increased engagement with the brand over time.
- Paid programs: Paid loyalty programs require customers to pay a fee to participate but offer exclusive rewards and benefits unavailable to non-members. Paid programs can build a sense of exclusivity and community among customers but may be less effective at incentivizing repeat purchases.
- Partner programs: Partner loyalty programs allow customers to earn rewards from multiple brands within a network. This can effectively increase customer engagement and loyalty, especially if the partner brands complement each other.
- Hybrid programs: Hybrid loyalty programs combine elements of multiple loyalty program types, offering customers a diverse range of rewards and benefits. This type of program can effectively cater to a broader range of customer preferences and motivations.
By understanding the different types of loyalty programs available, businesses can choose the program best suited to their needs and build a loyal customer base that drives sustainable growth over time.
What is a Loyalty Referral Program?
A loyalty referral program is a marketing strategy that combines elements of both a loyalty program and a referral program. Customers are incentivized to refer their friends, family, or colleagues to the business while making repeat purchases.
This loyalty program typically rewards those who refer a new customer only if they purchase, encouraging both parties to engage with the brand and become loyal customers. These rewards may include discounts, free products or services, exclusive experiences, or other benefits incentivizing customers to refer to their networks.
With the power of both loyalty and referral programs, businesses can create a powerful marketing tool that drives customer engagement, loyalty, and growth.
Loyalty Program Examples
Are you a small business owner looking to increase customer engagement and loyalty? While many people associate loyalty program marketing campaigns with big-box retailers and chain restaurants, these programs can be just as effective for small businesses looking to build a base of loyal customers.
Here are some examples of companies with loyalty programs that inspire businesses of all types and sizes.
The North Face's XPLR Pass
With The North Face's XPLR Pass free loyalty program, shoppers who join receive a 10% discount on their first purchase and a points system where they earn a point for every dollar spent in-store.
The program encourages customers to spend more and offers curated experiences that resonate with the brand's target audience. These rewards foster a strong emotional connection between the customer and the brand, ultimately driving customer loyalty.
Starbucks Rewards
Starbucks Rewards is one of the most popular loyalty programs in the world, with over 24 million active members in the United States alone. Customers earn stars for every purchase, which can be redeemed for free drinks and food items.
In addition to the loyalty program, Starbucks also has a successful referral program where customers who refer a friend to join Starbucks Rewards receive a free drink reward for themselves and their friend.
This referral program is effective because it leverages the power of social proof - when a friend recommends something, we're more likely to trust and try it ourselves.
Amazon Prime
Amazon Prime is a subscription-based or “premium” loyalty program offering members free two-day shipping, streaming services like Prime Video and Prime Music, and other benefits. The program is highly successful, with over 200 million members worldwide.
Amazon also has a referral program called "Refer friends to Prime.” Customers who refer a friend to join Prime receive a $10 credit towards future purchases.
Sephora Beauty Insider
The Sephora Beauty Insider is a free loyalty program that gives customers points for each transaction, which can be exchanged for free products, unique experiences, and other benefits.
Sephora also features a referral program that rewards customers with a 15% discount on their next purchase when they refer a friend to join Beauty Insider. In addition, they offer the referred friend a free gift.
Hilton Honors
Hilton Honors is a loyalty program where customers can earn points for each stay they make at any Hilton property.
In addition, members can enjoy exclusive benefits and privileges when they stay at any of the brand's 7,000 hotels worldwide, ranging from resorts to high-end boutique hotels. These points can be redeemed for free nights, upgrades, and other benefits.
Hilton also has a "Refer-A-Friend" referral program wherein customers who refer a friend to join Hilton Honors receive 25,000 bonus points when their friend completes their first stay.
Steps for Creating a Loyalty Program
In today's business landscape, customer loyalty is critical to success. Creating a loyalty program is a proven strategy to retain and incentivize customers to return.
Here are the steps to create a successful loyalty program strategy.
- Set Your Goals: Before starting a loyalty program, define what you want to achieve. Is it to increase customer retention, encourage repeat purchases, or acquire new customers? Defining your goals will help you create a program tailored to your business needs.
- Choose a Program Type: There are different loyalty programs, such as point-based, tiered, and paid programs. Choose the one that best fits your business model and aligns with your goals.
- Determine Your Rewards: Rewards are the heart of any loyalty program. Decide what you will offer: discounts, free products, exclusive access, or other benefits. Ensure the rewards are valuable and aligned with your customer’s needs and preferences.
- Set Rules and Guidelines: Establish clear rules and guidelines for your loyalty program. Define how customers can earn and redeem rewards, how long the rewards are valid, and any other relevant terms and conditions.
- Launch and Promote Your Program: Once your program is ready, launch it with a bang! Use various marketing channels to promote it, such as social media, email campaigns, and in-store signage. Encourage customers to sign up and start earning rewards.
Loyal customers become repeat buyers and act as brand ambassadors by referring friends and family.
Final Thoughts
By offering incentives and rewards to customers who make repeat purchases or engage with your brand, you can create a sense of loyalty and keep customers coming back for more.
However, more than a loyalty program is needed to drive significant growth. That's where ReferralHero comes in. By integrating a referral program with your loyalty program, you can leverage the power of word-of-mouth marketing and turn your loyal customers into advocates who bring in new business.
Whether you're just starting with a loyalty program or looking to take your existing referral program to the next level, you can count on us. With our easy-to-use platform and industry-leading tools, you can create a robust referral program that drives growth and helps your business reach new heights.
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In just 14 days, we help you build the same waitlist, contest, or referral program used to launch and scale Airbnb, Uber, PayPal, and 1000s of other businesses. Start your ReferralHero free trial today.
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