How do loyalty programs work?

Loyalty programs have proven to be an efficient marketing tool in driving businesses to the zenith via customer satisfaction. They make customers happy with exciting rewards and then remind them to come back and redeem the rewards. Hence, when executed correctly, they bring customers back to businesses again and again, maximizing the return visits and sales revenue.

For many businesses, convincing clients to come back is the hardest hurdle one must overcome to succeed. Loyalty programs are also tools for understanding the behavioral and attitudinal features of the customer. There are ways to reward a customer, but the best and most effective way is a loyalty program.

When employed appropriately, loyalty programs can trigger a repeated purchase and turn first-time buyers to brand loyalists. Giving back to your customers is incredible, but with trust dwindling, it begs the question; does a loyalty program work?

So in this article, we will be discussing everything loyalty programs, including benefits, impact on retaining customers, types of loyalty programs, and how they work?

So if you are ready, let’s get in the business.

---

What is a customer loyalty program?

The ability to endear your customers to return again and again is customer loyalty. A strategy put in place to ensure they return for your product and service is the loyalty program. The main reason for a loyalty program is to build a customer base that can help you grow your business.

Loyalty programs have been around for more than three decades with the ‘Frequent flyer program’ introduced by American Airlines. It was to give the frequent flyer more attention than the rest. Today, loyalty programs have extended to travels, vacations, shopping, rentals, financial services, and everything else.

With that said, loyalty programs are marketing strategies that aim to make customers more loyal by developing an open and personal relationship with them.

---

Why is a loyalty program so crucial to a growing business?

Loyalty programs are marketing options that companies should employ to build loyal customers. The idea is to boost brand recognition and keep the customers happy while driving revenue up.

Loyalty programs are great at converting customers, increasing their spending and loyalty to the brand. It is also a passive system of marketing via word-of-mouth. So if one person is satisfied, they will tell their friends and family members, creating more profit for the business.

Other benefits are:-

• Increases customer retention – Customers will stick to your brand if they are getting good value and appreciation for their loyalty
• Customers feel valued and loved by the brand
• Improved brands recognition and reputation
• It is a great way to win back customer and welcome first-timers
• It stimulates customers to spend more and gain more loyalty reward
• It enables brands to build loyal customer bases anywhere they establish
• Provides detailed insight to sections of the business that needs more work to improve
• Allows brand to create advocate from their loyal customer to speak on behalf of the brand like influencers
• Increased customer-brand interaction

---

 

Types of loyalty programs and how they work

While we know loyalty programs work, companies need to determine which one is best for them. Below are types of loyalty programs and how it works.

This type of program encourage customers to buy more for a reward. For example, the buy two get the third free increases sales but allows customers to feel rewarded for their efforts dealing with you. It is the simplest loyalty program and the easiest to build a loyal base with increase referral.

So if you are looking to boost sales or introduce yourself to the world, this is the loyalty program for your brand. The only disadvantage to this program is the inability to collect customer information to alert them to another get free/reward program in the future.

In this type, customers get points for purchasing or spending a stipulated amount in a business. These points are then exchanged for rewards or items at the store or listed out by the companies.

In some instances, customers gather points throughout the year for a movie premiere, retreats date for two or a day at the spa. To keep such a loyalty program going, companies should surprise loyal customers with gifts or rewards to keep them interested in gathering points.

Now, most customers love this type of reward program. Customers under this loyalty platform earn cashback when they reach a stipulated spending limit; they are gifted money back. This extra cash gift can be spent immediately or used or something in the future. The cashback loyalty program encourages more spending and is a remarkable way for stores with large or frequent customers.

This tests the patience and loyalty of the customers. In this program, the more points they get, the higher their loyalty level. So once the customers gain a particular point, they are more recognized by the company. The tiered program works exceptionally well as motivating customers in the lower tiers to purchase more and get better rewards.

This is a fun competition that allows customers to engage in a game-like scenario. It will gain the customer points, cash, or reward.

For example, a customer buys a newly introduced product at twice the point of another previous favorite. It strengthens the brand’s image, and it is an entertaining way to cut advertising costs and gain more customers.

---

Other loyalty programs are the hybrid program, paid program, VVIP paid loyalty program, partnership program, etc.

Loyalty programs work and are an effective marketing strategy to attract and retain new customers. Deciding which loyalty program is efficient for your brand or business will determine how much advantage you will have over your competitors. Note that regardless of the loyalty program of choice, the result is to increase sales, customer interaction, profits, and retention.

Remember, a loyalty program should always be about the customer first. The instructions must be clear enough for the customers to understand and participate in them.

So to answer your question, yes, loyalty programs work. And it is a strategic way to interact with customers.