All you need to know about Loyalty Program

Building a successful brand can take years of trial and error. With an abundance of information about strategies for success, we all know very well that there is no fixed formula for a store’s success. Common strategies include effective customer acquisition, strong SEO, or a high-converting landing page. However, one key factor would be to cultivate customer loyalty. This strategy lies in a loyalty program, which helps you turn your one-time buyers into your loyal customers by rewarding them. Let’s explore more about what a loyalty program is from scratch! 

The Basics of Loyalty Programs Explained 

Customer loyalty is built on trust, which can be earned through mutual value and recognition. With a loyalty program, customers are motivated to return to your store by rewarding them with points, exclusive discounts, and deals 

Therefore, merchants should ask themselves about what value they can offer to their customers. A successful loyalty program has three main features:  

1. A sense of exclusivity that can’t be earned elsewhere. 
2. Clear rules and easy to redeem rewards 
3. Personalized rewards tailored according to their customer behavior

Ultimately, a successful loyalty program is customer-driven. Hence, it’s important to always know your customers. Of course, when customers are happy, the payoff can be big, including: 

• High repeat purchases
• High AOV 
• Strong brand advocacy

Exploring Different Types of Loyalty Programs

A loyalty program focuses on two key aspects: how customers can earn and redeem their points. Let’s explore the different types of a loyalty program:

Points-Based Program

This is one of the most popular loyalty models that allows customers to accumulate their points after completing a particular action. Here are the many ways a customer can earn points: 

• Purchasing a product

• Signing up
• Following or sharing a post at social media 
• Leaving a review

In return, customers can redeem their points by: 

• Cashback 
• Discount codes 
• Free shipping
• Freebies 

And many more. Popular brands like Starbucks and Sephora implemented this program too! 

Tiered Loyalty Programs

While point-based programs encourage customers to collect more points, tiered loyalty programs encourage customers to spend more. The motivation stems from the sense of exclusivity and status. The higher the tier, the more benefits they will unlock. 

Ako Tip: For maximum optimization, a loyalty program should have 3 - 5 tier levels

Of course, when naming your tier loyalty programs, you would want to avoid generic names like Level 1, 2, or 3. Instead, we want to make it unique, reflecting our brand’s value. Let’s take, Sephora, as an example:

• Insider: Entry-level tier with access to special promotions and a birthday gift.
• VIB (Very Important Beauty Insider): Reached after spending $350 annually, offering benefits like seasonal savings and free beauty classes.

VIB Rouge: Achieved after spending $1,000 annually, providing perks such as free shipping, exclusive events, and first access to products.

Or, we can also learn from Nordstorm’s Nordy Club: 

• Member: Entry-level tier with benefits like earning points on purchases and access to exclusive events.
• Influencer: Achieved after spending $500 annually, offering perks such as early access to sales.
• Ambassador: Reached after spending $5,000 annually, providing benefits like priority access to style events.
• Icon: Achieved after spending $15,000 annually, offering the highest level of benefits, including complimentary alterations and personal styling.

Referral Programs

A referral program can help you in customer acquisition and building trust. When PayPal first started, they had problems in acquiring new customers organically. Advertisement and BD are both too expensive, so they came up with a new strategy: A referral program. New customers will receive $10,  while their existing customers will receive $10 for referrals. Of course, the results are clear: their growth went exponential and PayPal pays $20 for each new customer.  

The genius of this approach lies in the psychological and financial incentives it creates:

1. Trust through Word of Mouth (People are more likely to trust recommendations from friends and family than from advertisements)
2. Dual Incentives (Both parties are motivated and satisfied since there are rewards for the referrer and referee)

Cost-Effectiveness: Although PayPal spent $20 for each new customer ($10 for the existing customer and $10 for the new customer), this cost was far lower than the customer acquisition cost through traditional advertising or BD channels.

Tips for Building a Successful Loyalty Program

As mentioned above, a successful loyalty program is customer-driven. What value would they see in your loyalty program? Below are some tips that we have learned from our past experiences: 

1. Know Your Customer

A good business owner knows who their customers are. With data, we can analyze your customers’ purchasing patterns and preferences. For example, frequent buyers may respond well to a points system, while occasional shoppers may prefer exclusive tiered benefits.

 

Once you have identified your customers, you can group them into segments based on behaviors. Ideally, we can group them into 3 groups: high spenders, loyal customers, or those at risk of churning. Each segment can have customized incentives.

Example:

1. Offer high-spenders premium rewards, such as priority service.
2. Target at-risk customers with "win-back" offers, like bonus points for their next purchase.

Lastly, regularly seek feedback through surveys to understand what they value most in a loyalty program. This can reveal preferences for rewards, tiers, or additional benefits.

2. Align with Your Business Goals

There’s no fixed formula for a successful loyalty program. The right approach depends on various factors, such as: 

• Your industry 
• Your daily transactions 
• Your business model 

For example, if your business has small transactions, such as a coffee shop, then your main goal is to keep customers coming back. Therefore, an ideal solution would be a points-based program. 

On the other hand, if you are aiming for long-term customer relationships, such as a hotel or luxury brand, you should focus on increasing your AOV and engagement. The ideal solution is a tiered loyalty program as it encourages long-term loyalty by making customers feel invested in the program.

3. Leverage Technology

Using technology can make your loyalty program easy and fun for customers to use. One big reason is personalization, which is when you tailor the experience just for them. With data and analytics, you can understand what your customers want and need. Apps like Ako Marketing come with 3 features: a loyalty program, a retargeting feature, and a CRM dashboard. When used correctly, these tools can help you track how your loyalty program is performing and give you insights about your customers. In fact, you can boost your loyalty program by x10 using Retargeting ads!