4 types of loyalty programs and their advantages

Customer engagement relies on many factors – product quality, pricing, customer service, and loyalty programs – to encourage customers to return and engage with the brand.

Customer loyalty programs help organizations reduce selling costs, compile customer profiles for targeted offers, and stay in touch with the public. These programs also benefit customers, who can receive credits for future purchases, exclusive promotions, discounts, early access to new products, and personalized recommendations based on their shopping habits.

Below, explore four types of loyalty programs businesses can implement and their benefits.

1. Tiered Loyalty Program

Tiered loyalty programs separate benefits into different tiers, with more rewards available to customers at higher program tiers. Some programs use the names of precious metals – silver, gold, and platinum – or other naming conventions to entice customers to spend more and reach higher tiers for increased rewards.

Examples include Hilton or American Airlines loyalty programs, which offer free sign-ups and encourage customers to continue shopping with them. As customers make more purchases, they can level up and earn more rewards over time.

2. Subscription Loyalty Program

A subscription loyalty program requires customers to pay an upfront, monthly, or annual fee to join. Subscriptions can benefit organizations looking to retain customers for a set period of time.

For example, Amazon Prime is a paid subscription service that offers free shipping and other services to subscribers. Amazon Prime users get free TV shows, music, shipping, photo storage, and product recommendations with the plan.

3. Value-Based Loyalty Program

This type of loyalty program differs from others because it does not offer any explicit rewards to customers, such as discounts or other benefits. Instead, value-based programs emphasize organizational values ​​and ideally align with customer values ​​as well.

With this program, an organization commits to donating a portion of its profits to one or more charities, allowing customers to choose the charity that best aligns with their personal values. Organizations that use value-based loyalty programs aim to facilitate deeper connections with customers.

4. Points-based loyalty program

Points-based programs reward customers with points for every purchase, making them popular in retail environments, such as restaurants. When customers reach a certain number of points, they can redeem those points to get a product or get a discount.

For example, Chipotle awards points to customers for joining its program and for all subsequent purchases. When customers accumulate enough points, they can get free food or merchandise, among other rewards.

Benefits of a loyalty program

A successful loyalty program means customers find value in it. To gauge success, an organization must monitor its program usage over time and ensure that it is converting enough customers.

Once successfully implemented, the benefits of the loyalty program include the following:

  • Improved customer analytics. Loyalty programs can capture customer buying habits and demographic information, such as age and gender, which provides valuable information about a company’s customer base. This information can help identify the effectiveness of a marketing campaign so that marketers can target customers appropriately to increase sales.
  • Increase in product sales. If organizations collect customer contact information, they can send out promotions to encourage repeat purchases or new product notifications.
  • Improved brand awareness and customer loyalty. Loyalty programs can increase brand recognition because a business can continually reach and interact with its customer base. As customers enroll in the program, they benefit from ongoing brand exposure and reminders of products they use or might like. They may also benefit from product discounts and promotions that might discourage them from shopping for competing brands.

Loyalty programs can help marketing teams improve brand recognition, customer retention, and increase sales. Every business needs to know their customer base well enough to know what kind of loyalty program will work best for their audience and their products.