Explore the types of customer loyalty programs in this article and understand which type is the best fit for your online store.
In today’s crowded online shopping landscape, where customer acquisition costs are soaring, keeping customers coming back to your store is super important for your revenues. That’s where loyalty programs come in handy! These programs encourage customers to shop more from your store through benefits, perks, and rewards. But with so many types of loyalty programs out there, ranging from points-based systems to tiered rewards and everything in between, it can be tough to pick the right one for your online store.
In this blog, we’ll break down the different types of loyalty programs in simple terms, and what factors you should consider, so you can choose the perfect one for your business.
Let’s dive right in!
1. Point-based Customer Loyalty Program
A point-based rewards program is a kind of loyalty system where shoppers get points for every purchase or certain actions, like joining up, telling friends about the store, or interacting on social media. These points add up over time and can be used later to get rewards or discounts when they shop again. The more points someone collects, the better the rewards they can get. These programs are liked because they make people want to keep coming back to the store and doing things that help the store grow.
An example of a point-based loyalty program is the Starbucks Rewards program. In this program, customers earn points, or “Stars,” for every purchase they make at Starbucks. The number of Stars earned depends on the amount spent, with one Star typically earned for every dollar spent. Customers can then redeem their Stars for free food and drinks, special offers, and member-exclusive benefits.
Pros
– Easy to understand. Uses a simple earn-and-burn concept.
– Flexibility of rewards. Brands can offer various perks for points.
Cons
– Delayed gratification. Points tend to expire, and customers tend to forget. This creates dissatisfaction.
– Compensating customers for returns or refunds becomes challenging when purchases involve a mix of points and cash.
2. Tier-based Customer Loyalty Programs
A tier-based loyalty program is like climbing a ladder where customers start at the bottom and move up as they buy more or engage more with the brand. Each level, or tier, offers better rewards and perks than the one below it. You might get things like special discounts, early access to new products, or even personalized rewards. The idea is to encourage customers to keep coming back and spending more to unlock better rewards.
A prime example of a tier-based loyalty program is the Sephora Beauty Insider program. Customers earn points for every dollar spent and unlock three membership tiers: Beauty Insider, VIB, and Rouge. Each tier offers exclusive perks like birthday gifts and special promotions, motivating customers to spend more and ascend to higher levels for greater rewards.
Pros
– Gives a sense of status to customers in higher tiers.
– Increases customer lifetime value
Cons
– Can be confusing for customers to understand
– Customers may feel discouraged if they are unable to progress to higher tiers or if the rewards offered are not perceived as valuable.
3. Hybrid Loyalty Programs
A hybrid loyalty program takes bits from different loyalty programs, like earning points or getting special perks, and blends them. This makes the program more flexible and appealing to different kinds of customers. It’s like having more options to choose from when you’re picking your favorite rewards.
An example of a hybrid loyalty system in eCommerce is Amazon Prime. Members pay an annual fee for benefits like free shipping and streaming, and they also earn “Prime Points” for purchases, redeemable for discounts or exclusive offers. This hybrid model combines subscription perks with rewards points to incentivize both recurring revenue and repeat purchases.
Pros
– A hybrid loyalty program combines elements from various programs, offering both points and special perks. This flexibility appeals to diverse customers, providing more options for rewards selection.
– Amazon Prime is a hybrid eCommerce loyalty system where members pay for perks like free shipping and streaming. They also earn “Prime Points” for purchases, redeemable for discounts or exclusive offers, combining subscription benefits with rewards points for recurring revenue.
Cons
– It may be challenging to track the effectiveness of different reward types and determine which ones drive the most engagement and ROI.
– Offering too many reward options may dilute the perceived value of the program and the brand.
4. Joint/Coalition Loyalty Programs
Joint Loyalty Programs in eCommerce bring together various brands to offer customers a cohesive loyalty experience. These programs allow shoppers to earn and use rewards at multiple participating stores. Key features include shared rewards, cross-promotions, and a smooth customer journey across different brands involved.
WyseMe is a great example of a joint loyalty program. When shoppers purchase from a store that’s part of WyseMe’s joint ecosystem, they earn Wyse Points which are redeemable across all participating stores. This makes shopping more rewarding and gives the shoppers more options to redeem their points. For merchants, it increases discovery and reduces customer acquisition costs while boosting loyalty.
Pros
– Expanded earning and redemption opportunities for customers
– Increased brand exposure for merchants
Cons
– Associating with other brands may dilute the uniqueness and identity of each brand within the coalition.
– Competing brands within the coalition may have conflicting priorities or goals.
5. Threshold Loyalty Program
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In a threshold rewards program, customers earn rewards by spending a certain amount of money. After they reach the spending goal, they can get discounts, free items, or special offers. These programs encourage customers to spend more to unlock rewards.
An example of a threshold rewards program is Chipotle Rewards. Customers earn points for each purchase, unlocking free food items or discounts once they reach a spending threshold.
Pros
– Encourages higher spending: Customers are motivated to spend more to reach the threshold and unlock rewards.
– Can drive sales: The promise of rewards can incentivize customers to make additional purchases to reach the threshold.
Cons
– Limited appeal: The program may not appeal to all customers, particularly those who prefer immediate gratification or simpler loyalty programs.
– Requires high spending to unlock rewards: Some customers may find it difficult or unrealistic to reach the spending threshold, leading to frustration.
6. Cashback Rewards Program
In a cashback rewards program, customers get some money back after they buy something. When they make purchases through the program, they earn a small percentage of the money they spent as cash. This encourages customers to keep buying from the program to get some of their money back.
An example of a cashback loyalty system is Honey. Users earn cashback rewards on eligible online purchases made through the platform, which can be redeemed for gift cards or PayPal cash.
Pros
– Appeals to various customer preferences: Cashback rewards are universally appealing and do not require customers to accumulate points or meet specific redemption criteria.
– Incentivizes spending: Cashback rewards motivate customers to make more purchases to earn back a portion of their spending.
Cons
– Higher costs for businesses: Providing cashback rewards may reduce profit margins for businesses, especially if the cashback percentage is high.
– Limited differentiation: Cashback rewards programs may lack differentiation compared to other loyalty programs, as they primarily focus on monetary incentives.
7. Subscription-based Rewards Program
In a subscription-based loyalty program, customers pay a regular fee to get special rewards or benefits from a business. Instead of earning rewards each time they buy something, they keep getting perks if they stay subscribed. These perks might include discounts, early access to new stuff, free shipping, or access to exclusive events. Subscription-based loyalty programs help businesses keep customers happy and coming back for more.
An example of a subscription-based loyalty system is Amazon Prime. Members pay a fee for benefits like free shipping, streaming, and exclusive deals.
Pros
– Subscriptions provide a steady stream of income for businesses, helping with financial planning and stability.
– Regular interactions with subscribers through exclusive content, offers, or events can strengthen the relationship between the brand and its customers.
Cons
– Subscribers may cancel their subscriptions if they perceive the value of the rewards or benefits to be insufficient compared to the subscription cost.
– To retain subscribers and attract new ones, businesses must continuously innovate and update their subscription offerings to remain competitive in the market.
Choosing the Right Loyalty Program Type for Your Online Store
Consider these factors:
- Customer preferences: Think about what your customer demographic is, what they would like, and what would encourage them to keep coming back.
- Budget: Consider how much you can afford to spend on rewards and program management.
- Business goals: Align the loyalty program with your overall business objectives, such as increasing sales, retaining customers, or building brand loyalty.
- Ease of use: Choose a program that’s easy for both you and your customers to understand and participate in.
- Flexibility: Look for a program that allows you to customize rewards and adjust the program as needed to meet changing needs.
- Integration: Make sure the program can integrate smoothly with your existing systems and platforms.
By considering these factors, you can select the right loyalty program that suits your online store and helps you achieve your business goals. See the top 5 loyalty programs to consider in 2024.
