How to Create a Successful Customer Loyalty Program

What does it take to build a successful customer loyalty program? The answer to that question will be different from one business to the next. However, one thing is certain: Whether you’re running a small business or a large enterprise, an ecommerce site or a brick-and-mortar store, a well-designed customer loyalty program gives you the potential to reap big rewards.

It’s not just about building brand loyalty either. While that is a big part of it, a good loyalty program also helps you increase conversions, generate repeat customers, boost your average customer lifetime value, and more.

In this guide, we’ll take an in-depth look at the advantages for businesses, some examples from popular brands, and tips and strategies that will help you create a successful loyalty program for your business.

What Is a Customer Loyalty Program?

Customer loyalty programs are also sometimes called “customer reward programs” because rewards are a big part of it. The idea is to give rewards to customers to build loyalty and encourage repeat business. 

Rewards most often come in the form discounts, free offers, or points that can be used toward future purchases — but some programs also feature early access promotions or offers for exclusive products that consumers can’t get elsewhere. 

What Are the Benefits of Customer Loyalty Programs?

Enhanced customer loyalty is the obvious benefit of a loyalty program — but what exactly does that mean? It turns out, the benefits of enhanced loyalty are huge:

• More customer referrals: Expect an uptick in customer referrals because when you offer great rewards, people will be excited to tell friends and family about it.
• Brand advocacy: Customers excited enough to talk about your brand become brand advocates, and that means that they’ll be building brand awareness by introducing your brand to new customers.
• Customer retention: When you offer valuable rewards, customers stick with your brand to continue earning those rewards, which boosts customer retention.
• More sales: Loyalty programs increase sales too because people return for repeat business both so that they can earn additional rewards and use the rewards they’ve already earned.
• Average order value increase: Your average order value will go up since loyalty programs encourage people to purchase more in order to earn better rewards.
• Lower costs: You’ll save money. Think about your customer acquisition cost: Acquiring new customers can cost five to 25 times more than retaining existing customers.

What Types of Customer Loyalty Programs Are There?

Loyalty programs are a fantastic way to influence customer behavior so that you can accomplish a variety of goals — and there are a lot of different program types to choose from. We’ve listed some of the best customer loyalty program models below.

1. Points-Based Loyalty Programs

As the name suggests, points-based loyalty programs reward customers by offering points on purchases. They’re also the most common type of rewards program out there. Some retailers offer a fixed number of points per dollar spent, while others offer points for specific products, actions, or events. 

For example, one retailer might give out points on birthdays while another may offer rewards for writing reviews, sharing on social media, or other types of brand advocacy. 

2. Tiered Loyalty Programs

Tiered loyalty programs are designed to progress customers through ranks, with the benefits getting better and better as the customer’s rank increases. The idea is to encourage repeat business by giving customers a goal that they can work toward via the purchases they make. 

One of the best things about this type of program is that you can easily combine it with other types of programs. For example, you can combine a points system with a tiered system by offering more points at higher tiers, or you can combine a paid membership with a tiered system by offering different membership levels with added perks.

3. Paid Loyalty Programs

Amazon Prime is probably the most famous example of a paid loyalty program — but they’re certainly not the only one! Other examples include membership stores like Costco and Sam’s Club. These programs offer distinct benefits to customers who pay for a membership. In Amazon’s case, Prime’s free two-day shipping encourages buyers with a membership to shop on Amazon rather than on other ecommerce sites. 

Meanwhile, retailers like Costco and Sam’s Club ask shoppers to join their loyalty programs before they can shop in the store. However, customers reap huge benefits from doing so. Both retailers provide things like exclusive offers, low-cost products (often from high-end brands), free samples, and reward points. The membership fees help offset the discounts — and in the meantime, the discounts and perks create extremely loyal customers with a high average lifetime value. 

4. Punch Card Loyalty Programs

You’ve probably seen punch card loyalty programs at restaurants and coffee shops. If not, they work like this: Customers get a punch card, and as their reward, a hole gets punched out each time the customer makes a purchase. Once the customer has filled the punch card, they get a free item. 

Starbucks Rewards is an example of this type of system. It started in 2008 with actual cardboard punch cards but has now evolved to a digital system that rewards purchases with stars instead of punches.

The secret that makes this type of loyalty program work is gamification. To customers, a punch card can feel almost like a scratch-off lottery ticket — except instead of scratching off the card, the game involves earning punches in order to get the prize.

5. Customer Referral Programs

Lots of brands offer referral programs — and in fact, many offer this type of program alongside other rewards. Referral programs encourage advocacy by rewarding customers with cash, discounts, or free products for customer referrals. If the rewards are lucrative enough, customers will be happy to share with friends and family via word-of-mouth or through a referral link.

6. Membership Discounts

Ever wandered up and down the aisles of a grocery store and noticed that everything has two prices? This is an example of a membership discount. If you’re not a member, you pay the full price — but if you sign up for the membership program, which is usually free, you get the discounted price. 

This type of program encourages consistent customer behavior. They know they’ll get the same discounts on the same products week after week, so they keep coming back.

For the retailer, the big advantage is the ability to collect customer data. Each time a member scans their loyalty card or provides their identifier, the retailer can track what they’ve purchased. This helps the retailer understand trends and shopping habits — and they can use that information to improve the overall customer experience.

7. Value- or Mission-Based Loyalty Programs

This type of program isn’t all that common — but if you have the right target audience, it can be very powerful. Value- or mission-based loyalty programs reward customers by donating a percentage of purchases to charity. 

For example, if a customer spends $10 and the retailer’s loyalty program pledges to donate 10% of purchases to an animal welfare organization, then $1 will go to the charitable organization. 

Tips for Designing Your Own Customer Loyalty Program

With all of the different types of loyalty programs — and ways to combine them — how do you choose what’s best for your business? Read below for tips and to learn about the three Rs of customer loyalty.

What Are the 3 Rs of a Loyalty Program?

One thing that all successful loyalty programs share is that, one way or another, they all use the three Rs of customer loyalty. These are rewards, relevance, and recognition.

So what do the three Rs truly mean? Let’s break it down:

• Rewards: Rewards are the biggest draw to customers, and they come in many forms, including points, discounts, free products, or even things like airline miles.
• Recognition: Recognition involves doing something that makes the customer feel special — like access to exclusive events or products, complimentary upgrades, or birthday gifts.
• Relevance: Relevance means offering something or doing something that your customers care about. For example, eco-focused businesses might create a mission-based loyalty program that donates to environmental causes whereas beauty brands might offer something aspirational, like a free makeover or a trip to a high-end spa.

Keep your rewards program focused on one or more of the three Rs to build the kind of loyalty that keeps customers coming back for more.

Other Tips and Tricks

The three Rs are a great guide to follow — but here are a few more tips that can help you ensure success.

• Choose a great name: It can be something catchy, or as is the case with VIP programs, it can suggest special status. Either way, it should reflect your brand while helping to get customers excited to join.
• Offer more than one type of reward: Points, giveaways, free shipping, higher membership tiers — different types of rewards let you offer value to a diverse customer base made up of segments with varying needs.
• Reward a variety of actions: In addition to rewarding customers for purchases, include rewards for reviews, completed surveys, email subscriptions, and other interactions that get customers to engage with your brand.
• Make sure rewards are valuable and obvious: Free products at purchase spending thresholds, or cashback percentages make it clear how to earn rewards and what the value is. Customers are more likely to enroll when the benefits are easy to understand and worthwhile.
• Create partnerships with other brands: By partnering with other brands, you can offer additional rewards. For example, phone and cable companies often offer free trials or discounted access to streaming services.

What Are Some Examples of Real-Life Customer Loyalty Programs?

If you’re like most consumers, you’ve probably encountered loyalty programs when shopping both in-store and online — and you’re probably even a member of a few. But perhaps you haven’t examined these loyalty programs down to the last detail. Let’s take a look at some examples of successful loyalty programs from some of today’s most popular brands.

1. Express

At the clothier Express, the challenge came in the form of an inactive user base that the company wanted to transform into active loyalty program members — a feat they accomplished with help from Jebbit.

How did they do it? Using Jebbit, Express created monthly challenges that engaged users in fun style experiences. For completing these experiences, users were rewarded with points that they can put toward future purchases. 

The result? Well, there’s a reason why it’s billed as one of the top loyalty programs in the United States! This loyalty program boosted revenue for Express by more than seven figures and lifted engagement across targeted loyalty members by five times year over year.

Plus, the data gathered from the style challenges helped Express create four new loyalty personas — which will lead to further personalization of the program in the future.

2. Ulta

Ulta’s customer loyalty program — known as Ultamate Rewards — is legendary among beauty enthusiasts for the perks and discounts you can receive. 

First up, Ultamate Rewards is a points-based loyalty program that lets shoppers accumulate points to reach different discount levels ($3 off for 100 points, $8 off for 250 points, and so on). Shoppers can redeem their loyalty rewards on any purchase.

One thing that makes this membership program even more attractive is that it’s also a tiered system. If you’re a member at the base level, you earn just one point per dollar spent, but at the top level (Diamond, which you can reach after spending $1,200 in a year), you can get up to 1.5 points per dollar spent. 

To see the advantages of a tiered system like this, think about the way you usually purchase health and beauty products and services. Most shoppers spread their purchases out: A salon for a haircut and color, a department store for body wash, and a beauty store for makeup and beauty supplies. This rewards program encourages shoppers to not only make repeat purchases but also to consolidate spending in one spot so they can reach higher tiers and earn better incentives.

3. Sephora

Sephora’s Beauty Insider program is a direct competitor to the Ultamate Rewards program, though it does work a bit differently. With this program, you earn one point per dollar spent, and you can trade 500 points for a $10 discount on qualifying purchases. 

However, many users instead save their points to use at the Beauty Bazaar, where they can trade points for free product samples. Giving out samples in this way not only builds loyalty, but it’s also a great way to boost sales on products that may be underperforming or to build awareness about new products.

Additionally, the Beauty Insider program offers a lot of perks that you can’t get if you’re not a member. There are seasonal sales that are only open to members — and the discounts get larger as your tier level increases, which encourages shoppers to spend more. 

To help build loyalty even further, the Beauty Insider program also offers shipping discounts, exclusive events, and early access to new products.

Make Jebbit a Key Part of Your Customer Loyalty Program

Jebbit delivers experiences for every use case — and that includes customer loyalty programs. Create quizzes and surveys to discover customer preferences and pinpoint the kinds of rewards that create the most buzz around your brand. You can also use Jebbit to build interactive experiences that your customers can engage with in exchange for rewards. In return, these experiences will help you collect additional data so that you can refine your loyalty program, marketing strategies, and more.

To explore the many ways you can use Jebbit, schedule a demo — or dive in and get started for free.