- Contest Factory
- March 14, 2023
Once your sales funnel has done its job and converted a lead into a customer, how do you encourage them to return? Customer loyalty is good for business because it is much easier to re-engage a previous customer than convert a cold lead into a first-time customer. By focusing on customer loyalty and retention, you keep them coming back.
With a loyalty program, you can grow your customer retention rate by making customers feel valued and offering perks, contests, and discounts to encourage repeat business. Our engaging and unique services create the best customer experience, increasing the value of your marketing campaigns.
What Is a Loyalty Program?
A loyalty program is a marketing approach that rewards existing customers with incentives. For example, you could offer a 10% discount after a customer spends $100.
Prompting customers to repeat purchases is the goal, and discount codes or redeemable point systems encourage long-time customer engagement. Eighty-eight percent of customers consider themselves loyal to a brand after three or more purchases, and loyal customers make up about 8% of US retail customers but make up a whopping 40% of the revenue! The bottom line? Loyal customers are valuable customers.
The benefits of customer loyalty programs include:
- Helping your customers feel appreciated and more likely to return
- Promoting word-of-mouth marketing
- Driving growth because loyal customers spend more than new customers
To benefit from a loyalty program, you must personalize your brand—creating a strong enough hook to keep customers returning and purchasing, and a loyalty program is an easy way to do that.
Types of Loyalty Programs
A loyalty program tells your most loyal customers how appreciative you are. Successful companies will use a combination of strategies in their loyalty programs to gain the best customer reach.
The O.G. Loyalty Programs
Rewarding customers for their loyal business did not start in retail. It started in bars – you order a few drinks and next thing you know, your bartender sets an upside down shot glass down in front of you – good for a free drink. After this, small local restaurants started offering loyalty cards that they would stamp with an ink stamp or punch with a unique hole punch. Loyalty programs are as old as the day is long. And you may recall collecting stamps you could redeem for product – same exact principle, rewarding folks for trying to shop with you more to meet a goal.
Since the beginning days, they have become more complex, more options, and more small print.
Subscription-Based Loyalty Programs
Although a newer customer loyalty strategy, subscription-based loyalty programs are only growing; unlike other rewards systems, subscription-based program range from monthly to annual services. One of the most popular, Amazon Prime, will have special benefits such as free shipping, percentages off every order, and cheaper, fixed prices on certain products.
Point-Based Loyalty Programs
The most common loyalty program, point-based systems, has existed since the 70s. It’s simple—the more a customer buys, the more points they can redeem. Customers can redeem free products and unlock exclusive benefits and perks.
Point-based loyalty programs are also a great way to draw in potential customers. Leads who have yet to make purchases at your company can gain discounts through social media engagement, games, or a free birthday reward.
Tiered loyalty programs allow customers to choose their level of benefits. There are usually three tiers representing loyalty status:
- A free-to-use tier that gives a limited amount of perks
- A middle tier that unlocks at least half of listed perks based on the target amount spent
- A premium tier that offers all perks and benefits
Tiered programs promote access and encourage new customers to spend more to receive special offers. The more they spend, the more they get back.
Gamified Loyalty Programs
Nothing is more fun than a gamified loyalty program—it is the ultimate engagement tool for all types of customers. Gamified programs include instant-win games, giveaways, sweepstakes, contests, and big prize awards. Your company can make any game free to enter or reward existing customers with entry into a specific, exclusive contest.
Value-based programs satisfy customers who wish to support charitable causes. If you need help highlighting your brand’s core values, this is also a perfect loyalty strategy. For example, a beauty company that does not test on animals could donate a percentage of each purchase to support animal rescues.
Successful Merchant Loyalty Programs
There are hundreds of thousands of different programs amongst the global merchant make-up; from card stamps to sophisticated app based loyalty programs, they each have their benefits and their limitations. Brands cannot afford to break the bank in rewards – after all, the goal is to gain more sales than you give away. Let’s review some of the more popular programs out there so you can pick and choose the features that will move the needle for your brand.
Amazon Prime Loyalty Program
Amazon Prime is a loyalty program offered by Amazon that provides members with a range of benefits, including free two-day shipping, access to streaming services, and exclusive discounts on select products.
Amazon Prime has been highly successful since its launch in 2005, with millions of members worldwide. According to a report by Consumer Intelligence Research Partners (CIRP), as of April 2021, there were an estimated 147 million Prime members in the United States, accounting for more than 70% of Amazon’s customer base in the country.
Amazon Prime members spend significantly more annually than non-members. According to a report by Statista, in 2020, Prime members spent an average of $1,400 per year on Amazon, compared to $600 spent by non-Prime members. This demonstrates that the program has been highly effective in driving customer loyalty and repeat business.
In addition to generating revenue through increased customer spend, Amazon also charges an annual fee for Prime membership. The annual fee for Amazon Prime is currently $139 (moving to $179 soon) in the United States, with additional fees charged in other countries. While Amazon has not disclosed the exact revenue generated by Prime fees, it is estimated to be in the billions of dollars annually.
The cost of operating the Prime program is also significant, with expenses related to shipping, content licensing, and other program benefits. Despite the significant costs associated with operating the Prime program, it has been highly successful in driving customer loyalty and generating revenue for Amazon. As the program continues to evolve and expand, it is likely to remain a key driver of customer acquisition and retention for the company.
Starbucks Loyalty Program
Starbucks has a highly successful loyalty program called Starbucks Rewards. The program was launched in 2009 and has since grown to become one of the largest and most successful loyalty programs in the world. The program is simple, like airline rewards programs, spend money and earn points. Points can be redeemed for product. You need a certain threshold of points to redeem for a coffee, and another for food, etc.
As of 2021, Starbucks Rewards has over 24 million active members in the United States, accounting for over 50% of all Starbucks transactions. Globally, the program has over 25 million active members. This indicates that a large percentage of Starbucks customers are members of the loyalty program.
According to data released by Starbucks in 2021, Starbucks Rewards members spend on average 80% more per year than non-members. On average, a Starbucks Rewards member spends around $620 annually, compared to non-members who spend around $340 annually.
The Starbucks Rewards program is designed to incentivize customers to make repeat purchases and increase their overall spend. Members earn points, called “Stars,” for every purchase they make at Starbucks, and these Stars can be redeemed for free drinks and food items.
While Starbucks has not disclosed the exact cost of running its loyalty program, it is estimated to be in the hundreds of millions of dollars annually. However, the program’s success and ability to drive significant revenue growth for Starbucks make it a worthwhile investment.
Overall, Starbucks Rewards has been highly successful in driving customer loyalty, increasing spend, and driving revenue growth for the company.
American Airlines Advantage Program
American Airlines operates a loyalty program called AAdvantage, which is one of the oldest and most successful airline loyalty programs in the world.
As of 2021, AAdvantage has over 115 million members globally, indicating that a significant percentage of American Airlines customers are members of the program. The program has been successful in driving customer loyalty and repeat business for the airline.
AAdvantage members are estimated to spend more than non-members on American Airlines flights. According to a report by Airlines Reporting Corporation (ARC), in 2019, AAdvantage members spent an average of $906 per ticket, compared to $590 spent by non-members. This shows that the program has been successful in incentivizing customers to spend more with American Airlines.
AAdvantage members earn miles for every flight they take with American Airlines, which can be redeemed for free flights, seat upgrades, and other travel-related benefits. Members can also earn miles by using American Airlines’ co-branded credit cards, shopping with partner retailers, and participating in other promotional activities.
While American Airlines has not disclosed the exact cost of running the AAdvantage program, loyalty programs are generally costly to operate, with costs running into the hundreds of millions of dollars annually. However, the program’s success in driving customer loyalty and repeat business makes it a worthwhile investment for the airline.
In summary, American Airlines’ AAdvantage loyalty program has been highly successful in driving customer loyalty and repeat business, with a significant percentage of the airline’s customers being members of the program. AAdvantage members spend more on average than non-members, and the program has been effective in incentivizing customers to spend more with American Airlines.
Tips for Designing a Successful Loyalty Program
The most innovative customer loyalty programs use the brand’s strengths to establish innovative programs.
If you want to move the needle in your retention or revenue through loyalty programs, you must focus on your customers. A successful loyalty program can push sales forward and engage your audience.
- Know your customer. Analyze your target audience’s motivations for purchasing your products. Not only will this increase a better customer experience, but it will make you aware of what will attract future purchases.
- Personalize the experience. Many brands selling higher-end products allow customers to accumulate exclusive freebies and choose what benefits they want. These elite memberships are often that of a tiered-loyalty program.
- Incentives are gold. Customers enjoy the appreciation for using your services. By providing rewards, they will count your business as a good experience. Many fashion retailers incorporate a point-based program, offering cashback rewards for every dollar spent. This successful tactic works as customers receive a store credit reward for every item they buy.
By implementing customer loyalty strategies like loyalty programs, contests, and surveys, you can drive growth and build your base of loyal customers.