Is your customer loyalty program best in class? Here’s how to revamp it

Loyalty programs are nothing new. In fact, you likely participate in several of them yourself.

Whether it’s your credit card, your airlines, your Amazon Prime account, your Starbucks Rewards membership, or your local pet store up the road, loyalty programs give VIP treatment to customers who are––as you may have guessed––loyal by the standards of the brand that runs the program.

Consumers understand these programs and the perks that often come with them. And for brands, loyalty programs lift overall customer lifetime value, average order value, and more.

For many brands, nailing the details and the promotion of these programs can make or break the effectiveness of their marketing and advertising dollars.

Nailing the details and loyalty program promotion can make or break marketing effectiveness.

After all, it’s unwise to spend so much money to acquire a customer and not work equally as hard to maintain their attention, earn their next purchase, and foster word-of-mouth recommendations to friends and families.

Moreover, depending on your industry, the quality and effectiveness of your loyalty program may be a competitive requirement. Here are the top industries in which consumers actively participate in loyalty programs:

Loyalty programs are no place to rest on your laurels.

This is especially true as inflation rises and consumers prepare for a potential recession. Brands, too, must prepare, and batten down the hatches to make sure no part of their marketing funnel is leaking potential revenue.

Here’s how to build a world-class loyalty program that delivers long-term customer lifetime value—and helps crisis-proof your brand.

Table of contents

• What is a loyalty program
• The 6 most popular types of customer loyalty programs
• Loyalty programs help you crisis-proof your brand
• 4 world-class loyalty program best practices for retailers
• 10 loyalty program examples—and proof they work
• Your next steps

What is a loyalty program?

A loyalty program is a customer retention marketing strategy that uses rewards like discounts, early access to new products, or exclusive access to additional products or brand features to encourage new customers and existing customers alike to continue buying from a brand.

Loyalty programs use incentives to positively reinforce desired actions such as repeat purchases and referrals.

Starbucks’ loyalty program is one of the best examples. With nearly 20 million members, it represents more than 50% of spend in Starbucks stores.

Amazon Prime is another one of the best examples in the retail industry. Amazon Prime’s free two-day shipping quickly became a cornerstone customer expectation for the entire ecommerce industry. Even today, it is one of the most desired features of a loyalty program:

Of course, neither Starbucks nor Amazon invented loyalty programs––they’ve been around in their modern form since the early 1900s.

Today, more than 45% of businesses worldwide believe that a personalized customer loyalty program is important. Those businesses spend upward of $75B every year on customer loyalty tools, management, and perks.

“To build a successful customer loyalty program, you need to ensure that your technology stack is integrated, and your loyalty data is being successfully passed from one platform to another,” says Fiona Stevens, head of marketing, LoyaltyLion.

To build a successful customer loyalty program, you need to ensure that your technology stack is integrated.

Fiona Stevens, head of marketing, LoyaltyLion

“For example, your loyalty platform should be connected to your ESP. This ensures that data such as points balances or available rewards are being passed into email comms and making them highly personalized. This personalization is the key to the success of your customer loyalty program, as shoppers join loyalty programs to feel recognized and rewarded as individuals.”

But why are ecommerce businesses investing so much in customer loyalty programs? Simply put, because they work. Loyalty programs are a proven way to help increase customer lifetime value and increase repeat purchase rate, according to LoyaltyLion’s data.

When you consider the fact that loyalty program members have a 40% higher average annual spend than non-members, and that loyalty program members make repeat purchases 28% more often than non-members, implementing a customer loyalty program for your store is a no-brainer.

The 6 most popular types of customer loyalty programs

Loyalty programs come in many shapes and sizes—each tailored to a different audience. A loyalty program that works for a DTC beauty brand might not work for a sports and outdoors brand, for example.

As you think through how to improve your customer loyalty program, it might be best to hop on the phone with several of your highest-lifetime-value customers. Ask them:

• What keeps you coming back to buy more products?
• What other brands do you have strong loyalty to?
• How do you receive information about new products, sales, or discounts from brands?
• Has there ever been a time when you wanted, but didn’t buy, a product of ours? Why?
• How often do you talk to friends and family about our brand?
• How often do you recommend our brand?

The answers to these questions help you understand exactly what to anchor your loyalty program around to make your highest-value customers feel seen—and encourage even more buying and word-of-mouth marketing from them.

From there, you’ll likely set up one of these 6 most popular types of loyalty programs that ecommerce brands use.

1. Point-based loyalty programs

Point-based loyalty programs allow customers to accumulate points from purchases and redeem those points for discounts, freebies, and cash-backs. They provide a low barrier to entry that’s perfect for generating leads since you don’t need to sell customers on your loyalty program.

Point-based loyalty programs often include VIP tiers and leaderboards, both of which landed in the top 8 expected features of customer loyalty programs from retail brands, at No. 3 and No. 8, respectively.

But the simplicity of point-based loyalty programs has a downside as well—they fail to provide the instant gratification that’s essential to keeping customers engaged. Consider taking a hybrid approach and combining this strategy with another loyalty program type.

Expert tip: “Don’t reinvent the wheel if you don’t need to. Focus on actions and standards customers are familiar with and build on that. Use data about the customer’s points, tiers, and VIP status, and echo that back to them in every campaign and abandon cart email––really encourage them to use those points––using universal blocks. If you have a point multiplier sale going on, just edit the universal block instead of editing every email.”

2. Value-based loyalty programs

Value-based loyalty programs allow customers to donate a percentage of their purchases to welfare programs and charities that align with their values. These programs reward customers based on their emotional connections with causes.

15% of US consumers expect brand loyalty programs to offer some type of charity contribution. But setting up value-based loyalty programs can be challenging because brands need to establish their company values and partner with charities that align with their customers. Getting either of those variables wrong can lead to failure.

3. Tiered loyalty programs

Tiered loyalty programs allow customers to access different levels of benefits based on metrics such as purchase volumes or order history. They are highly effective at encouraging customers to engage with brands in an attempt to increase their membership tiers.

30% of US consumers expect ecommerce brands with customer loyalty programs to offer VIP tiers within those programs.

30% of US consumers expect ecommerce brands with customer loyalty programs to offer VIP tiers within those programs.

Although highly customizable, tiered programs can be difficult to implement as customers in lower tiers might not be motivated to engage. But you can overcome that challenge by offering more ways for loyalty members to upgrade tiers.

4. Paid loyalty programs

Paid or fee-based loyalty programs give customers exclusive benefits and rewards for a fee. But unlike other loyalty programs, paid membership programs present a high barrier to entry and, therefore, must provide tremendous value to succeed.

When implemented correctly, paid loyalty programs can be highly profitable. A 2020 survey by McKinsey revealed that 62% of customers spent more with a brand after joining their paid loyalty program.

5. Partnered loyalty programs

Partnered loyalty programs generally involve multiple companies working together to create a reward program. Businesses that don’t compete directly with each other can collaborate to create a loyalty program that helps them retain customers and reach new in-market audiences.

Although multi-merchant loyalty programs reduce the costs of implementing a loyalty program, they can also dilute brand value and reduce the likelihood of customers redeeming their rewards with the same brand.

6. Gamified loyalty programs

Gamified loyalty programs incentivize actions by turning them into small games or competitions, then awarding benefits upon successful completion. Gamifying desired actions such as purchases and social media shares is an easy way to increase customer engagement.

Gamified loyalty programs need to be innovative to encourage adoption.

Gamified loyalty programs need to be innovative to encourage adoption. At the same time, it’s easy to lose track of value as you focus on gamification. Consider creating a gamified points system that offers value based on the impact of customer actions, such as referrals and reviews.

Also, if you go the gamification route, consider creating a mobile app. Mobile apps and digital wallets are the most invested-in technology to build customer loyalty via customer loyalty programs.

Loyalty programs help you crisis-proof your brand

Loyal customers are more valuable than one-time customers hunting for the best deal. Need more proof? Here’s how implementing a loyalty program helps your business grow.

Greater customer engagement

Customer engagement is crucial to building a successful brand. A 2018 report by PwC found that 65% of US customers find a positive brand experience more influential than great advertising, and nearly one-third––32%––will walk away after just one bad experience.

65% of US customers find a positive brand experience more influential than great advertising.

Loyalty programs provide customers value beyond their purchase. This extra value, whether in the form of reward points or free products, improves the customer experience and inspires them to engage with a brand more frequently.

Expert tip: “A loyalty program is not something you want to come out of the gate with for a new or growing brand. Use your data to determine when might be the best time to introduce a loyalty program. Are customers coming back on their own for repeat purchases? Does it make sense with your current marketing strategy to offer incentives for brand loyalty? Are you able to add value to the customer experience through the rewards offered in your program? If the answer is yes, then this would be a good indicator that it’s time to think about a loyalty program.”

Higher customer lifetime value

Rewards programs do more than inspire brand loyalty. As a long-term strategy, they also improve customer lifetime value (CLV)—the average revenue a customer generates across the customer lifecycle.

CLV represents a business’s financial viability. The higher the number, the better your profitability—and potential long-term growth. Loyalty programs encourage customer engagement, provide positive reinforcement, and drive repeat purchases—all of which are essential to increasing CLV.

Better customer retention

The most significant benefit of loyalty rewards programs is improved customer retention. Rewarding customers for a purchase shows them that you value their business.

As a result, customers are more likely to shop with your brand instead of your competition. In an environment where companies are hyper-focused on customer acquisition, improving your customer retention rate can help you get more value from existing customers.

More brand advocates

Successful loyalty programs double up as organic marketing tools. When customers feel valued, they’re more likely to recommend a brand to their friends and family. They become brand advocates who help your business grow through word-of-mouth marketing.

Customers LOVE recommending brands. A 2021 report by Mention Me revealed that 82% of consumers reported recommending a brand within a year—and 36% said they recommended a brand less than a month ago.

4 world-class loyalty program best practices for retailers

40% of consumers surveyed by Mention Me say they keep buying from brands that reward loyalty. If you’re looking to implement or improve your loyalty marketing program, follow these best practices.

Automate referrals to scale customer acquisition

We’ve emphasized using loyalty and reward programs to increase repeat customer purchases. But loyalty programs can also be an effective channel to scale customer acquisition through referrals. You only need an automated referral program to start building your customer base.

With Klaviyo and LoyaltyLion, you can set up an email referral program that generates leads by rewarding loyalty. Our email automation tools and LoyaltyLion’s unique URL feature can help you drive referrals and increase sales.

Use customer segmentation to personalize communications

According to McKinsey’s Next in Personalization 2021 report, 71% of consumers expect personalized communications from brands—and 76% feel frustrated when they don’t get it.

71% of consumers expect personalized communications from brands.

But you don’t need to personalize the entire program to each customer—personalizing the rewards would work just as well.

You can set up customer segments using LoyaltyLion’s insights feature and send personalized emails with Klaviyo to increase open rates. Targeted discounts and invite-only sales for your most loyal customers are great ways to boost conversions through your loyalty program.

Expert tip: “Make sure that a customer’s loyalty status is acknowledged and rewarded as they shop, with experiences targeted to them. For example, if a customer hasn’t yet subscribed to the loyalty program, showcase the selling points of joining. If they are in a specific tier, emphasize the benefits of that membership and how far they are from being in the next tier to foster greater loyalty. Additionally, incentivize your most loyal customers and invite them to become brand advocates who can continue building your customer base, such as having a VIP top tier that gives them access to exclusive events, pre-orders, or first access to sales.”

Set up trigger-based emails to improve customer engagement

It’s likely that once customers sign up for your loyalty program, they might not engage with your business for a while. Sometimes, they need a quick reminder or nudge in the right direction to get back on track.

A simple email with a monthly update on their loyalty status might do the trick. And if it doesn’t, you can set up trigger-based emails with exclusive discounts to re-engage customers who haven’t visited your online store within the last few months.

Expert tip: “Make sure that a customer’s loyalty status is acknowledged and rewarded as they shop, with experiences targeted to them. For example, if a customer hasn’t yet subscribed to the loyalty program, showcase the selling points of joining. If they are in a specific tier, emphasize the benefits of that membership and how far they are from being in the next tier to foster greater loyalty. Additionally, incentivize your most loyal customers and invite them to become brand advocates who can continue building your customer base, such as having a VIP top tier that gives them access to exclusive events, pre-orders, or first access to sales.”

Build a community to enhance customer retention

A 2019 survey from LoyaltyLion revealed that 47% of consumers believe being part of a community of like-minded people motivates them to stay loyal to a brand. Build a community of your top customers and reward them for tasks such as social media follows and mobile app downloads.

Using Klaviyo and LoyaltyLion, create email flows that encourage customers to earn rewards by performing those kinds of desired actions. Encourage shoppers to join your Facebook group and become a part of the conversation to improve customer satisfaction.

Expert tip: “Make sure you’re promoting it. A lot of brands have loyalty programs set up but they aren’t promoting it in their flows, sending dedicated emails to loyalty program members reminding them of the perks, or calling it out in their larger digital marketing efforts. Loyalty programs can be a key differentiator for your brand these days. Show yours off.”

10 loyalty program examples—and proof they work

The best customer loyalty programs have a few things in common—they’re simple, accessible, and valuable. Here are 10 effective loyalty program examples that tick those boxes.

1. Lively

Athleisure and lingerie brand Lively offers a tiered loyalty program that rewards customers with points based on purchases. It encourages customers to buy more and gamifies the program with bonus tasks, such as referrals and social media follows, for earning loyalty points.

Lively reports a 21% increase in average order value and a 37% increase in repeat purchases.

Lively takes a data-driven approach and relies on integrations between LoyaltyLion, Klaviyo, and Zendesk for its digital loyalty program. As a result, Lively reports a 21% increase in average order value and a 37% increase in repeat purchases.

2. 100% Pure

Natural beauty products brand 100% Pure offers a three-tier retail loyalty program that provides benefits based on spending per calendar year. Customers can redeem their points using discount vouchers based on their loyalty tier and earn bonus points for social media follows and reviews.

100% Pure reports over $244K in additional referral revenue as a result.

100% Pure uses LoyaltyLion’s multi-link feature to connect with multiple Shopify POS accounts across its network of physical stores—and reports over $244K in additional referral revenue as a result.

3. Skinnydip London

British lifestyle brand Skinnydip London offers a customer rewards program with four levels of benefits. Earning points is easy: customers receive 5 points for every £1 they spend and can also earn points by completing extra tasks like referrals and reviews.

Customers receive 5 points for every £1 they spend and can also earn points by completing extra tasks like referrals and reviews.

The lowest tier gives shoppers access to exclusive offers year-round and 15% off discount codes for every 500 points. Then, with each level, Skinnydip offers more rewards. The highest level offers benefits such as invites to events and free delivery days.

4. ALOHAS

Sustainable fashion brand ALOHAS offers an effective rewards program that combines point- and tier-based loyalty programs. Customers earn points on every purchase, but the amount and benefits vary based on their membership tier.

ALOHAS’ rewards system offers benefits in two tiers.

ALOHAS’ rewards system offers benefits in two tiers. The first tier rewards loyalists with special offers, giveaways, and early access to new product launches. The second tier, for loyalists with 3K+ points, provides greater discounts and access to free shipping.

5. Truly Beauty

Vegan beauty brand Truly Beauty offers an uncomplicated points program for shoppers. The program is simple—customers receive 50 points on signing up and earn 1 point per dollar spent on purchases. There’s no complex math involved here.

Customers receive 50 points on signing up and earn 1 point per dollar spent on purchases.

Truly Beauty also allows customers to earn points in other ways, such as sharing their birthdates and signing up for the mailing list. Customers can redeem points earned in exchange for vouchers or purchase freebies like a Skincare travel pouch.

6. Primal Kitchen

Dressings and healthy snacks brand Primal Kitchen offers a classic rewards-based loyalty program that allows customers to save money with free products and shipping. Customers can earn rewards in two ways—by shopping online, and by engaging on social media.

Customers can earn loyalty rewards between purchases as well.

Primal Kitchen encourages brand advocacy with a “Give $5. Get $5.” program that allows customers to send $5 coupons to their friends and awards them matching discounts when their friends make a purchase. That way, customers can earn loyalty rewards between purchases as well.

7. Vitamin A Swim

Designer swimwear brand Vitamin A takes a unique approach with its loyalty program. They offer four spend-based membership tiers. Customers only need an account to get started. Vitamin A’s lowest tier provides free shipping, a birthday gift, and early access to sales.

Vitamin A’s lowest tier provides free shipping, a birthday gift, and early access to sales.

As customers spend more, they get access to unique benefits such as an SMS fit concierge and free two-day shipping. Vitamin A’s loyalty program is unique because the highest tier gives customers access to a personal shopping concierge for the ultimate VIP experience.

8. The Couture Club

Fashion lifestyle brand The Couture Club (TCC) offers a classic four-tier spend-based loyalty program. Customers get instant access to new releases and sales and enjoy more perks as their spending increases.

The highest tier provides access to a secret discount day, free VIP delivery, and a surprise Christmas gift.

The highest tier provides access to a secret discount day, free VIP delivery, and a surprise Christmas gift.

TCC’s Black Friday 2020 members-only sale resulted in a 325% increase in email revenue. And that’s not all. Managing director Scott Shashua reports that while the average customer spends £150 a year, a customer subscribed to TCC’s loyalty program spends £350—an extra £200 a year.

9. Represent

British luxury fashion brand Represent’s five-tier loyalty program offers a classic one-to-one conversion of points per purchase and incremental benefits with every tier. What’s unique about this program is that it allows customers to earn points for past purchases for up to 3 months.

Represent’s email automation and loyalty program drove over £1.2M in email revenue during Black Friday 2020.

And it works—Represent’s email automation and loyalty program drove over £1.2M in email revenue during Black Friday 2020. Moreover, their exclusive product launch emails generated an impressive £188k in revenue for a non-discounted product.

10. Never Fully Dressed

UK-based women’s fashion brand Never Fully Dressed’s (NFD) loyalty program offers perks like double point days, surprise gifts, and secret sales. It uses referral rewards to tap into its growing community of users to generate leads and online sales.

NFD allows customers to earn rewards through referrals, purchases, social media follows, and newsletter sign-ups. They use Klaviyo’s integration and post-purchase email flows with LoyaltyLion to boost customer engagement between purchases.

We have since grown our active members by 2.4x.

Sukh Takhar, ecommerce manager

The results speak for themselves.

“The LoyaltyLove program has been a great success for Never Fully Dressed,” says Sukh Takhar, ecommerce manager. “We have since grown our active members by 2.4x and frequently see comments from customers about how much they enjoy accruing––and spending!––their points.”

Your next steps

Customer loyalty programs are arguably more important than ever. Focusing now on improving yours can mean better returns come BFCM—and the New Year. That may seem far away, but it’ll be here before you know it.

Improving your customer loyalty program, though, isn’t just about how it’s set up. It’s also about how you communicate it out to your customers, the channels you use, and the community you build.

Messaging needs to be authentic, community-forming, and inspiring.

Casey Roeder, founder and CEO, Skylab Media

“Your audience is everything,” says Casey Roeder, founder and CEO, Skylab Media. “When we think about a post-iOS14 world, brands are allocating greater budgets into loyalty-based campaigns. Utilizing platforms like Klaviyo and channels like SMS will vastly improve the LTV of each customer. Messaging needs to be authentic, community-forming, and inspiring. Ensure the incentive is there for customers to keep coming back for more. Everyone loves a good loyalty program.”

Finally, optimize your customer loyalty program based on your customer feedback and follow the tenets of customer-first marketing. The numbers will follow.