Living in today's digital world as a consumer can be pretty challenging. Blasted with fancy deals from hundreds of engaging ad photos and videos is one thing, but being a part of a tribe is the secret to building customer loyalty with your brand's loyalty program.

If you look at how people build relationships, a loyal relationship is sincere and shows very subtle yet powerful signs that they care. And just like any other relationship, customer loyalty isn't earned quickly. That is why a growing priority for today's business is to invest in customer loyalty programs.

New Customers Vs. Returning Customers

As much as it is crucial to gain new business, it's equally important (if not more) to convert your existing customers into repeat ones. According to the Customer Research Institute, 65% of a company's business comes from existing customers, and that the cost is 5x more to attract new customers than maintaining existing ones.

There are certain stages your brand must undergo to gain the trust of new customers- which takes time and much effort from your marketing department (not to mention the cost). First and foremost, you need to sell your brand before you can sell your products. As a new customer, they will consider your brand and business a bit risky and will not commit to spending too much, whereas a returning customer has already built a relationship with your brand so they are more inclined to consume your product or service.

Existing customers already know what your brand is all about. If they were happy with their previous purchase and service, they would likely buy more and help advertise through word-of-mouth. This relationship is built through trust, leading customers to spend 67% more than new customers.

As of 2021, the average customer retention rate is below 20% in various industries, according to a research report by MixPanel's Product Benchmark. Most companies don't spend much time on strategies to retain customers, because they take time to grow. A study conducted by Bain & Company analyzed the cost and revenues that came from providing services to customers over their whole purchasing life cycle. It's no wonder that research shows a 60-70% probability of selling to existing consumers compared to a low 5-20% probability of selling a product to new customers.

One thing for sure, customers will support brands that fulfill their goals, needs, and values. If your brand consistently commits to providing the best service and products, your customers will become loyal to your brand.

How do You keep customers loyal?

To keep customers loyal, your brand needs to be grateful and generous. A customer's perception of a customer loyalty program could be cynical - a scheme to get customers to spend more money. So it's essential to have loyalty programs as a way to express sincere gratitude and be genuinely generous.

Show customers how much you value their loyalty to your brand by offering free merchandise, coupons, rewards, and an inside scoop for new releases. You need to tune in with your customers' needs if you want to build customer loyalty.

What is a customer loyalty program?

A customer loyalty program is a marketing approach to recognize and reward customers who purchased or engaged with the brand on an ongoing basis. It's excellent to create repeat customers and get valuable data with purchase history and customer information. This data will help with future marketing plans, product designs and, most importantly, improve the customer's overall experience.

As mentioned earlier, today’s market is saturated with similar or identical products, so the brand's distinction is vital for success. A loyalty program can help you stand out from the noisy crowd.

“Loyalty programs will help make sales easier. Companies that focus on retaining their customers record up to 60% more profits than their competitors.”

— markinblog.com

Once you have a tribe of loyal customers, the rewards are endless for both parties. Fostering a strong sense of trust between your brand and customers will drive referral traffic and word-of-mouth marketing. Remember, when there's no trust, there's no relationship.

How customer loyalty programs can benefit your business

It's essential to get your business on board to get a customer loyalty program because of these four great reasons:

Word-of-mouth advertisement. If your customer loves and enjoys the benefits of your loyalty program, they will tell their friends and family all about it! Not to mention, also share your content on social media.
Increase customer retention. In today's world, it's not all about buying products based on the price itself. It's about being a part of a tribe with shared values, engagement, and that feel-good feeling they have with your brand.
User-generated content. Happy customers will be glad to publish reviews, ratings, and photos on websites and social media. An organic way to create authentic ambassadors.
Save on Cost. We can't stress enough how important it is to keep your returning customers happy! It's more cost-effective than it is to acquire new ones.

What are the different types of Customer Loyalty Programs?

We thought you'd never ask. Listed below are the different types of customer loyalty programs. But which would be best suited for your brand and business?

1. Point-Based and Tiered Loyalty Programs

Many businesses widely use point-based loyalty programs due to its ease of use. It's where your regular customers could earn points with every purchase to redeem as rewards such as free services, discount codes, or special limited offers. It’s easy for customers to understand how to attain rewards and encourages frequent purchases.

Adding tiers within the program will promote long-term value. Tiered loyalty programs work better for high commitment and higher price points, which are great for businesses like the hospitality industry with hotels and restaurants to airlines. Adding tiers to your customer loyalty program also solves potential issues when customers haven't purchased for so long. It encourages repeat customers by increasing the value of the rewards as they move up the tier ladder.

Universal Pictures’ loyalty program, Universal All-Access Rewards, combines the point-based and tiered structure beautifully where they offer their members four different tiers. When consumers buy more movies, they accumulate more points and are able to move up to higher tiers which provides them with exclusive access to rewards such as free movie downloads and merchandise. Consumers can also gain more points by completing certain actions on the loyalty portal.

2. Value-Based Loyalty Program

While it's easy for any organization to give away promotional coupons and discounts, a value-based loyalty program provides value that isn't money-related but rather the internal values that customers uphold. Some businesses find tremendous success in offering customers value-based rewards as opposed to monetary rewards. Not only will you encourage customer loyalty from your target audience, but you can also build a unique connection by fostering trust and loyalty with your customers based on the shared value.

So, how does it work? To create an effective value-based loyalty program, start by:

Selecting a charity, group, or program that shares a target audience with your customer base.
Create a loyalty program similar to a points-based program that translates customers' purchases into a 'currency' type.
When customers purchase a certain amount or buy a specific product, a designated sum gets donated to charity.

Value-based loyalty programs help define your company's core value which aligns with your customers’ internal values.

3. Coalition (Partnership) Loyalty Program

Working with another company to offer co-branded products or services is mutually beneficial for both your brand and your customers. It is a great way for brands to build and retain their customers.

A co-branded product or service is marketed under or carrying two or more brand names. An example is Nike and Apple’s collaboration on the Apple Watch Nike+. The Nike Run Club app is integrated with the Apple Watch so users can track their fitness activity on the app, whilst still being able to benefit from the features of the Apple Watch.

It is a great way to provide value beyond what your brand could offer, letting customers know you care about them and trying to find ways to solve issues. Not only would the coalition loyalty program help grow your network, but it'll reach your partners' customers too.

4. Game-Based Loyalty Program

Add in some fun with game-based loyalty programs to help build a more robust name for your brand. Contest and sweepstakes are also great ways to gamify your loyalty program. There are some risks in contests or sweepstakes such as:

Unappealing prizes. If customers are not interested in the prize, they will be less inclined to engage.
Too complicated. A complicated gamification element would deter customers from entering and participating in the contest or sweepstake.
Poor design. When the content and images aren't clear, it confuses users and makes the experience unpleasant.

Apps such as Swarm Perks are an example of a game-based loyalty program where users play a game and get incentives for check-in at various locations and share with their friends. What's great is that by using Swarm Perks, users can get discounts in specific locations. For example, if a user checks in at BestBuy, they will get a 20% coupon for purchases.

5. Paid (VIP) Loyalty Program

We left this last, because well, it may not work for all brands and businesses. A paid loyalty program offers customer VIP services for a fee.

Most customers don't want to pay more, especially when it comes to brands they don't know. It could be because similar perks are offered from free loyalty programs such as a discount or early access to new products. Your brand can find ways to sweeten the deal enough to make the program worth paying for.

Another way to look at it is that a paid loyalty program creates a higher class of customers who want the premium benefit. And the best thing is, customers are more likely to use something they're paying for.

“McKinsey found that members of premium loyalty programs are 60% more likely to spend more with the brand after joining—a number twice as high as with free loyalty programs.”

— velocitize.com

A great example of a paid loyalty program is Amazon Prime. Customers would pay an upfront subscription fee for free 2-day delivery service amongst other perks like saving on Whole Foods groceries, free books, and movies.

Key components of customer loyalty

You now have a general idea of why it's beneficial for your brand to have a Customer Loyalty Program. But to be successful, we need to point out a few things that you must focus on when it comes to customer loyalty.

Provide outstanding 5-star service. If your product and service are exceptional, customers will be happy to share through word-of-mouth advertising which could spread like wildfire. Without it, your brand will not go far.
Focus on the customer. Pay attention to how you speak to customers. Is your team friendly, helpful, patient, and optimistic?
Share customers' positive experiences. Build a valuable community for your customers. Customers trust their peers more than they trust your brand. Encourage positive customer-to-customer engagements and interactions!
Be authentic. Authenticity is about holding your brand accountable. That means being upfront and honest when something isn't going well. But always keep your word to follow through on promises.
Be consistent. A great example by HubSpot demonstrates that McDonald’s attributes their success in customer loyalty to one thing: consistency.

Need Help Creating A Loyalty Program?

High-performing loyalty programs are the ones that get results. Our next-generation shopper marketing platform, PLATFORM³, has allowed the most valuable brands to build and launch their loyalty programs. We will help you throughout the whole process, from initial strategic planning, through to development and overall program management. PLATFORM³ provides invaluable customer data reporting and analytics, which can help you make informed business decisions. One key component of an effective loyalty program is the consumer’s experience. So here at 3 tier logic, we have a dedicated customer support team that can help manage and troubleshoot customer inquiries. Ask our team about loyalty programs today!

Importance of Customer Loyalty Programs