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Types of Customer Loyalty Programs

BY -

Huda Idris

December 18, 2020

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If you’re a retailer that runs an online store or physical one, chances are you’ve considered implementing some form of loyalty program to reduce churn and attract new customers. If that’s the case, we’re here to tell you that you’re on the right track. Take a look at the following statistics:

  • An e-commerce incentives case study estimated that by offering customers a loyalty program, e-commerce platforms can increase their average order quantity by as much as 319%.
  • A Wirecard survey found that as many as 75% of customers said they are more likely to make repeat purchases from a business after receiving an incentive from it.
  • A Bond study found that 73% of consumers are more likely to recommend brands with good loyalty programs to friends and family through word of mouth. 

Now that we’ve established that customer loyalty programs are effective, let’s explore the different types of loyalty programs that you can implement for your business.

Point-Based Loyalty Programs


Point-based loyalty program graphic - shop + earn = redeem


Points programs are the most popular type of loyalty programs. Most customers are familiar with how a point system works: customers earn points as they spend, and once a certain amount of points is accumulated, they can redeem those points for different rewards such as discounts, gift cards, freebies, special services, and more. 

Defining the types of rewards and the number of points needed to redeem them is completely at the brand’s discretion. That said, it is important that customers see value in participating in a program. If they do the math and realize they’re not getting much in return for all their spending with your company, they won’t be interested in joining and may even start shopping with a competing business that offers better perks than you do, so do beware. 

Tiered Loyalty Programs


Sephora’s Beauty Insider loyalty program
Sephora’s Beauty Insider loyalty program


Tiered programs work as video games do: as customers continue to make purchases, they unlock a new level of loyalty that comes with exclusive benefits and privileges enjoyed by those on lower tiers.  

Implementing a tier program motivates customers to make more purchases to advance their membership level and enjoy bigger and better rewards. Moreover, structuring your loyalty program into levels or tiers allows you to create a distinction between customers based on how much they spend and reward them accordingly.

You’re probably familiar with this type of loyalty program and chances are you may be a member of one as some of the biggest brands have it, e.g. Starbucks, Uber, Sephora, Marriott, and many more.  

Spend Loyalty Programs


Spend loyalty program balancing time and money


Spend loyalty programs are similar to point loyalty programs except that they are bound by a time limit. Businesses implement them to reward customers that spend more money in a short period of time. Spend-based loyalty programs are a way for companies to recognize and retain existing customers that spend more. 

This type of loyalty program has been largely adopted by airline companies in conjunction with their existing mileage programs because it allows them to distinguish and retain fliers who purchase premium tickets i.e. first class, business, etc. Those travelers spend more for the same number of miles an economy passenger flies, as such, airline companies reward high-spending fliers with some exclusivity in the form of VIP lounge access, early boarding, additional baggage weight, etc.

Paid Loyalty Programs (Subscription-Based)


Subscription based loyalty program


Premium loyalty tiers are sometimes made into a paid subscription. In subscription-based loyalty programs, members pay upfront either a monthly or annual fee to be part of your loyalty program and enjoy unique rewards and privileges. They usually do so after taking into consideration their average volume of purchases from your business and whether or not it makes financial sense for them to invest in subscribing. Remember: almost all customers do this, so ensure that any paid program you want to launch is appealing enough for them to want to be a part of.   

A great example of this type of loyalty program is Amazon Prime. With over 150 million subscribers in the US alone, Amazon Prime members pay a recurring fee to enjoy free and expedited shipping, exclusive discounts as well as free access to other Amazon services they’d otherwise have to pay for. 

Value-Based Loyalty Programs


Loyalty program based on social missions


Customers can be rewarded in other ways besides discounts, cashbacks and freebies. If your business has a strong social mission, then you may want to consider a rewards program that helps a cause your customer base is passionate about. 

For example, if you run a pet store and you know that your customers care about animal welfare, you may develop a loyalty program where a portion of the money customers spend at your store goes to charities or organizations that support animals and rescues them. This type of loyalty program fosters a deeper level connection between customers and your business and makes them feel like they’re making a positive impact through their purchases. 

Hybrid Loyalty Programs

You don’t have to stick to one loyalty program type; in fact, the biggest companies combine different types of loyalty programs to ensure that there is something for every customer. 

The most common combination of loyalty programs is running a point-based program in conjunction with a tier-based one. This makes the calculation of points easy for the customers and encourages them to spend more to reach the next tier for more rewards. Companies may also include a paid subscription in conjunction with the point-based and tier-based programs to create that extra special distinction for their most loyal customers.

​Final Thoughts

Regardless of what loyalty program type you choose, making sure that it works for your customers as much as it does for you is the ultimate key to your program’s success. Remember: customers’ purchasing decisions are almost always driven by WIIFM, i.e. “What’s in it for me?”, so always make sure you have a good answer to that question throughout your loyalty program planning. 

To streamline your loyalty program implementation, you might want to consider using a customer loyalty software. If you’re in the market for one, check out our detailed review of the best customer loyalty solutions available in 2020.

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