Benefits of Loyalty Programs - Businesses and Customers

December 21, 2023
8
minutes
Example of how loyalty programs worl

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Loyalty programs are booming. They’re one of those topics that just seem to make sense. I personally love it when my favorite brand has one - and I know I am not the only one. The first thing I want to do is explore the rewards like a game and try to figure out the best way to spend my points.

When I do find a brand that I actually like, a loyalty program can feel like a cherry topping. It’s like getting the best of both worlds - awesome perks and a brand that you actually connect with.

In this article, we’ll explore the reasons why brands use them and customers love them. 

The best way to weigh the benefits of loyalty programs is by looking at both angles - benefits for brands and customers alike.

Clearing up the meaning of loyalty programs

Customer loyalty is mostly about how well you connect with customers. That can mean almost anything like - quality, style, or customer service. The formula is mostly based on an emotional connection. Loyalty boils down to three basic dimensions:

  • Trust: Can you be trusted to deliver on your promise? Which determines if loyalty is possible.
  • Customer Intention: Have you found your core demo? The more customer-centric your brand, or how well you fit into your niche.
  • Experience: Are your processes optimized for a seamless experience - Delivery, Prompt Support, Returns, etc. Have you minimized pain points and optimized the purchasing journey?

Customers always have a preconceived idea of what they want. The better we fit into that notion, the more able we are to retain them. 

There is an inherent difference between customer loyalty and loyalty programs. One is the destination and the latter is the ship you use to get there. Loyalty programs are tools we use to facilitate loyalty.

Benefit of loyalty programs with figures

This section assess the financial benefit of loyalty programs. After all, loyalty programs are only as useful as they are beneficial. Generating new leads every month can be challenging. We should take an interest in the value we are losing out on.

  • 71% of shoppers say that loyalty programs influence their relationship with brands. This suggests that loyalty programs create opportunities for loyalty.
  • Loyalty members spend 27% more when they feel a positive emotional connection. This tells us that positive impressions carry value.
  • 66% of customers will modify their purchase to maximize loyalty benefits. This suggests that shoppers are responsive to loyalty benefits.
  • 32% of shoppers say that loyalty programs improve their shopping experience. From this, we can see that loyalty programs can potentially improve the customer's experience.

Statistics Source

How do businesses benefit from loyalty programs?

This list goes over the main benefits of loyalty programs. The paradigm is shifting, focusing more toward customer retention. We mainly see a failure to extract the true value from shoppers. It’s well known that leads can be expensive to generate and many consider loyalty programs as the premier tool to counter their cost.

Example of actions you can reward with loyalty points

01. Creating a Transcendent Experience

The traditional shopping experience can feel “transactional” and loyalty programs change up the situation. As you deepen your understanding of shopper habits, you also find new ways to improve their experience. Loyalty programs are practices focused on the customers' experience. There is no limit to loyalty programs, something that depends on your creativity.

02. Cutting through the Competition

Loyalty programs are an intriguing consideration for shoppers. They can be highly influential, especially if your competitors don’t have one. Your rewards could be enough reason to forget your direct competitors, even for a short while. Loyalty rewards encourage future spending the way that the points work, making them future-oriented.

03. Cultivating an Air of Exclusivity

You’ll need both hands to count the ways you can create an image of exclusivity. Exclusivity can make your brand look great and your loyalty program special. Anything that provides early access, restricted access, or special events - will have a similar effect. You can add some creativity and make your loyalty program feel like one of a kind.

04. Simplified Relationship

Working with loyalty members is super simple. Customers already expressed their interest and submitted credentials, so the job is virtually complete.  They’ve also expressed their openness to receive marketing messages. On top of that, they also produce data - that can be analyzed. This allows you to peek into customer behavior and anticipate their behavior. Also, consider how loyalty members produce higher-quality data than first-time buyers and busted leads.

05. Nudging Customer Behavior

Remember that you have full control over your reward types and values. Which means you can nudge customers towards the actions that you want. If you happen to want more reviews or social media followers, you can adapt your points. As your member list grows, you’ll be able to lead customers to build your platform.

06. Customer Engagement and Advocacy

Happy customers are more likely to both recommend and engage with your brand. Their engagement can help scale your brand and their vote of trust can boost your reputation. Whether it's a like, comment, or referral; it can have a huge impact. Loyalty members are far more likely to produce UGC, leave reviews, and refer their friends.

VIP tiers example

07. Sustainable Revenue Source

These big four loyalty metrics are Lifetime Value, Retention Rate, Repeat Purchase, and Average Order Value. Each one of these metrics stands to improve from a loyalty program. When done well, your loyalty program will continue to grow and grow. Imagine having an extensive list of willing customers you can communicate freely. We see brands use their loyalty programs to boost holiday sales and stabilize slow seasons.

08. Customer Trust

Familiarity can make things much simpler. Loyalty members have shopped at your store in the past and are familiar with your process. This makes it easier to communicate with them and makes it possible to build a relationship. It also makes them more responsive and appreciative, the makings of an ideal customer. Anytime they leave a review, you can rest knowing they are loyalty members as well.

09. Growing Member List

Loyalty members are an open channel to your most important customers. Best of all that list will continue to grow. The power of retention shines through as your program expands. A well-crafted loyalty program is a dependable source of value for your business. Consider what proportion of your shoppers are repeat shoppers and what sort of rewards they are most attracted toward.

There is a clear trend in ecommerce toward customer retention. There is a lot of value that is being lost without a solid retention strategy. Loyalty programs are incentive-based strategies that look to create value for shoppers. They enable us to capture our most valuable shoppers for the future. 

How do customers benefit from loyalty programs?

We must also consider the benefit of loyalty programs for customers. Customers are ultimately what determine the success of your loyalty program. Below are the primary benefits of customers using loyalty programs.

01. Deeper Connections

Imagine finding the perfect brand and finding out they have a loyalty program. A program that rewards based on your purchase history. This means that loyalty programs deepen the connections we have with customers. We actively try and find our ideal customer, and when we do it’s like a little victory. Loyalty is all about building a meaningful experience with your core.

Rewards that customer can redeem from loyalty points

02. Freedom to Choose Rewards

Customers love the freedom to choose how they spend points. Just being able to explore your rewards is a pleasure in itself. The more options you provide the more flexibility they feel. Progressive tiers give shoppers something to chase and create strong motivation.

03. Exclusive Treatment

Your best customers deserve special treatment. Loyalty programs are an awesome way of keeping them interested. When our most loyal customers lose interest, we should start worrying. Thinking about how to create this sense of exclusivity is a form of assurance. Think along the lines of early release, special events, and VIP tiers.

04. Discounts and Incentives

Loyalty programs are based on very persuasive rewards. These rewards are unlike standard discounts. Loyalty rewards point toward future purchases, which keeps things forward-facing. These discounts are even sought out, and customers are more willing to settle with a brand they know offers rewards.

05. Trust and Familiarity

Shoppers who are familiar with loyalty programs, know exactly what to expect. They’ve gone through the ropes and even have their credentials saved. Loyalty members benefit from a streamlined redemption and purchase process. Which makes it easy for them to shop at your store.

06. Sense of Community

With loyalty programs, customers benefit from a sense of community. They feel included as part of your brand. These supporters are also one of the most passionate. You can leverage this sentiment by integrating their feedback. Any feedback they provide is also a source of information, the fact that they are loyal only enriches their feedback.

Any random customer isn’t enough. What we want most of all is to retain our core demographic. That’s where all the opportunity and value live. With the assistance of a loyalty program, you can explore their preferences and find ways to deliver additional value. A loyalty program is also only viable if it has benefits for customers. So logically, considering their needs is important.

Common challenge with loyalty programs

Loyalty programs have a bad habit of being “cheap” marketing schemes. These generic loyalty programs tend to want nothing but a quick buck. This is no sustainable way to scale your loyalty program using such practices.

Instead, you should be looking at ways to create genuine value. Creativity is powerful and can determine the future of your loyalty program. The main point we are trying to emphasize is that genuine value is what attracts and keeps customers interested.

It helps to look at a few examples of creative loyalty programs. This can help you paint a more complete idea of how you should be designing your loyalty program.

Conclusion

When considering starting a loyalty program it's important to look at it from both angles; business and shopper. After all, they are only as viable as they are useful for all parties. And yes there are nuances, which we hope we covered with enough context. After reading this article, you should have a clear idea of your goals and how you stand to benefit from starting your loyalty program.

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