Discover everything you need to know about loyalty marketing. Learn how to build stronger customer relationships, boost retention, and create loyalty programs that drive growth.
Savvy business owners know that boosting customer retention is key to unlocking sustainable growth. But, customer retention can feel elusive — especially for those not well-versed in loyalty marketing.
A structured loyalty program is a great way to motivate customers to return to your brand time after time. Research from McKinsey found that loyalty programs can deepen customer relationships and benefit businesses. Consider these data points:
In this guide, we’ll take you through the ins and outs of loyalty marketing: what it is, why it works, and how to implement today’s best practices in your loyalty program to build stronger, deeper customer connections. Let’s dive in.
Loyalty marketing seeks to retain customers and grow brand loyalty using incentives and rewards. This marketing approach aims to build long-term customer relationships, encourage repeat purchases, and foster brand advocacy.
Data shows that loyalty marketing plays a pivotal role in boosting brand loyalty. About seven out of 10 US consumers consider loyalty programs a leading factor in sticking with a brand. But how do you get customers to join your loyalty program?
The key to loyalty marketing is offering something of value—usually rewards, discounts, or exclusive access. Statista’s research found that 60% of consumers in the US wanted discounts in return for joining a loyalty program, the most desirable incentive among the options presented. Points and rewards were the second most popular option (58%). One-third of consumers found early or exclusive access to products to be motivating.
But it’s not just incentives that can bring people into your loyalty program. The type of loyalty program you choose and how you run the campaign can also influence whether or not someone signs up — and stays active.
Loyalty programs come in many shapes and sizes. Each type of loyalty program has its own advantages and can be tailored to fit your business. The three main ones to consider are transactional, or points-based programs; emotional loyalty programs; and premium programs.
If you’ve ever joined a loyalty program, there’s a good chance it was a transaction-based structure. These are the most common type of loyalty programs in which customers earn points for every purchase. Points can be redeemed for rewards such as discounts, free products, or exclusive services. Some transaction-based programs offer points for non-financial transactions, such as promoting a post on social media or referring new customers.
Transaction-based programs tie rewards directly to purchases or other quantifiable benefits for your business. Customers who collect points shop and spend more. Rewards based on spending motivate customers to increase their purchase amounts. As a result, programs that offer more points or discounts for higher spending can lead to larger transactions, boosting overall revenue.
Transaction-based programs are easy to implement, especially with a platform like Influence.io. Simply choose the activity you want to incentivize (e.g., writing a review, purchasing, sharing user-generated content, etc.), designate a points value, and create rewards that reflect the value of the action you want someone to take.
[Read more: A Complete Guide To Building Customer Loyalty Programs]
The downside to transactional loyalty programs is that they’re, well, transactional. This structure focuses on action, rather than emotion. Transactional loyalty programs won’t build the emotional depth needed to build strong customer relationships. As a result, customers may engage solely for rewards and switch to competitors offering better deals when incentives are more attractive.
Nevertheless, there are hundreds of transactional programs from which to draw inspiration. FFS is a great example of a brand doing this well with its rewards program. They offer customers the option to redeem their points for free products. This encourages customers to try new products they might not have otherwise considered.
Emotional loyalty programs are designed to create a deep, emotional connection between customers and brands.
These programs aim to foster genuine feelings of attachment and advocacy. Customers are encouraged to remain loyal not just for discounts or rewards, but because they feel a personal connection to a brand.
Research indicates that emotionally loyal customers can bring significantly more value over time than merely “satisfied” customers. A study by Harvard Business Review found that customers who are deeply engaged with a brand bring 52% more value than customers who are highly satisfied. Plus, 71% of customers with an emotional connection to a brand are willing to recommend it to others.
So, how do you create an emotional connection with customers? It starts by creating positive experiences, communicating shared values, and investing in authentic interactions.
Think of brands that create a sense of belonging and trust with their customers — brands like Patagonia or Nike foster community through events, exclusive membership discounts, giving back initiatives, and brand activations. Tailoring rewards to individuals is also a great way to build an emotional connection.
The downside to running an emotional loyalty program is that it can take time to build those deep relationships. It takes a fair amount of investment — both in terms of budget and resources — to tailor rewards, host events, and provide personalized care to each customer. Plus, emotional rewards often rely on individual preferences, making it challenging to design offerings that resonate universally. What feels meaningful to one customer may not have the same impact on another.
Premium loyalty programs ask members to pay a fee, often on a recurring basis, in exchange for enhanced benefits and exclusive perks. Unlike transactional loyalty programs, premium programs provide immediate access to rewards and services upon membership.
Typically, premium loyalty programs target the top 20% of customers since those are most likely to pay a fee to enjoy specific brand-related benefits. Recruiting even your top 1% of customers can provide significant benefits: McKinsey reports that the top 1-10% of customers can deliver 20–50% of total revenue.
Increasing revenue is the goal of any loyalty program, but a premium structure comes with an added benefit: membership fees. Customers pay an upfront or recurring fee to join. This fee helps fund the benefits offered and ensures members are more committed to engaging with the brand. Membership fees also overcome some funding challenges that emotional loyalty programs face.
Premium loyalty programs won’t be a good fit for every brand. Price-sensitive customers won’t be interested in paying to access additional benefits. Plus, members will want to see that the rewards are worth paying for. Customers who pay for membership often expect substantial value in return, typically anticipating a 150% return on their investment.
One of the best examples of a premium loyalty program is Amazon Prime. For $14.99 per month, Amazon Prime members get free one or two-day delivery, streaming, reading, and other benefits. Worldwide, more than 200 million Prime members are willing to pay for these benefits.
The three types of loyalty programs are summarized in the table below.
1. Transaction-Based Loyalty Programs
2. Emotional Loyalty Programs
3. Premium Loyalty Programs
Transaction, emotional, and premium loyalty programs don’t work without a fundamental understanding of your customers. There’s an art—and, more importantly, science—to designing a loyalty program that captures consumers’ attention. The psychology behind customer loyalty is fascinating, and helpful to have in your back pocket as you consider how to run your loyalty marketing.
Loyalty marketing taps into core psychological drivers that influence customer behavior. Customer motivation can be categorized in two ways: intrinsic and extrinsic. Both types of motivation influence customer behavior and engagement.
Intrinsic motivation is defined as a customer’s internal drive to engage with a brand based on personal values, beliefs, or an emotional connection. Intrinsic motivation causes customers to be loyal to a brand based on the company’s values, such as sustainability or innovation. This type of motivation can cause someone to support a brand that prioritizes social justice, for example. Intrinsically motivated customers often develop strong emotional ties to the brand, leading to loyalty that transcends transactional relationships.
Extrinsic motivation involves external factors that drive customer behavior, such as tangible rewards like points, discounts, or free products. This type of motivation is prevalent in transactional loyalty marketing, and can also play a role in premium loyalty programs.
One type of motivation isn’t “better” than the other. Companies that take a balanced approach to loyalty marketing are able to use both intrinsic values and extrinsic rewards to boost customer engagement and deepen long-lasting loyalty.
The motivation to join a program is just one psychological element to consider. Once someone is signed up, you want them to stay with it — and use it actively. A member’s level of engagement often depends on whether their loyalty is emotional or rational (or a hybrid).
Emotional loyalty fosters a stronger connection between your brand and your customers, which can increase trust and long-term commitment. Emotionally loyal customers feel a personal connection to the brand that transcends transactions. They’re typically willing to pay a higher price, recommend the brand to others, and relate on a deeper level with the brand’s mission.
[Read more: Beyond Points & Perks: Crafting a Magnetic Loyalty Program to Attract & Retain Customers]
However, customers who feel emotionally loyal to a brand will have high expectations. These customers expect brands to consistently deliver on their promises; and, if something goes wrong, emotional customers can feel deeply betrayed by their favorite brand. For example, in 2020, Airbnb was criticized for its handling of discrimination complaints and for allegedly removing listings in predominantly Black neighborhoods, which some interpreted as a form of discriminatory targeting. These actions led to accusations of racial bias and a decline in trust among both hosts and guests.
Rational loyalty has fewer risks like these. Rational loyalty is incentive-based. Customers get discounts, cash back, or points for staying with a loyalty program. These rewards drive short-term sales and encourage repeat purchases. It’s also simple to manage a transaction-based program and measure the results of your scheme.
However, rational loyalty often prioritizes immediate transactions over long-term relationships, leading to potential customer churn when better offers arise elsewhere. Solely focusing on rational incentives can make it challenging for any loyalty program to stand out, since many brands take the same approach. Loyalty fatigue is a real risk!
Ultimately, brands should aim to integrate tangible rewards with emotional engagement. For example, offering discounts alongside personalized experiences creates a value proposition that appeals to both rational and emotional customers. Try to design a program that makes customers feel emotionally and financially valued.
Clearly, loyalty programs can take many different forms. A program that works for your brand might be totally wrong for another. As you think through how your loyalty program will work, keep these best practices in mind.
Loyalty programs can help reach different business goals. Your program could help boost repeat purchases, higher spend per customer, or increase engagement on your social media channels. Start designing your loyalty program by determining what you hope to achieve.
It’s helpful to establish which metrics you’ll use to measure success. Check out our guide, Loyalty Programs 101: The Metrics You Need to Know for Success for a quick rundown of key metrics related to customer loyalty (such as customer lifetime value, average order value, and more).
Remember that intrinsic motivation and emotional connection we’re trying to spark? It starts with personalizing your loyalty for your best customers. Predictive analytics can give you useful data to tailor rewards and offers to your customer’s preferences.
Personalization extends beyond just rewards; it involves delivering an engaging customer experience with tailored recommendations. Instead of one-size-fits-all reward structures, predictive analytics enables dynamic rewards that adapt based on individual customer behavior and preferences.
Starbucks Rewards is a great example of how to make personalization work well. For instance, a customer who frequently orders lattes might receive a reward for trying a new latte flavor, while a tea drinker might get an offer for a discounted tea. And, the value of Starbucks' "Stars" (their loyalty points) can vary depending on the product and promotion. The company sometimes offers double Star days or happy hours, where customers can earn more rewards during specific time windows, encouraging engagement during typically slower periods.
It takes a lot of time and effort to launch a loyalty program. You want it to work for a long time once you get it off the ground. That means it should be flexible and scalable as your business (and your loyalty members) grow. Influence.io makes it easy to scale a program by adding new redemption options, rewards, or tiers. Refresh your program’s incentives regularly to keep it relevant and exciting for all members.
The best loyalty programs all feature a few key assets.
Tiered reward systems and redemption elasticity are two key strategies that loyalty programs use to drive engagement and spending.
Tiered programs like Delta SkyMiles or Marriott Bonvoy incentivize higher spending and greater engagement by offering increasingly valuable benefits as customers move up tiers. For example:
Tiered programs are easy to scale, too. Here’s an example of how Marriott Bonvoy structures its loyalty tiers, starting with Member and ending with Ambassador Elite.
Redemption elasticity refers to making rewards attainable but still aspirational. The goal is to find the sweet spot where rewards are achievable enough that customers feel motivated to pursue them, yet valuable enough to be desirable and drive engagement. For example, a program might offer:
Marriott Bonvoy offers Member-level rewards like exclusive discounts and free Wi-Fi. At the same time, its Ambassador Elite level members get room upgrades, 75% bonus points for every eligible hotel purchase, and more.
Implementing both tiered systems and elastic redemption options allows loyalty programs to drive long-term loyalty and higher customer lifetime value.
Marriott Bonvoy also shows how leveraging partnerships with other brands can enhance loyalty program offerings.
Partnerships with complementary brands show that you understand how customers use your product, what their interests are, and how you can add value to their loyalty program experience. It’s also a great way to gain new members; cross-promoting to other brands’ loyalty programs is an easy source of customer acquisition.
CRM data and predictive analytics can help you develop customer segments based on customer interactions, purchase history, product usage, and engagement patterns. Bringing together customers with similar behavior, demographics, or preferences gives you an easy way to deliver personalized offers that resonate more effectively with individual customer segments.
Loyalty programs benefit from and generate new data that can help fuel business growth.
Predictive analytics can help identify high-value customers based on their purchase history and potential lifetime value. Once you have this group identified, create customized rewards—such as exclusive access to new products, personalized discounts, and unique experiences—that drive repeated engagement.
Use predictive analytics to anticipate customer behaviors and optimize reward offerings for maximum impact. Data from a group’s purchase history can suggest what might be an enticing loyalty reward. For example, a customer who frequently purchases outdoor gear might be offered rewards related to camping or hiking equipment.
Loyalty programs can tell you a lot about what’s working — and what’s not. Your loyalty data tells you all about your best customers. It gives you insight into how often they spend, what rewards are most motivating, and what actions they’re willing to take on behalf of your brand. Capture data from your loyalty program to improve future marketing efforts, personalize communications, and adjust program offerings.
[Read more: 4 Ways to Drive Business Growth Using Loyalty and Review Data]
McKinsey’s recent research points to shifting trends that will impact the way loyalty programs work. “[After] a period of record-high inflation and fears of a recession, consumers are continuing to shift their habits: budgeting more for essentials, trading down in search of better value, and demanding more from their favorite retailers,” wrote the consulting firm.
Retailers can respond by making it easier for consumers to engage with loyalty schemes on apps, mobile wallets, and digital experiences. For example, Influence.io’s StampCard feature makes it easy for participants to collect 'stamps' online and in-store via Apple/Google wallets. Participants can trade in these stamps for rewards on selected products, entire collections, or special promotions.
To build that emotional connection, consider investing in sustainable rewards and eco-friendly practices to align with consumer preferences. For example, Costa Coffee rewards loyalty club members for using reusable cups with two “beans” (points) each time they bring their own cups. This helps customers get a free cup of coffee after fewer purchases while reducing waste.
Finally, there’s plenty of evidence to show that premium loyalty programs are rising in popularity. Consumers in 2019 in spent an estimated $25 billion to $30 billion on paid loyalty programs, about a 25 to 50% growth rate from the previous year. Paid membership programs can be a great way to increase revenue and engagement.
Loyalty marketing is a highly effective strategy for increasing customer retention and boosting sales. It takes the right tools, however, to run a program efficiently. Influence.io has everything you need to launch a fully customizable loyalty program and scale it to fit your needs. Sign up to learn how brands like puravida, Doghouse, and FFS used the platform to forge deep connections with loyal customers.
