Discover how a loyalty program can drive customer retention, boost sales, and cultivate lasting brand loyalty through rewarding experiences.
A loyalty program is a strategy for customer retention in which a company provides rewards and discounts to customers who buy their product or service regularly. Loyalty programs such as Starbucks Rewards or Sephora’s Beauty Insider program can be huge revenue drivers. Starbucks reports $2.1 billion in reward revenue on one annual report, while Sephora’s loyalty club members drive 80% of the company’s overall sales.
There’s a reason why these programs are so successful: Customers feel truly valued and rewarded by participating. As a result, Starbucks and Sephora have created two of the most valuable brands in the world.
While loyalty programs have been a staple of successful businesses for decades, digital tools are creating new ways for businesses to maximize the potential of customer loyalty. Businesses that haven’t taken the time to understand and implement a loyalty program could be missing out on a simple way to boost sales.
In this guide, we will break down key loyalty program benefits, demonstrating that tools like Influence.io have created a win-win experience for both businesses and customers. Read on to learn how today’s loyalty programs boost customer retention and strengthen brand loyalty while increasing customer satisfaction.
Let’s start exploring the benefits of a loyalty program from your business’s perspective. What are the reasons for creating and launching a rewards program from a financial and operational standpoint?
There’s a clear link between loyalty programs and customer retention. Loyalty programs provide tangible rewards, such as discounts, points, or exclusive offers, to motivate customers to return.
By offering these incentives, businesses make it more appealing for customers to choose their brand over competitors, effectively increasing the likelihood of repeat purchases. For instance, Influence.io's StampCard encourages customers to return frequently to complete the card and earn a reward.
StampCard essentially digitizes traditional punch or stamp cards that you see at coffee shops and delis. Customers can collect 'stamps' online and in-store via Apple/Google wallets, earning rewards for frequent purchases. Your company can customize the reward parameter (for instance, 5 stamps = 1 coffee) to encourage customers to make additional purchases to complete their stamp cards.
Average Order Value (AOV) is a key metric that measures the average dollar amount customers spend per order. Loyalty programs are instrumental in increasing average order value by incentivizing customers to spend more per visit.
Take Sephora’s Beauty Insiders program. Sephora’s program uses three tiers determined by customer spending: Insiders (free), VIB (spend $350 per year), and Rouge (spend $1000 per year). Rewards get more exciting the more you spend. For instance, Rouge members can get first access to product restocks and launches, as well as 20% off seasonal savings events.
Earning points or advancing to a higher tier can motivate customers to spend more. Use Influence.io to create unlimited loyalty tiers (though keep in mind – less is more!). Customize tiers with names that feel authentic to your brand, and set rewards based on spend or specific activities. Higher tiers could unlock special rewards, bonuses, or priority customer service. There’s a psychological element to loyalty programs that can increase AOV with little to no effort on the part of your business.
While one of the biggest loyalty program benefits is customer retention, these promotions also improve customer acquisition.
Loyalty programs can be set up in such a way that existing customers are incentivized to refer new ones to earn points. For instance, HelloFresh gives existing members referral codes to share with friends and family. Every new customer that signs up using a referral code gets $40 off of their first box; the referrer also receives a $20 credit to their HelloFresh account.
Using referrals can decrease your customer acquisition costs. Referral programs capitalize on the trust that existing customers have with their networks. Recommendations from friends or family (e.g., word-of-mouth marketing) are often more persuasive than traditional advertising.
Loyalty programs that reward customer referrals are shown to lead to higher conversion rates. Not only are referred customers more likely to buy from your brand — but they also have higher customer lifetime value (CLV). A study by the Wharton School of Business found that, “The average value of a referred customer is at least 16% higher than that of a nonreferred customer.”
Influence.io makes it easy to reward customer referrals. Share personalized referral links in your emails to customers and incentivize your audience to take action by offering rewards. You may even decide to create “double-barrel” rewards — a small discount or extra points to the referrer, as well as 'entry rewards' to convince someone to sign up.
Along with boosting customer acquisition, loyalty programs can build brand credibility and trust. Companies with a thriving, active loyalty program can leverage their members to get product reviews, testimonials, and user-generated content. Consider leveraging the tools available in REVIEWS.io, which integrates seamlessly with Influence.io. REVIEWS.io enables your team to easily collect feedback and user-generated content on a product or company level.
New customers are more likely to trust recommendations from people they know — or even real, verified users — over traditional marketing. As a result, your company can convert users faster and build stronger customer relationships.
Loyalty programs need not be complicated to run — in fact, often, the simpler the better. Influence.io’s StampCard feature is a perfect example of how less is more when it comes to running a loyalty program.
StampCard makes it easy to track purchases, improve engagement, and boost sales. Set up and customize StampCard for your business in just a few steps, with options to change fonts, colors, and text, set earn rules, and pre-fill stamps to boost motivation.
As easy as it is for you to administer, it’s even more convenient for your customers. Participants can clearly track rewards and see how far away they are from their next reward. This ease-of-use increases participation rates and keeps customers coming back.
Loyalty programs are a goldmine of customer insights. Loyalty programs allow businesses to gather extensive data on customer transactions, including purchase frequency, average spending, and product preferences. From an operational perspective, transactional data reveals shopping habits and helps businesses manage inventory more effectively.
Marketing also benefits from loyalty program data. Engagement and demographic data, as well as customer feedback, can be used to personalize marketing campaigns, tailor rewards, and come up with new ways to cross-sell or bundle products and services.
[Read more: 5 Ways to Deliver a Personalized Customer Experience Through Your Loyalty Program]
Customer Lifetime Value estimates the total net profit a company can expect to generate from a customer throughout their entire relationship. Higher customer lifetime value indicates that a customer is worth more to the business over time.
The 80/20 rule in business states that 80% of your sales come from 20% of your customers. Companies can use their loyalty program to identify their top 20% customers and drive higher sales by encouraging repeat purchases, higher spending, and customer referrals. Focusing on boosting the CLV of your loyalty program members is a great strategy for building long-term, sustainable growth.
A well-designed loyalty program creates a unique selling proposition that differentiates a merchant from competitors. When used correctly, rewards and recognition demonstrate to customers that your business appreciates and values them. This sense of belonging encourages repeat purchases and increases customer advocacy.
Furthermore, a compelling loyalty program can attract new customers who prioritize rewards. A well-run loyalty program can be a game-changer in a competitive marketplace, transforming occasional buyers into loyal brand ambassadors.
Ongoing incentives, such as points that accumulate or benefits that increase through loyalty tiers, create sustained engagement that can reduce customer churn rates. Customer churn can be measured as a percentage of customers lost over a specific period.
Influence.io has different ways to set earn and redeem rules to ensure your budget isn’t being bled dry by ongoing incentives. Simply create rules for how a customer can earn points — such as through making a purchase, writing a review, or following your Instagram. Then, determine how points can be redeemed. Set a deadline for when points expire as well as set discount code settings (e.g., once this discount code is used, it can’t be used again). Read more about these settings in our user support resources.
The North Face’s loyalty program is a great example of a structure designed to reduce churn. Their XPLR Pass loyalty program incentivizes customers with points for purchases, rewards on birthdays, and more. However, point balance is converted to rewards three times a year (in March, June and October) to make sure customers stay engaged and regularly make purchases toward the rewards window.
Finally, loyalty programs are a great way to create a community for your brand. A brand community is an invaluable asset: it’s a group of people who share a common passion for a particular brand. The community elevates your customer relationships beyond transactional. Strong engagement creates a shared sense of belonging.
In practice, this leads to high engagement, loyalty, and customer referrals. Apple’s brand community is a great example. Apple has cultivated a community of users who identify with the brand's sleek design and seamless integration. These loyal customers continue to buy Apple products and become vocal advocates, driving word-of-mouth marketing. Apple's annual product launches are not just events; they're cultural phenomena.
Loyalty programs don’t just help you achieve your business goals; they’re also great for your customers.
The most obvious benefit to customers is that loyalty programs lead to rewards, discounts, and VIP perks. Loyalty programs add value to members’ purchases and help them save money. Free shipping, birthday discounts, and access to exclusive flash sales all make loyalty programs worthwhile to savvy shoppers.
Gamification — the infusion of game elements into loyalty programs — is one of the most compelling aspects of joining these programs. Gamification elements, such as earning points and achieving new membership levels, make the shopping experience more engaging and enjoyable for customers.
Brands that incorporate gamification into their customer engagement strategies see a 47% rise in engagement, a 22% rise in brand loyalty, and a 15% rise in brand awareness.
[Read more: What Is Gamification & How Can It Improve Your Loyalty Program]
Beyond creating a healthy sense of competition, loyalty programs offer a way for customers to get recognized and earn exclusive status by climbing the loyalty tiers. Loyalty tiers provide a structured framework that allows customers to feel a sense of achievement as they climb through the ranks and earn better rewards. Plus, the more recognition and positive feedback the customer receives, the longer they’re likely to continue engaging with your brand.
Customers benefit from simple, straightforward loyalty structures that make it easy to track rewards and see when they’re due for another incentive. Features like Influence.io’s StampCard and the Point Widget are an uncomplicated way for customers to participate in and make the most of their loyalty program. Point Widget, for instance, shows customers how many points they’ve accumulated while browsing your brand site. This widget empowers customers to make purchases that earn more points, cash in their points when they want to, and maximize the program’s potential.
Customers can earn rewards by referring friends or family, allowing them to share benefits while gaining additional perks for themselves. This is a win-win for many customers: they get the pleasure of sharing a brand they like with others, while earning points for rewards in the process. Research shows that customers feel even more connected to a brand after making a recommendation: referrals can positively impact someone’s intention to repurchase.
Of course, a double-barrelled reward doesn’t hurt either. Double-barrel or two-sided rewards incentivize both the current customer and the person they referred. Check out this example from Dropbox for inspiration.
Finally, the community spirit that loyalty programs foster is valuable to customers, too. Going back to the example of Apple’s brand community, think of the people who wait in line overnight to be among the first to try Apple’s latest release. Of course, getting the new product is the primary goal; but a lot of bonding and connecting takes place while waiting in line. Queuing overnight creates a sense of belonging and camaraderie that further strengthens bonds with the brand. Loyalty programs can create a sense of community among members who share similar values or interests, fostering a stronger connection to the brand.
There are many ways to structure your loyalty program, and the format you choose should align with your loyalty program goals. Here are four of the main types of loyalty programs: read more about each in our guide, 9 eCommerce Loyalty Program Ideas to Increase Customer Retention.
Tiered loyalty programs reward customers based on their level of engagement or spending with a brand. Customers can reach higher tiers, which unlock more exciting benefits, by making purchases, spending a certain value amount, or taking specific actions to engage with the brand.
Tiered programs can be set up in just a few clicks directly on the Influence.io platform. Name your loyalty tiers and set a threshold amount based on how much the customer spent or how many points they’ve earned. You can also choose to offer entry rewards — rewards for entering a tier that don’t force the customer to do anything to get a little bonus.
Tiered loyalty programs have to be carefully designed. Their success depends on clear criteria for advancement, appealing rewards tailored to customer preferences, and a balance that keeps customers motivated to reach higher tiers without creating overwhelming gaps between levels.
[Read more: Learn how to design an effective tiered loyalty program]
Engagement-based loyalty programs reward customers for actions beyond just making purchases. These actions are just often just as valuable to your brand as making a purchase, but achieve things like community building or increasing your visibility. Some examples could include:
By incentivizing these behaviors, engagement-based programs aim to keep customers actively engaged with the brand outside of the purchase cycle.
Points-based loyalty programs reward customers with points for specific actions. Influence.io allows you to set rules for exchanging points, such as for discounts, free products, or exclusive experiences. This system not only incentivizes repeat business but also fosters a sense of achievement as customers track their progress and work towards earning rewards that align with their preferences and needs.
[Read more: How To Calculate The Value of My Loyalty Points (5 Steps)]
Finally, hybrid loyalty programs blend features from different types of loyalty programs. By combining elements like points, tiers, gamification and more, hybrid programs can deliver a more engaging and rewarding experience that caters to the unique needs of a brand and its customers.
Inspired by one of these program types? Book a demo with Influence.io today to set up your program.
Clearly, adopting a loyalty program has significant benefits for both businesses and customers.
For businesses, loyalty programs increase customer retention, enhance customer lifetime value, and allow businesses to gather crucial customer data, which can be used to personalize marketing efforts and improve customer experiences.
For customers, the tangible rewards, fun and excitement of participating, and sense of community make shopping more enjoyable. These incentives make shopping with a particular brand more rewarding than with competitors.
Overall, loyalty programs serve as a strategic tool for businesses to enhance customer satisfaction and retention while providing customers with incentives that add value to their shopping experience.
Thinking of utilising a loyalty program? Get started with Influence.io on Shopify in five steps or launch on BigCommerce today!