5 Types of Loyalty Programs: Which is Right
for Your Business?
In today's day and age Loyalty programs have become not only
essential but, a staple for businesses to run. Not only do these
types of loyalty programs drive in customers to cultivate long term
relationships with them but also keeps the businesses head and
shoulders above the competition.
However, choosing the right kind of plan from this plethora of
loyalty programs can become a tedious task.
But no sweat as we have you covered right here in this blog to
help you make the right decision for your business. In this blog
we shall cover the basic understanding of each type of loyalty
program followed by its benefits, industry and challenges that
is supported with an example for your better understanding.
Now, before choosing the right type of loyalty program for your
business, let's first understand what a Loyalty program is.
A loyalty program is a strategy in marketing, fashioned to
cultivate long-term relationships with the customer by offering
discounts, rewards or other benefits. This helps garner a
continued loyalty for the brand and forges a long-term
relationship between the customer and the business.
In this compendious guide we'll delve into some of the different
types of loyalty programs to choose from, along with their
benefits, challenges and how businesses can determine which
among this best aligns with their objectives.
Types of Customer Loyalty Programs for
different Businesses:
1. Point-Based Programs
Point
based programs are among the most ubiquitous and
straightforward of all the programs. For every purchase a
customer earns points. The accumulation of these points in total
leads to a reward or benefit which the customer can redeem in
the form of a discount on future purchases or free service or
VIP access to a product or service and many more.
Benefits:
- Simplicity – Its uncomplicated and direct to understand.
- Customer retention – The rewards will lead to repeat
purchases.
- Reward structure – Businesses can design their reward
structure based on the customer's behavior.
Commonly Used in the following
industries:
- Retail
- BFSI
- Travel
- Hospitality
- Restaurants
- Entertainment
- Lifestyle and wellness
Challenges:
- Lack of value – If these points take too long to accumulate
and do not redeem meaningful rewards, the customer may lose
interest in the program.
- Infrastructural Expense – The tech-loyalty platform and the
architecture required to carry out a point-based program for
your business can be cost-prohibitive internally.
Examples:
- For instance, BSES Rajdhani Private Limited offers its users
a point-based program called ‘Electric Rewards'. Under this
program, the customer earns 100 reward points for their
E-bill subscription, another 100 reward points for making
timely online payments within the 7 days of bill generation
and 50 reward points for online payment made within 8-15
days (about 2 weeks) of bill generation.The accumulation of
these points can be exchanged for a range of rewards like
travel perks, sports, banking benefits, dining experiences,
and more. For example, 3000 reward points can be redeemed
for access to the airport lounge during travel.
- Marriott Bonvoy Benefits offers its customers redeemable
points for free hotel check-ins, dining, car rentals,
flights, free Wi-Fi and much more that can even be shared
among near and dear ones of the customers. This has helped
Marriott to better understand the need of the customer to
create a better experience.
2. Tier/Milestone Loyalty Programs
This program introduces a different level of benefits or rewards
to a customer based on their engagement, spending or loyalty to
the brand. Depending on the customer engagement and milestone
spends with the brand, they enter different tiers or levels of
membership — unlocking advanced benefits and privileges with
each upward level. In this hierarchical set up a customer
progresses through every step of engagement level to accumulate
points and redeem them based on their qualifying area.
Benefits:
- Stimulates more purchase and engagement- This leads to an
increase in the purchase of a customer to unlock a higher
tier or level in the program for customer to access more
rewards and benefits from it.
- Exclusivity – It creates a sense of exclusivity for the
customer based on more purchases as the customer enjoys the
privileges and aspires to attain higher status, leading to
better interaction with the brand.
- Data and Analytics – It helps provide valuable information
into customer behavior and preferences and their pattern of
spending, which can help businesses utilize marketing
strategies. This also helps businesses to monitor areas of
improvement for better results.
Commonly Used in the following Industries –
- Hospitality
- BFSI
- Retail
- Financial services
- Gaming & Entertainment
- Automotive
- Subscription Services and more
Challenges:
- Complexity – It can get complex based on multiple tiers and
complex qualifying factors for each tier. This can confuse a
customer, leading to failure in understanding advantage or
how to proceed leading to frustration and losing interest in
the brand.
- The higher level to enter the next tier may discourage the
customer from participating in the program especially if
they feel the rewards or benefits are not worth the effort.
Examples:
- Myntra insider is a very smartly
designed loyalty program which offers its loyal customers a
range of benefits based on each tier. Tier 1 is an entry
level tier called the Insider Bronze for myntra customers
who can avail benefits such as early access to sales,
exclusive discounts and offers, Birthday surprises and
special deals also they earn points at a standard range for
every purchase.Tier 2 is called the ‘Insider Silver' that
can be achieved after making a certain number of purchases
that is higher than that of tier 1 customers. Here there are
increased points earning rate for each purchase, access to
exclusive product launches, free shipping, priority customer
services support.Lastly, Tier 3, known as Insider Gold, is
offered to a premium range of customers who have reached a
higher threshold of points or purchases. The premium
benefits include VIP access to limited edition collections,
Personalized style recommendations from fashion experts,
Invitation to exclusive fashion events and workshops and
Special anniversary/birthday rewards and milestone bonuses.
This not only enhances the shopping experience for the
customers but also makes them feel rewarded.
- Sephora's loyalty program falls under a tier/milestone
loyalty program that earns its customer points for every
purchase they make at Sephora. The program is divided into
Insider, VIB and Rouge.The benefit for Insider includes free
joining, free shipping, beauty insider cash, 10% off, x
points, discounts, free birthday gifts with 5 options,
access to the reward bazaar, unlimited same day delivery and
exclusive events.VIB membership is purchased for 350$ per
year that provides its VIB customers with all Insider
benefits plus 15% off, better points earning rates and
exclusive gifts and birthday gifts with 6 options.Rouge can
be availed with a spend of $1000 per year that offers all
the benefits from VIB membership along with additional
benefits such as rouge rewards, 20% off, rate of earning
points higher and first access to all the products.
3. Paid Loyalty Programs
This is a subscription-based loyalty program that requires a
certain frequency of payments made by the customers to avail
themselves of the benefits and privileges offered.
Benefits:
- Improves Customer Loyalty – Members remain loyal and are
likely to continue their subscription as they get tangible
benefits. This increased loyalty can lead to higher customer
retention.
- Competitive Advantage – it gives a differentiating factor
for your brand and sets it apart with its competition. It
also attracts high value customers who are willing to invest
in the business.
- Increases customer engagement – It keeps the members engaged
with the brand to increase the value of their membership by
offering exclusive benefits and rewards.
Commonly Used in the following Industries
- Retail
- Hospitality
- Streaming Services
- Subscription Boxes
- Financial Services
- Gaming and Entertainment
- Lifestyle and Wellness
Challenges:
- Perceived value – One of the primary disadvantages of this
program includes convincing customers of the benefits and
advantages of subscription fees. If the customer is not
convinced, then he/she will not enroll or renew their
subscription.
- Retention – Retaining members can be tough in the long term
especially if the competitor offers similar rewards or
privileges.
Examples:
- Amazon Prime Membership – This provides members with
benefits such as free 2-day delivery on selective items or
same day delivery and exclusive discounts on movies and TV
shows and more. To be eligible to avail these privileges
customer must have a prime membership on Amazon.
- Zomato gold referral programs – Zomato, a very popular food
delivery service provider, runs a Zomato gold referral
program where the existing members of the program share the
referral link with their friends and family. When the
referral subscribes to this program, both earn rewards like
a month's free subscription.
4. Experiential Loyalty Program
Not all loyalty programs focus on discounts and freebies but some
offer experiences as rewards. Emotional connection with the
customer through personalized experiences, recognition and
special treatment is the whole gist of this program. As Bernd H.
Schmitt says, a professor at Columbia University, there is value
in tangible rewards and the experience itself.
Benefits:
- Memorable Experience – Creates a lasting memory for
customers instead of material possessions whether a concert,
spa, vacation or more.
- Differentiation – These unique and personalized experiences
give the brand a competitive advantage that cannot be
replicated.
- Brand advocacy – This also creates brand loyalty and
advocacy that customers share in their circle.
Commonly Used in the following Industries
- Travel and tourism
- Hospitality
- BFSI
- Healthcare
- Wellness
Challenges:
- Resource intensiveness – This requires significant
investment in time, capital and manpower.
- Risk Management – This can be subject to unforeseen issues
such as logistical damage or customer dissatisfaction
Examples:
- One of the best examples of this type of loyalty program is
the ‘Infinia card' offered by HDFC bank credit card to its
eligible premium customers who can access the card only
through an invitation and not on application.It grants
several perks such as in travel, including airport lounge
access, meet and greet services, airport transfers, and
priority check-ins. For golf enthusiasts, they offer
complimentary lessons in India, access to premium golf
courses worldwide, as well as 24-hour Golf Concierge
Assistance service.
- Another example of an experiential loyalty program is that
of HSBC where they have curated what is called HSBC's Golf
league the privileges of which are availed by HSBC's premium
as well as global customers.These privileges range from
getting access to golf tournaments that includes, instant
bookings, exclusive guest access to customer's friends and
family, cart services, driving range, complimentary game
lessons, special discounts, and more.The very experience and
the leisure of golfing in this range of features offered to
the golf lovers by HSBC unlike transactional awards enhances
customer experience forging an emotional connect and
fostering loyalty to the brand.
5. Coalition Programs
In this type of program different businesses come together and
offer rewards to mutual customers. When these businesses pool
their resources, better and more enticing rewards are offered to
the customers.
Benefits:
- Better Reach – This allows businesses to increase their
customer base and broaden their market, which leads to a
better reach.
- Cost Sharing – Cost can be shared among the businesses
partnering in the venture and better distribution of
resources and cost saving.
- Happy Customer – Customer enjoys the privileges of redeeming
rewards from multiple businesses that enhances customer
experience and induces better engagement.
Commonly Used in following Industries:
- Retail
- Grocery stores
- Travel and tourism
- Hospitality
- Financial Services
- Healthcare
- Wellness
- Restaurants
- Ecommerce
Challenges:
- Conflict of interest – Business must have similar or aligned
objectives. Hence different priorities can make it difficult
for businesses to run such loyalty programs.
- Data Privacy – Businesses may raise concern regarding the
privacy of their data. Hence, they need to prepare proper
guidelines to protect data sharing and other privacy
concerns.
Examples:
- One world Alliance is a perfect example of coalition loyalty
program where various airlines such as American airlines,
British airways, Cathay Pacific, Qantas, and Alaskan
Airlines unitedly offer its respective clients rewards that
can be either shared or redeemed or transferred to any of
the partner airlines.
- Future pay is one such example where customers earn future
pay points that can be redeemed at future group retail
outlets such as Big Bazaar, FBB, Central etc. They partner
with many other brands and merchants to offer exclusive
discounts and deals for the customers.
Conclusion:
Customer loyalty provides an edge to a business by setting your
business apart in this competitive market. And now that we
understand how to choose the right type of loyalty that
coincides with the goals of your business, it will also help you
make better decisions as well as bring success to your
organization while driving in more customers.
“Repeat business or behavior can be bribed. Loyalty has
to be earned.”
— Janet Robinson, American executive, former President and CEO
of The New York Times
