Loyalty programs motivate customers to engage more often with a company. But what can companies offer customers in these programs to build trust and retention?
5 study results on loyalty programs
One in two customers who like a brand will sign up for its loyalty program (source: yotpo.com).
73% of all customers are more likely to recommend companies with attractive loyalty programs (source: bond & Visa, PDF).
The average (American) customer has registered for around 15 loyalty programs but is only active in around seven of them (source: bond & visa).
Nearly one in three customers in a loyalty program complains about expiration dates on rewards. 23% are not sufficiently informed about their rewards and 14% find physical membership cards inconvenient (source: codebroker, PDF).
Loyalty leaders are able to increase revenue approximately two and a half times faster than other companies (source: HBR).
In addition to marketing emails, product recommendations, and special communications (such as birthdays), the basics of a loyalty program include the rewards program. This ensures that customers interact with the company and it motivates actions such as recommending products to others or writing product reviews.
Reward models in which customers receive step-by-step rewards are particularly suitable for gamification, i.e. the playful presentation and communication of milestones, successes or even the visualization/communication of progress („Just one more product review until your €10 voucher.“).
81% of all loyalty program members like using gamification elements when they are offered (source: bond & visa). Yet, only 56% of all programs use gamification.
Gamification can also be used to explain complex models in particular in a customer-friendly and intuitive way. Whether for the first steps as a new customer (creating a profile, registering for a newsletter, first order, first product review) or, for example, for recommending other customers.
Different types of reward models
Fixed reward models
The simplest form of reward models is a fixed added value when certain conditions are met. This can be, for example, free shipping above a certain order value or a voucher for a recommendation.
Benefits: The rewards program is easy to explain and easy to redeem, as there are no complex calculations involved. It’s a clear „if-then“-solution.
Challenges: True customer loyalty is more likely to be reinforced by other models, as this simple rewards program offers few options for gamification and has no real „evolution“, i.e. long-time customers or customers who are more engaged don’t profit from their loyalty compared to other customers.
Very popular and often linked to gamification aspects are rewards that a customer virtually „earns“, for example, by receiving a voucher for 5€ if they write 5 product reviews and a voucher for 10€ if they write 15 reviews.
Benefits: Companies can use tiered rewards to positively impact particularly important metrics (sales, reviews, order frequency).
Challenges: tiered rewards are more complex to plan and require more explanations, so customers can use them properly. Additionally, companies need to ask themselves how far customers can progress and what happens when all goals have been met.
Rewards for referrals
Referral rewards are a ‚Thank You‘ from companies to existing customers who have generated new customers through referrals. The rewards can be discounts, vouchers, but also direct monetary values.
Benefits: Since customers trust other customers or acquaintances more than companies, a recommendation can increase the conversion rate. The new customer does not have to be convinced first. This reduces costs (in marketing, for example).
Challenges: Communication and especially support for this reward model should be descriptive and transparent. To succeed, a strong customer database is needed to attribute all referrals. If the revenue from recommended customers is also taken into account for the model, the complexity of the calculation model increases. Again, companies should consider whether there should be an upper limit and what happens after the limit has been reached.
Gradual rewards (milestones)
Different actions or acts give customers different rewards. For example, registering for a newsletter gives a 10% discount, writing 10 product reviews gives a voucher, and three orders in a month get a free product.
Benefits: Step rewards are particularly well suited to generate new customers and to bind them to the company through various incentives. But it can also keep existing customers engaged on a constant basis, as they have various options to earn rewards.
Challenges: Again, customer history is necessary to transparently document all rewards so that customers receive their rewards even if, for example, they place three orders a month and two of them were purchases in a store with the third being one in the online shop.
Behind a good rewards program is a strong database
Rewards programs are built on a customer database that is able to track and evaluate all customer interactions. This should ideally include multiple channels, for example, if a company has both brick-and-mortar and online stores. Membership cards, but also apps, facilitate identification in the stationary store and ensure that reward systems are not only available online.
For rewards programs to succeed, it is also important that all associated processes are linked to the customer database. This includes purchase data, automated emails, payment data, but also data on referrals through individualized links. Depending on the reward model, all components and actions must be centrally stored in the customer database so that they can be evaluated and converted into rewards.
Find out what a successful rewards program looks like in our customer reference. Read how the textile retailer Orsay was able to further expand its own loyalty program and thus optimize it for a 360° view of customers.