Businesses are always looking for new strategies that increase customer loyalty. According to Accenture, over 90% of companies use a loyalty programme of some kind. And for good reason!
But how do you start? If you’re considering a loyalty programme, how should it be structured?
Epsilon knows how to structure loyalty programmes for businesses of all sizes. Our platform offers seamless uptime and powers over 4 billion messages every month at 96% accuracy.
Ultimately, what matters is meeting your customers where they are. So the best programme for any business is one that engages customers in ways they find meaningful and valuable. Below, we’ll break down 10 types of loyalty programmes to help you find the right one for you.
10 Types of Loyalty Programmes
1. Points-Based Programmes
Volume-based programmes—specifically points programmes—are the original loyalty and customer rewards structure. The amount customers spend correlates to the reward they get.
In a points system, points are then redeemed for discounts or additional merchandise after reaching some established threshold. For example, accumulating 100 points might require spending €1000.
Upon reaching the threshold, a loyal customer might be entitled to:
- A promotional T-shirt, mug, or tote bag
- A 5% discount on one (select) purchase
- Access to limited-edition merchandise
With traditional points programmes, the reward rate is flat. Regardless of customers’ individual spending, or the items purchased, they’ll all receive the same reward at the same threshold.
2. Cash-Back Programmes
Cash-back programmes are better regarded as a subtype of their point-based counterparts.
Instead of accumulating points, customers earn back currency at a set rate, which can be spent at their discretion—depending on your programme’s terms.
Despite how much we’d all enjoy receiving envelopes of legal tender, sending physical notes to customers isn’t a good idea.
Instead, the archetype for these programmes has been established by credit card companies.
A given card’s rewards typically include a set cash-back percentage on each card purchase, which is then collectively applied to your next billing statement or at the end of the year.
For businesses, accrued cash-back rewards are often applied during a future purchase.
Often, these rewards are only applicable to a business’s own offerings, which somewhat muddies the distinction between points programmes. And not placing loyalty constraints on your programme may incentivise more customers to sign up, but you risk them spending their reward elsewhere.
Of course, that’s a little easier for credit card companies to achieve, as their business relates to the payment method.
3. Tiered Programmes
Tiered programmes take the idea of points and apply volume- or frequency-based thresholds for even better rewards.
Customers who spend enough or regularly enough—e.g., spend €500 annually or make five purchases per month—will eventually enter into a higher reward tier.
On the business side, the main differences between these and other programmes include:
- Points programmes often operate on a flat rewards structure applying to all purchases
- Tiered programmes require additional tracking for a greater variety of loyalty rewards
However, your customers will be further incentivised by the allure of higher-value rewards at the next level. Those on the cusp of a new tier will be more likely to place more or larger orders.
4. Category-Based Programmes
Another approach to tiered programmes is applying different accumulation rates based on product categories. For this model, higher value or margin products reward a better return.
For example, suppose customers spending €500 at a given electronics store would normally earn 50 points (€10 per point). With tiered products, they might instead earn 93 points:
- 80 points for a €400 laptop, at €5 per point (i.e., x2 bonus rate multiplier)
- 8 points for €50 headphones, at roughly €6 per point (i.e., x1.5 bonus rate, rounded)
- 5 points for €50 in other accessories, all valued at €10 per point (i.e., normal rate)
Similarly, rates can be temporarily increased for promotional value or to facilitate turnover.
5. Membership Programmes
Memberships invert the traditional loyalty programme by assigning a fee or other condition upfront. After customers have earned membership, they’re given access to rewards or better deals. Some businesses have even adopted member-customer-only sales models (e.g., Costco).
The upfront fee is seen as little to no hurdle when instant rewards and gratification are on offer.
Aside from fees, membership programmes are a phenomenal means to gather customer data. Personal data protections are increasing globally, which impacts marketers' ability to develop engagement strategies. As perceptions of data (and its value) change, more transactional relationships emerge. An analogous example can be seen in the B2B space with gated content.
6. Coalition Programmes
Loyalty coalitions are groups of businesses that share one rewards programme. Whenever customers shop at one, they earn points redeemable on purchases from any coalition member.
The major benefit of coalition programmes is customers' greater willingness to sign up. They're more likely to join when they know their rewards aren't limited to a single brand. However, this also means loyalty is directed towards the coalition rather than your company in particular.
7. Community Affiliation Programmes
Community affiliation programmes invert coalition programmes, creating coalitions of buyers that collectively benefit from any purchase made by people affiliated with the group. The rewards apply to the community, which—in theory—uses them for each individual’s benefit.
Suppose you run an eCommerce sporting goods business and have built designated links for a specific club to reach your storefront or have a dropdown option at checkout for them to select whom they play for. Purchasing items like boots or shin guards earn points for the team's account.
These points can then be used to purchase equipment necessary for the whole group. In this way, all group members benefit, rather than just the individual members placing the orders.
8. Referral Programmes
Not all loyalty programmes require a purchase or direct up-front cost.
Whenever your current customers refer your business to their network, you could reward them. The biggest consideration with referral programmes is recording (often) offline referrals, with:
- Designated links for redemption
- Single-use codes (i.e. via SMS)
- Phone or (e)mail confirmation
Many customers will appreciate the chance to earn rewards without spending money. Further, your business may benefit more than from small-volume sales depending on your customer acquisition costs, average lifetime customer value, and other metrics you should be tracking.
9. Activity Programmes
Another avenue for your customers to earn rewards is participating in activities promoting or utilising the goods you sell. For example, if you sell athletic wear, you could develop an app for tracking fitness. Customers who reach certain goals can earn rewards while feeling your brand's support. They'll then be more likely to purchase your products as their athletic gear wears out.
Every eCommerce business benefits from detailed customer reviews, for many reasons.
So, why not award customers with points for every product review they leave? Even better, if they include photos or videos of the products in use, they can earn double or triple points.
There are infinite ways you can develop deeper relationships with your customers and provide rewards that incentivise future engagement. They don’t always have to purchase them to earn them.
10. Values-Based Programmes
Some customers may be incentivised most by rewards benefiting causes they care about.
When implementing a value programme, you could provide customers with a list of charities or causes you’ll donate to on their behalf when they reach specific points thresholds. Or customers can redeem their points toward donations and actually make the charitable gifts themselves.
As with other programmes above, these rewards can also be geared toward specific product categories, or tiered. For example, purchases of pet products (e.g., food and toys) can earn bonus points toward or trigger an automatic donation to animal rescue funds.
Build the Best Loyalty Programme For You
When it comes to building the best loyalty programme for you and your customers, you need data-driven insights to determine what resonates with them—you need to identify touchpoints and engagement frequencies that carry the greatest impact. Epsilon makes that easy.
As the global leader in outcome-based marketing strategies, our solutions and expertise will help you identify the perfect loyalty programme for your customers. Reach out to us today to learn about why our partners trust us with more than 600 million of their loyalty customers.
More of Your Loyalty Programme Questions Answered
- Why Should I Start a Loyalty Programme?
- How Much Does it Cost to Start a Loyalty Programme?
- How Do I Get Customers to Sign Up for a Loyalty Programme?