ReadingDemystifying Customer Loyalty Programs: A guide to understanding & building successful rewards

Demystifying Customer Loyalty Programs: A guide to understanding & building successful rewards


Picture yourself as a SaaS subscriber. How would you feel if your chosen software provider rolled out an exclusive feature for you every month or gave you a 2% discount on your annual renewal? It'd give you a sense of being valued and prioritized.

In this competitive business market, customer loyalty is the golden ticket to success. But the question is, how would you convert your regular customers to loyal customers who advocate your brand across the city? This is where customer loyalty programs come into play. These programs are more than the usual offers and discounts you offer to your customers. 70% of Americans identified loyalty programs as a key driver of their loyalty to favored brands.

In this blog, we will dig more into customer loyalty programs, their importance, and how to craft one tailored to your business.

130% Net Customer Retention
130% Net Customer Retention

130% Net Customer Retention

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What are customer loyalty programs?

Customer loyalty programs are strategies designed to offer rewards and perks to customers who keep coming back for repeat purchases. Basically, this system is helpful in engaging and rewarding customers for their ongoing patronage. The aim of these programs is to create a deeper connection between businesses and their loyal customers. Customer loyalty programs entail many techniques and efforts, all employed to achieve one common goal: cultivating repeat customers and fostering recurring purchases.

Why are customer loyalty programs important?

Customer loyalty programs are an effective way to foster lasting relationships with your customers and, in turn, increase your revenue while enhancing customer satisfaction. Let’s look at the significance it holds in your business:

1. Enhance customer retention

Customer loyalty programs cultivate a feeling of belonging and attachment. This, in return, encourages them to keep returning to your business. Once customers gain trust and develop loyalty, they are less likely to switch to a competitor. It has two direct impacts on your business: It saves time and costs associated with acquiring new customers and strengthens your relationship with your current customers.

Read more: Know these 10 essential customer retention strategies to upscale your customer retention rate.

2. Boost sales and increase revenue

When you reward your loyal customers with discounts and special offers, they become frequent patrons, consistently choosing your products or services. Their repeated purchases significantly boost your business revenue, ultimately contributing to your financial growth and success. Plus, these customers are often more receptive to upselling and cross-selling, meaning they not only buy their favorite items but also explore your additional offerings. As a result, the average value of their transactions increases, helping your business earn more revenue.

3. Turn customers into brand advocates

Loyal customers can be your best and free marketers. When they are rewarded for their loyalty, they share their positive experience with their friends, family, and colleagues. This word-of-mouth marketing is free and most effective as there is a sense of credibility in loyal customer’s advertisements.

4. Help gather valuable customer data

Loyalty programs are an excellent opportunity to collect customers’ data, such as their preferences, purchase duration, and favorites. You can use this data to fine-tune your marketing efforts, personalize offers, and optimize your product or service offerings. Basically, you gather a treasure of data that allows you to understand your customers better.

7 types of customer loyalty programs to hook your customers

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Customer loyalty programs come in various shapes and sizes, and choosing the right one can be a game-changer for your business. Let's explore the types of loyalty programs that can boost customer retention, satisfaction, and overall success.

1. Points-based loyalty programs

Points-based loyalty programs are a popular marketing strategy among retail and e-commerce businesses. Every time a customer makes a purchase, they earn points, and these points can be redeemed for discounts on future purchases.

This method tempts them to buy more and get rewarded more, eventually boosting your sales and revenue.

2. Cashback loyalty programs

Cashback programs are highly appreciated loyalty programs by customers. The working of this program is simple; every time a customer makes a purchase, a percentage of the amount is returned to them in the cash component.

These programs are mostly preferred by credit card distributors or banks, where cardholders receive a percentage of expenses as a reward, making them an attractive choice for many consumers.

3. Subscription-based loyalty programs

In subscription-based loyalty programs, customers pay a set fee regularly for exclusive perks from a business. It's a popular model in streaming services, providing early access and ad-free viewing. These programs enhance the customer experience and create a consistent business revenue flow.

4. Tiered loyalty programs

In tiered loyalty programs, there is a pyramid of levels where each level offers increasingly valuable perks or rewards. Customers in these programs get the opportunity to progress through these tiers, unlocking and enjoying the rewards associated with each level they attain.

This structure encourages them to make more purchases, knowing that each time they do, they will receive greater rewards. This benefits both customers and business owners by increasing sales and customer engagement.

5. Punch card loyalty programs

The punch card method is a very simple and traditional-style loyalty program. On each purchase, customers receive a punch or stamp, and once they accumulate a certain number, they receive a free product or service.

Punch card loyalty programs are most preferred by small businesses like restaurants and coffee shops to tempt their customers to come back more often. This method helps them retain their customers for a specific number of purchases.

6. Coalition loyalty programs

Coalition loyalty programs, also known as multi-merchant loyalty programs, are more appealing to customers. The reason is the participation of multiple businesses to host a shared loyalty program. Customers can earn and redeem points across a range of participating businesses.

This collaborative approach allows customers to accumulate rewards faster and offers a wider range of redemption options. This helps customers buy a product or service from one business and redeem its reward with another business.

7. Game-based loyalty programs

Game-based loyalty programs offer an engaging and exciting approach to customer retention. By incorporating elements of gamification, these programs present customers with enjoyable challenges and distribute rewards as incentives for participation. This interactive and enjoyable approach enhances customer engagement and fosters loyalty.

5 easy steps to create a loyalty program for your business

Equipped with the significance and types of loyalty programs that exist, you must be wondering how to create one tailored to your business. We have curated a step-by-step guide to help you get started with it.

Step 1: Define your objectives

While designing the loyalty program for your business, the very first step is defining objectives and the expectations you want to meet by implementing this loyalty program. Based on your objectives, you have to decide the type and reward of the loyalty program.

For example, if your objective is to associate with your customers for a longer time period, you can plan a subscription-based loyalty program. In summary, defined objectives allow you to make your program effective and successful.

Step 2: Know your target audience

Tailoring a loyalty program that aligns with your customers’ preferences makes it more likely to succeed. Before you curate the program, find answers to these questions: What makes them feel rewarded? Are they fond of personalized experiences? Are they price-sensitive? Which offers tempt them to shop more? What is the average ticket size of them?

You can also create a list of questions that allow you to know your customers deeper. Remember, the more your program resonates with their needs and desires, the more it will be effective.

Step 3: Choose the right loyalty program type

Once you have defined your goals and have detailed knowledge about your customers’ needs, choosing the type of loyalty program will be a piece of cake. From various options available, choose the one that will benefit both you and your customers because, in the end, rewarding customer loyalty is our main motive. Remember, the choice should align with your objectives and the preferences of your target audience.

Step 4: Develop a reward structure

Reward structure, the heart of your loyalty program, is a factor that defines what your customers will receive in exchange for their loyalty. Rewards vary based on the loyalty program you choose. It includes loyalty points, discounts, free products or services, exclusive access, or even personalized experiences. The structure should be designed to offer real value to your customers and be enticing enough to motivate them to engage with the program and make repeat purchases.

Step 5: Implement technology

Offers, discounts, or loyalty programs in general, drive a significant number of customers in a short time, making it difficult to manage all of them flawlessly. To tackle this challenge, you must rely on various technologies that help you manage and track customer management easily. This involves developing a mobile app to monitor program performance or using customer relationship management (CRM) software like DevRev that allows you to have a broader view of development and support operations simultaneously.

Watch in action: Loyalty program examples

Let’s look at some real-life loyalty program examples of some well-known brands and get insights into how they reward their customers’ loyalty:

1. Starbucks


Starbucks is a place we hit almost every day to get a shot of espresso or grab a coffee en route to our work. As a token of gratitude and to incentivize the customers who are loyal, Starbucks has introduced a reward program.

Program: In this rewards program, every time customers make a purchase, they get 1 star for each dollar spent. They can start redeeming their rewards with as few as 25 stars, and the reward tiers range from 25 stars up to 400 stars. In the course, customers get different rewards like complimentary syrups, bakery treats, iced coffee, or even Starbucks merchandise.

Impact: The ultimate goal of this is to entice their customers to return, earn more stars, and progress to higher reward tiers. This creates an incentive for customers to make additional purchases, all while enjoying the perks that come with each tier. As a result, customers get habituated to their products, and overall sales of Starbucks peak.

2. H&M


H&M is a well-known fashion brand catering to men, women, and children. To reward their customers, H&M has a membership model.

Program: H&M tries to reward their customers with their first purchase. Firstly, they offer a free membership that entitles the new users to get a flat 10% off on their first purchases. Secondly, every time a customer makes a payment, they earn 1 point for every 1 dollar spent. Members can redeem these points for a range of rewards like free delivery, exciting offers, 25% off on birthdays, free returns, and many other surprise rewards.

Impact: Initially, by offering free memberships in their official mobile app, they saw a sudden rise in app downloads. This not only expands H&M's reach but also gives them an opportunity to send notifications and offer alerts. To unlock their earned points and access additional exclusive offers, customers are prompted to make more purchases. This, in turn, stimulates higher sales and increased revenue for H&M.

3. Fiverr


Fiverr is a renowned platform for buyers and sellers across various industries to exchange services online. They have a unique referral program in action to encourage their existing users to invite new users.

Program: Fiverr’s referral program is for their registered users, where they can invite new users to buy services within the platform. When the referred user registers using the invitation link and makes their initial purchase, the referrer is rewarded with a 10% referral bonus, with a cap of $100, based on the purchase amount. Simultaneously, the referred user enjoys a 10% discount on their first purchase.

Impact: The aim of Fiverr’s referral program is to attract new users to their platform and explain their user base. Also, it encourages existing users to remain active while promoting Fiverr’s services to newer audiences, fostering their customer retention rate. The result of this program is increased sales and revenue for Fiverr and rewarding customers for their loyalty with cash credits.

4. American Express

American Express

American Express is one of the most accepted payment solutions, with over 18% of the US market share. This has opened opportunities for them to partner with various brands and provide exclusive offers to their buyers.

Program: When buyers of specific brands pay using American Express cards, they get exclusive credits. For example, when users make a payment of $100 or more to shop for goods from NFLShop, they get a $20 statement credit up to 2 times. Another example is Columbia Sportswear, where users get a one-time $25 statement credit on a minimum spend of $150 using American Express cards.

Impact: American Express's strategy of partnering with prominent brands and offering statement credits motivates users to pay with their American Express cards. This approach results in increased card usage and potentially attracts new cardholders, contributing to heightened sales and revenue for American Express.

Building stronger customer relationships with loyalty programs

If your business is a vehicle, then customer loyalty is the fuel driving it to growth and success. With well-crafted loyalty programs, you can create enduring relationships with your customers, fostering a connection built on mutual appreciation.

A successful loyalty program provides a magnitude of benefits and transforms your customers into brand advocates, setting your business apart in the crowded marketplace. As you start building a loyalty program for your business, remember that the right program is the one that is tailored to customers’ preferences and aligned with your brand objectives.

Remember, a loyalty program not only keeps customers coming back but also propels your business to new heights of success. They have the power to drive revenue growth, improve customer retention rates, and establish a community of satisfied customers of your business.

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