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What Is a Loyalty Program?
Let me explain what a loyalty program is. These are initiatives sponsored by retailers and other businesses that offer rewards, discounts, and special incentives to attract and keep customers. They're built to encourage repeat business, giving you a reward for sticking with a store or brand— that's why they're called loyalty programs. Generally, the more you shop at the merchant and the more you spend, the better the rewards you get.
Key Takeaways
You should know that loyalty programs are a tool for retailers and corporations to draw in and hold onto customers. They provide rewards, discounts, or other incentives as a way to thank you for your repeat business. Beyond building loyalty, these programs give companies important insights into how you're spending and what products or offers appeal most to you. While brands like Starbucks excel with loyalty programs, others like Costco and Amazon use annual memberships instead.
How a Loyalty Program Works
Here's how these programs operate. The incentives can vary, but they often include things like advance notice or early access to new products, early entry to sales, free merchandise or upgraded services, special perks such as free or faster shipping, and discounts exclusive to members. To join one—whether it's called a loyalty program, rewards program, or points program—you usually register your personal details with the company and receive a unique identifier, like a numerical ID or membership card. You then use that when you make purchases.
Purpose of a Loyalty Program
Loyalty programs serve two main purposes: they reward you for coming back repeatedly, and they supply the company with a lot of consumer information and data. Companies can look at anonymous purchases, but a loyalty program adds details on what products you buy together and which incentives work best. These programs are especially useful for high-volume businesses that depend on return customers. Remember, it's cheaper to sell to an existing customer than to find a new one, so building a loyal base is key to creating value. When done right, your repeat business can help bring in new customers at a lower cost than traditional marketing. If the program becomes part of your daily routine, it can create real brand loyalty—often, you'll stick with a hotel, store, restaurant, credit card, or airline just because of the points or rewards you've earned, more than for any other reason.
Fast Fact
Retail loyalty programs have roots in stamp or boxtop collection schemes from the 1890s, but the modern version started with airlines' frequent flyer programs. American Airlines launched AAdvantage in 1981, and United Airlines followed soon after with Mileage Plus.
Example of a Loyalty Program
Loyalty programs have gone digital, just like everything else. They're not only for earning rewards on purchases but also for using tech as rewards themselves—think texting or posting on Instagram for points, or getting a discount for shopping through the merchant's app. Take the Starbucks Rewards program as a prime example; it's often studied for how it keeps customers engaged with interactive offers. The app works like other rewards systems, where you earn points called 'stars' for future coffee buys. What sets it apart is the convenience: order ahead, pay in-store, and even access exclusive music playlists. Essentially, the app makes Starbucks a daily essential for coffee lovers. If you load funds onto your digital rewards card via the app, Starbucks says you'll earn stars twice as fast.
Loyalty Program Alternatives
Not every business uses traditional loyalty programs to gain customer allegiance. Retailers like Costco and Amazon build loyalty through membership programs instead. You need a Costco membership to shop there, but Amazon Prime isn't required for shopping on Amazon.com. Even with the upfront cost, many customers pay the annual fees willingly for access to Costco's low-cost, high-value products. Similarly, people pay for Amazon Prime for free, fast shipping and other perks.
What Are Examples of Loyalty Programs?
Plenty of companies run loyalty programs. Common ones include Starbucks Rewards, the North Face XPLR Pass, Sephora Beauty Insider, Expedia Rewards, and Chick-fil-A One.
What Are the Different Types of Loyalty Programs?
Loyalty programs come in various forms. The most common are points programs, where you earn points on spending and redeem them later; tier programs, which give different benefits based on your rank after hitting spending thresholds; paid programs, offering immediate benefits after a fee; and value programs, which donate to charity or causes instead of direct customer benefits.
What Is a CRM Loyalty Program?
CRM stands for customer relationship management, and a CRM loyalty program is similar to others. It aims to increase a customer's lifetime value by rewarding repeat business. Rewards might include points, discounts, free items, coupons, and more, given after purchases, feedback, referrals, or other positive interactions.
The Bottom Line
In summary, loyalty programs attract customers and sustain brand loyalty. They benefit you with rewards, but they also help businesses through repeat sales, maintaining market share, and boosting earnings.
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