Loyalty Programs for Challenger Brands

What do you give your customers in exchange for their loyalty? If you’re not rewarding them for repeat business, you may be missing out. Forty-six percent of shoppers are compelled to switch brands to maximize the benefits of a loyalty program, according to the 2015 Colloquy Loyalty Census.

The same survey reported that loyalty programs hit a historical high in 2015, topping 3 billion memberships, and that’s a 26 percent increase from the last census in 2013. What’s more, 88 percent of shoppers say they want a loyalty program; Millennials go even further by saying their brand loyalty is dependent upon a loyalty program.

Four Types of Loyalty Programs

Transaction or Point-Based Programs. The most common form of loyalty program, a point-based system accrues points from purchases and ties the points to a discount, freebie, or other perk. Examples: Ulta Beauty, Kroger rewards

Tip: Make it easy for shoppers to understand how their purchases translate to rewards. For example, $1 = 1 point.

Tiered Programs. A tiered program offers small rewards at the base level then increases the rewards as shoppers move up the loyalty ladder. Example: frequent flier programs

Tip: Compare the impact of offering short-term rewards from a points-based program to the long-term value from a tiered program.

Exclusive or VIP Benefits with Membership. A membership-based loyalty program invites shoppers to join a club to bypass designated purchase benefits such as the cost of shipping or extended shopping hours. Example: Amazon Prime

Tip: Membership programs are best suited for businesses that thrive on frequent repeat purchases.

Partnered or Coalition Loyalty Programs. Strategic partnerships providing loyalty perks not available from your store demonstrate that you understand their preferences and care about their needs. Example: American Express and concert tickets or event passes

Tip: Relevance is key. The benefit must be something desirable and timely to your customer.

Is it working? 

As a point of reference, The Loyalty Effect author Fred Reichheld notes that a 5 percent increase in customer retention can lead to a 25 to 100 percent increase in your company’s profits. Customer retention is an important KPI.

One way to vet a potential loyalty program is to conduct a simple split test to find out if program users generate higher sales than a control group. Our bet is that you’ll see a difference. If not, adjust your reward system and retest until you find what makes your customers tick.