Loyalty programs are a proven, effective way to connect with your customers and gamify the shopping experience to incentivize loyalty and repeat purchases. There are a few options to choose from when structuring your program but which one is best?
Let’s take a look at the 5 most common customer loyalty models to examine how they work, what applications they’re suited for, and which types of businesses should choose them. These models are starting points only - you can customize them to your liking and mix-and-match elements from each to create something truly unique that matches your brand.
Customer Loyalty Models
1. Point-Based Program
This is by far the most common type of reward program, found in many major retailers. These let members generate points that they can trade in for discounts, cash-back, or free promo products. Generally, points are based on purchases, but you can also give members the option to earn through leaving reviews, sharing photos on social media, or referring new members.
The beauty of a point program is that it’s truly customizable and easy to implement on most e-commerce websites. You can create any conversion you want for points - the standard is 1, 10, or 100 points per each $1 spent.
*This customer loyalty program works best for e-commerce/retail or restaurant businesses that want to promote smaller-scale, repeated purchases.
2. Tiered Program
Tiered loyalty programs offer members different levels of membership, with varying benefits at each level. Generally, these are tied to purchases and/or engagement. The standard tiered program generally has a free level and then higher levels based on yearly or lifetime spend. You can also combine the point-based model with tiered membership to break levels out by points earned.
At higher tiers, customers typically get access to things like discounts and free shipping, as well as some type of exclusivity. Early access to limited edition products, free birthday gifts, or invitations to online membership clubs are some ways to entice users to level up.
*Tiered loyalty programs are ideal for businesses where purchases are higher in value but occur less frequently.
3. Mission Driven Program
A mission-driven or value-driven program rewards charity on behalf of customers. Instead of customers earning points to get discounts for future purchases or reduced shipping rates, members’ activities go towards charitable giving opportunities.
The most common way to implement this model is to donate a % of all purchases to an organization - this can be a designated partner or you can give your members the option to choose where their money goes. You can also pair these contributions with a points-based system where more points earned = more money donated.
*A mission-driven reward program works best for organizations where specific values/causes are a core part of their brand story and are also important to their clientele base.
4. Subscription Program
A subscription program requires individuals to make an initial contribution to become members. This is typically a financial fee that’s either one-time or recurring - for example, paying money each year to maintain status as a member.
The trade-off is valuable benefits that are exclusive to subscription members. A typical subscription plan could offer a 5-10% discount on all purchases made by members, discounted prices on targeted products, or other high-value rewards.
The barrier to membership is higher with this model, but that also means that customers who opt-in are more invested in your brand.
*This type of program is best for organizations that want to build strong relationships with their members.
5. Referral Program
Referral programs are exactly what they sound like - offering members benefits in exchange for successful referrals. Those who recommend a friend, family member, or colleague who converts into a sale receive a discount for future purchases, freebies, or other rewards.
Referral programs are often implemented alongside or as part of one of the other loyalty systems listed above. For example, in a points-based model, you may offer members extra points in exchange for referrals.
*Referral programs are ideal for any company but are particularly attractive for business-to-business organizations where other loyalty program models aren’t as applicable.
What loyalty model is best for your organization depends on the types of products and services you offer, your brand story, and your ideal customer. Taking inspiration from the above and customizing your program to suit your needs is the best way to build buy-in and truly reward your loyal fans.
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