The 4 Types of Loyalty Programmes to aid Customer Engagement

As loyalty experts, we know that customer engagement is key to enticing new customers to your business and retaining old customers for the foreseeable future. We also know that customer engagement is based on the value a customer receives by choosing to shop with your brand or service.

The greatest driver of customer engagement in recent years is the prolific loyalty programme. A loyalty programme is an incentive scheme designed to offer your customers a fair value reward for continued loyalty and commitment to you and your brand.

By offering discounts, early access, exclusive promotions, and much more besides, loyalty programmes have become an essential strategy for any business wanting to generate greater customer engagement and develop greater customer loyalty.

For every successful loyalty programme, you will find a business with greater customer retention, higher lifetime-spend values, unbeatable word-of-mouth marketing, and ultimately greater profit.
Let us explore the four types of loyalty programmes that can achieve this: tiered, subscription-based, value-based, and points-based loyalty.

Tiered Loyalty Programme

Tiered-based loyalty programmes can exist on their own or coupled with other loyalty systems such as subscription and points-based. The essence of a tiered loyalty programme is to offer greater value rewards the higher through the tiers a customer rises, with each tier requiring greater engagement and spending amounts from the customer.

This can be achieved by unlocking tiers as a customer accumulates more and more points, with each milestone unlocking access to greater rewards and discounts.

Booking.com's Genius loyalty programme is a tiered scheme rewarding frequent travellers with escalating benefits. The programme has three levels: Genius Level 1 (10% discount after two bookings), Genius Level 2 (15% discount, early check-in, late check-out, and free room upgrades after five bookings), and Genius Level 3 (20% discount and free breakfast after 15 bookings).

This tiered system benefits both parties. Customers are incentivised to book more frequently, enjoying greater discounts and exclusive perks, enhancing their travel experience and fostering loyalty. For Booking.com, the programme drives customer retention and increased usage, building a loyal customer base likely to choose their platform over competitors, ensuring a steady stream of bookings. The progressive rewards keep customers engaged and motivated to reach the next tier, strengthening their relationship with Booking.com.

By offering greater rewards for greater engagement, a tiered loyalty scheme benefits customers for their loyalty in a way that is proportional to their loyalty, ensuring your customer receives a win for their continued custom and that you see greater engagement and greater profit.

Subscription-Based Loyalty Programme

A subscription-based loyalty scheme is another effective way to encourage customer loyalty and enhance your customer’s experience. A subscription-based loyalty system asks a customer to commit upfront for a monthly or annual fee and rewards that customer with exclusive access, services, discounts, and more.

By offering a loyalty programme as a subscription, you are guaranteed to find your customers more committed and can enjoy a predictable revenue stream each month whilst offering value back to the customers who commit to you and your brand.

Amazon Prime is the most obvious example of this, whereby for a small fee each month, a customer can have access to free shipping on the Amazon store, access to Prime Video, as well as exclusive deals.

By paying for a subscription, it enhances the value of shopping with Amazon as when a customer has already paid money, they feel more obligated to make use of the money they have spent on the subscription. But at the same time, they see themselves gaining value and saving money by having access to things such as free delivery every time they shop, plus access to a large variety of TV shows and movies.

A subscription-based loyalty scheme enhances that sense of commitment to a brand by paying for the privileges upfront, but the value returned to the customer has to be worthwhile. For anyone using Amazon Prime, the biggest value is clearly in the free shipping, and the next time a Prime account holder wants to shop online, you can guarantee they check Amazon first just for the convenience of free delivery.

And last but certainly not least is how subscription-based programmes are a brilliant way to get accurate and personalised data on your customers. Each subscription requires a personalised profile, and again, in the case of Amazon, also contains shopping habits, purchases, and movies or shows watched through Prime. This gives a large and accurate view of Amazon's customers, allowing them to tailor their exclusive deals and rewards to each customer individually.

Value-Based Loyalty Programme

A value-based loyalty programme differs slightly from the rest of the bunch in that a customer isn't rewarded directly for their purchase or custom. Instead, a value-based reward system aims to fulfil a customer's wider desires in a way they may not be able to personally affect on their own.

A value-based reward scheme works well when the goals and values of a company match those of their customers too. In a broader sense, a customer can be attracted to a company that aims to make improvements in areas such as the environment, sustainability, and global inequality. Starbucks and Nestlé, for instance, both rely heavily on coffee farmers from all across the globe and both have made commitments to improve the quality of life, ensure fair pay, and improve the local communities of the people and places they buy their coffee from.

However, a value-based loyalty programme offers something in direct exchange for the purchase or use of the service. The shoe company TOMS offers a good example of this, whereby every purchase of shoes ensures that a pair of shoes is donated to someone in need. TOMS also uses a portion of its profits to fund community projects, help people improve their mental health, and create a more sustainable future.

By identifying what is important to them as a company and knowing their customers' values also align with theirs, TOMS has been able to create a successful value-based system which brings customers back not only for the product but for the good it will do others as well. This creates a wonderful emotional connection with the brand, which enhances the brand's image immensely and ensures a greater word-of-mouth reputation.

Points-Based Loyalty Programme

And the final loyalty scheme on our list is one that needs no introduction. Go into any retailer, supermarket, or nearly any online store, and you will see some variation of a points-based loyalty system.

Points-based schemes are simple systems of credit, rewarding each customer a small portion of credit in the form of points for every purchase they make. Over time, these points add up, and the credited value of those points can be redeemed for rewards or services.

It is a way to ensure the customer receives something back for a purchase they were likely to make anyway, ensuring they leave feeling satisfied and that they received more than their money’s worth.

A points-based system encourages engagement and loyalty, for it keeps a customer coming back to your brand to earn more points with you to get closer to the reward and discounts. Why should a customer spend more money at your competitor when they already have credit built up with your loyalty scheme?

Another benefit of a points-based loyalty scheme is the simplicity and clarity of it. It is easy to see how the value spent converts into points, and it is easy to see how many points are worth a certain amount of value back.

But points-based systems have become so ubiquitous now that by themselves they feel a bit lacking. By the time a customer sees your loyalty scheme, it is probably the 20th they have signed up for, and eventually, it becomes overwhelming.

But the beautiful thing about a points-based system is its adaptability and how well it complements the other systems in this list.

By offering a tiered points system, your customers can earn greater rewards over time and be rewarded for their continued loyalty. So rather than a simple exchange of points for credit, the points gain more value as the customer rises through the tiers.

By being creative and listening to your customers' needs, a points-based loyalty system creates a solid foundation for your loyalty programme. Just make sure to cook up something that sets you apart from the competition.

Conclusion

Loyalty programmes are the perfect way to say thank you to your customers, rewarding them for their custom and encouraging their future loyalty.

In all four loyalty programmes, we can create greater customer engagement, collect more personalised customer data, and spread a positive brand image and message through word-of-mouth marketing.

By identifying the right loyalty programme for your brand, combining what works and leaving out what doesn’t, you can see your customer base and profit grow as well as your market share increase.

So whether you are a brand driven by exclusivity and offering a subscription-based system, an everyman’s brand offering points with each purchase, a brand that offers greater rewards for greater loyalty with tiered schemes, or a brand that focuses on values and positive change, there is a loyalty scheme for you.

At Loyalty Works, understanding your business is our business, and by understanding your goals and your customers, we can help you devise the perfect loyalty scheme that will keep your customers coming back for more time after time.