What is loyalty rewards program ?
By definition, a customer loyalty program is a marketing approach that recognizes and rewards customers who purchase or engage with a brand on a recurring basis. A company may dole out points or perks, and graduate customers to higher levels of loyalty the more they buy. These incentives and specific benefits often result in the customer becoming a more regular consumer or the ideal a brand promoter. Benefits may involve free merchandise, rewards, coupons, or insider perks like early access to new products.
Does A Loyalty Rewards Program Actually Work?
Why Do Loyalty Rewards Programs Matter?
Shopping, outdoor eats become more fun when you are rewarded for something as simple as paying your own bill! Well, these are called customer loyalty programs.
A loyalty program is a marketing strategy businesses use to build up their customer base. On every purchase, the member customers get a certain number of points or stars, which can be redeemed on the next purchase.
Businesses tailor their loyalty programs depending on their nature, scale, and size. For instance, some eCommerce stores can offer you free shipping on orders above 20$. Some may offer $1 off on every 10 dollars spent. While others may use points programs, where customers earn points or stamps on every purchase. The customers can then redeem points on the subsequent purchase.
A loyalty program is the business' way of appreciating customer loyalty. It not only helps small businesses with customer retention but helps them add new customers .
1. A loyal base with a cost-efficient approach
A loyal customer base is an asset for every business. It is five times more expensive to reach a new customer than retain the existing one. A study shows that an existing customer, in any business small business or large, is 50% more likely to try out your new product or services and spends 31% more on every purchase than new customers .
Customer loyalty programs help small businesses avoid high churn rates because every time a customer purchases from you, they get something more than they paid for. A good loyalty program can help you build a strong long-term relationship with your customer.
2. Higher top and bottom lines
When customers earn points or stamps on every purchase, they tend to shop more and visit frequently. Frequent purchases bring more revenue to businesses. In fact, studies by Bain & Company, along with Earl Sasser of the Harvard Business School, show that a 5 percent increase in customer retention can lead to an increase in profits of between 25 and 95 percent.
It's important to design a customer loyalty program that is appropriate to your business type and size, so you can get more returns.
3. Better customer experience
Back when we are in school, birthdays were the most-awaited occasions. The only equally excited thing was the birthday eve, because we all knew we would be getting gifts and surprises the next day. And that excitement wouldn't let us sleep!
Now, back to reality and business, this still holds true. Loyalty programs or point programs create excitement among the customers, leaving them wondering what special offer they might get on the next purchase. They look forward to shopping. And their next time in store becomes full of contentment as they finally redeem their points to avail the offer.
All this builds an improved customer experience .
How Did Loyalty Rewards Programs Get Their Start?
Now, let's revisit the old lanes to trace the origin of Loyalty programs.
- Loyalty programs have been since the time we can remember, only in different forms.
- It dates back to the 1700s in America when retailers would give gift copper tokens to customers on every purchase. The customers would exchange these tokens on their next purchase. More retailers followed the practice, as it added to customer retention, and just like that loyalty program was born.
- Then, in the late 19th century, as copper tokens were proving to be expensive for small businesses, green shield stamps were introduced as the replacement. Customers collected these stamps and would redeem them at grocery stores, shops, and gas stations.
- In 1929, a popular baking company in America, Betty Crocker, would give stamps affixed to the top of their cake mix boxes. The customers would later show those boxes to redeem their rewards. From here, customer loyalty program got official.
- Customer loyalty programs reached new heights in 1981, when American Airlines adopted the idea and launched first every flyer program. It started rewarding their customers, allowing them to redeem their miles for their next ticket. This loyalty program became a hit as it now only allowed a remarkable customer retention rate , but also helped airlines add new customers.
- In 1995, Tescoa UK-based supermarket studied customer behavior and launched loyalty cards.
- As technology evolved, credit card points programs became popular in 2000s.
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Do Customers Actually Like Loyalty Rewards Programs?
Customers love loyalty programs, given they are user-friendly.
- A report by Accenture stated that there are3.3 billion loyalty memberships in America. The report also confirmed that 90% of the companies have some sort of variation of the loyalty program.
- It further says that 57% of customers join loyalty programs because they want to save money, while 37.5% go for it to receive rewards.
Do Loyalty Rewards Programs Work?
Let numbers answer this question.
Studies and surveys show-
64% of retailers say their loyalty/rewards program is the best way to connect with consumers
49% of consumers agree they spend more after having joined a loyalty program.
74% of travel customers surveyed have made purchasing decisions based on travel rewards or points programs.
So, yes customer loyalty programs work for real! Sephora's Beauty Insider and Amazon Prime are the two most successful loyalty program examples.
What Are Drawbacks of Loyalty Rewards Programs?
Customer Loyalty Program largely focus on customer retention. This may lead to small business overlooking the needs of new customers .
The cost of designing and implementing a customer loyalty program or points program may be high for small business .

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What Makes For a Great Loyalty Rewards Program?
1. User-friendly- Because, trust us, customers don't have time to crack your loyalty program .
2. Make sure the rewards are in line with the revenue the customer is bringing
3. Customer engagement - Keep your loyal customers informed, send them updates on special offers to motivate them to purchase more.
Conclusion
A good customer loyalty program can help you increase the customer retention and add new customers . So, understand your business nature , needs , customer preference and calculate the customer life-time value before you tailor your points program .
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