What is Customer Loyalty?

Customer Loyalty is the inclination for an individual to favour a particular product, brand or
service.
Till a few years ago, getting people loyal to a brand was fairly straightforward - you create a
great product, market it well, offer stellar customer support and voila! You’ve got yourself a
loyal customer base.
However, the digital explosion has made it harder than ever before for brands to engage and
retain a loyal customer base. Today, a customer is bombarded with hundreds of
communications from multiple brands with few differentiators.
Customer Loyalty Program
Gaining customer loyalty cannot be a one-off thing. A brand needs a focused and integrated
plan to retain its best customers - put simply, it needs a customer loyalty program.
A loyalty program typically involves giving customers free merchandise, early access to
sales, products and coupons. Loyalty programs have been proven to be extremely successful
in driving repeat sales for brands.
The "Get With The Program" report states that all other things being equal, 72% of
consumers will buy from retailer with a loyalty program over one without.
Timeline
1793 - Copper Tokens
The origin of Loyalty Programs can be traced to 1793 when supermarkets and gas stations
started offering their customers 'copper tokens' which could be redeemed for in-store
merchandise
1872 - Tickets
In 1872, the Grand Union Tea Company started distributing tickets which could be
exchanged for merchandise from the Grand Union store catalogs.
1886 - Certificates
The Larkin Company, a hybrid soap manufacturer and premium mail-order business, founded
in Buffalo, New York, started distributing certificates with its soap sets. The company
encourages its customers to redeem these certificates for items from the company's catalog.
Late 19th To Early 20th Century - Stamps
A department store in Milwaukee was the first to use trading stamps to boost customer
loyalty. The premise was simple: customers were given trading stamps for every purchase
which they pasted into booklets issued by the company. When a customer collects a certain
number of filled booklets, they can exchange it for toys, tools, jewellery or other household
items.
1929 - Boxtops
Betty Crocker started the issuing coupons which could be redeemed for flatware. Soon after,
they started printing the coupons on the outside of packages and the term 'box tops' was born.
1980s - Frequent Flier & Cashback Programs
In the early 1980s, American Airlines kick started the concept of Frequent Flier Program with
the famed Advantage program. A few years later, Discover started the concept of offering
cash backs to customers based on the no. of purchases in that year.
1995 - Card-Based Programs
Tesco (a UK supermarket) was the first brand to use technology to track customer behavior
when it implemented the world's first card-based loyalty program.
2000s - Mobile App Loyalty Programs
It was sometime in late 2002 that mobile loyalty programs started gaining
prominence. Capillary played a major part in this revolutionary shift by being one of the first
tech companies to introduce a mobile-based loyalty program for retailers. The mobile loyalty
programs had multiple advantages that resulted in their wider adoption. Retailers could now
combine real time communication and point of purchase analytics to transform loyalty
program into a potent marketing channel.
Current Landscape of Customer Loyalty Programs
Over the years, Loyalty Programs have steadily evolved from being a passive 'reward &
retain' instrument to becoming a major component of the customer experience and
engagement cycle.
The other big trend in Loyalty Programs is the advent of Omnichannel Loyalty Programs.
As a brand, you would want to be present wherever your customers are, right? That's where
Omnichannel Loyalty Programs come into play. While traditional Loyalty Programs
restricted the redemption of points to a single channel, omnichannel loyalty programs
encourage your customers to earn and burn points across multiple channels (app, web, in-
store etc.) where your brand has a presence.
Brands are also leveraging the vast amount of customer data to drive personalization through
their loyalty programs. Research says that a personalized Loyalty Program has a major
impact on the overall customer satisfaction levels.
Benefits Of Customer Loyalty Programs
The primary objective of a loyalty program is to retain existing customers and encourage
repeat purchases. An Accenture Report found that 66% of US consumers spent more on
brands that they were emotionally connected or loyal to.
Here are some interesting insights about the power of Loyalty Programs:
 70% of members consider Loyalty Programs to be part of their relationship with a
company
 An effective loyalty program can increase a brand's market share by 20%
 84% of consumers said they are more likely to visit an online website with a loyalty
program
Increase In Repeat Sales
This is the primary metric on which the success of a loyalty program is measured. If your
existing loyalty program is not driving repeat sales, it's highly recommended to do an in-
depth analysis of the program to fix the underlying issue. When implemented correctly, an
effective loyalty program is even capable of contributing 30% of your total revenue.
Builds a Healthy Relationship With Your Customers
Over the years, loyalty programs have steadily transformed from a mere transaction system to
an emotional and personal connection between a brand and its customers. This is evident in
the way more brands are incorporating higher personalization and experiential rewards into
their loyalty program. Consumers are also increasingly expecting early access and VIP
benefits in return for their loyalty to a specific brand. Several brands have overlaid their
loyalty program into their Customer Relationship Management (CRM) system to offer highly
personalized rewards for their customers.
Leads To An Increase AOV (Average Order Value)
The Average Order Value (AOV) is a simple but vital metric that reveals how much a
customer typically spends every time they shop with you. It's critical because you are
increasing your overall revenue with zero acquisition costs. It's also much easier to convince
an existing customer to tack in a couple of more bucks to their order rather than convince a
new visitor to go through the entire sales funnel. Reports say the majority of brands see an
average of 13% increase in Average Order Value from reward program purchasers. This is of
course a conservative estimate and there have instances where the loyalty program resulted in
25% to 35% higher Average Order Value. This clearly indicates that a successful loyalty
program not only retains your valuable customers but also entices them to spend more on
every purchase.
Improves Brand Perception
A Loyalty Program offers far greater insights about a customer (demographic, purchase
patterns, product preferences etc.) compared to an invoice. The data collected through a
loyalty program is extremely valuable as it reveals the true preference of a customer (as
opposed to one gathered from a survey). Though Loyalty Programs started off as a
transactional platform, over the years, brand have realized its potential as a data goldmine.
Several leading brands now use Loyalty Program data to predict customer's purchase intent
and receptiveness to marketing campaigns. Moreover, the ability to integrate Loyalty
Programs with CRM platforms allows brands to combine data from multiple sources like
social media, in-store and mobile applications to create a rich persona for every customer.
How Customer Loyalty Program Boosts Sales?
Over the last few years, online and offline businesses around the world have accepted a
fundamental reality about customer loyalty.
You cannot generate superior long-term profits unless you achieve superior customer loyalty.
Did you know that increasing customer retention rates by 5% increases profits by 25% to
95%? Loyal customers contribute to your bottom-line in a multitude of ways - they bring in
new customers through recommendation, they are more likely to make higher repeat
purchases and higher Average Order Value (AOV).
The last one is especially important; it’s estimated that loyal customers will spend
approximately 67% more than other customers.
1). By Increasing Customer Retention
By know you would have heard the familiar adage - 'It costs 7 times more to acquire a new
customer than it takes to retain one'.
However, you will be surprised to know that 44% of companies focus heavily on acquisition
compared to only 18% of businesses that focus on retention. The reason for this against the
grain behaviour by marketers is beyond the scope of this article. However, for any businesses
to succeed in this hyper competitive market, it will need a mix of good retention and
acquisition strategy.
Without a good customer retention rate, the cost of doing business will skyrocket as you will
end up spending a fortune on acquisition costs. Besides, if you simply focus on acquiring new
customers, you will be left with a whole of customers who does smaller AOVs (new
customers typically test the waters of a new brand with small value purchases).
On the other hands, retention is a much simpler and far easier ball game - you already have
valuable data about customer affinities, purchase journeys and demographics; all of which
can be used to offer personalized rewards and offers to nudge the customer towards opening
up the wallet.
2). By Increasing Customer Lifetime Value
Customer Lifetime Value (CLV) and Customer Loyalty are two different entities that are
closely related to each other. Customer Lifetime Value (CLV) is simply the total revenue a
customer will generate over the course of their lifetime. It is a critical metric that needs to be
taken into account while making important decisions in sales, marketing, product launches
and customer support.

There are few ways a company can increase CLV

arrow_upwardIncrease the customer base
arrow_upwardIncrease the no. of repeat purchases per customer
arrow_upwardIncrease the retention age of customer
arrow_upwardIncrease profits per sale
Now, this is where CLV and Customer Loyalty come together. Each of these 5 points fall into
a customer loyalty segment namely: Retention Loyalty, Advocacy Loyalty & Purchasing
Loyalty. And by boosting retention, advocacy and purchase loyalty you can automatically
boost the CLV of your business.
Here’s how:
arrow_upwardBy increasing retention loyalty you can ensure that a customer interacts with
your brand over a longer time period.
arrow_upwardBy increasing purchase loyalty, you can increase the frequency of sales from a
customer
arrow_upwardBy increasing advocacy loyalty, you can acquire more customer.
As you can see, maximizing customer loyalty is the easiest and most effective way to
increase your Customer Lifetime Value (CLV)
3). By Increasing Brand Awareness & Brand Recall
In a competitive market with little product differentiation, brands awareness can be a key
factor in driving sales and conversions. The reason is tied to a basic human trait - we prefer to
interact with people/things that are familiar to us. In fact, research suggests that when given a
choice of multiple brands, customers are 60% more likely to purchase from a brand whose
name they have at least heard once before.
Now, how is brand recall and a positive brand image related to customer loyalty? It basically
works in a two way loop - a great customer reward program can spread positive mind share
about you brand and a good brand can entice more people to be loyal to your brand.
To sum it up, good brand recall and a great reward program can work together to increase
sales and conversion.
Here’s how:
flash_onGood brand recall blocks off other brands from the consumer's range of choices
flash_onAn effective loyalty program can boost brand recall
flash_onWhen presented with a set of familiar brands, consumers tend to pick the ones with a
higher brand recall
flash_onGood brand recall forms the basis for a clear and attractive brand image,
flash_onBrand recall coupled with high customer satisfaction levels translates into increased
customer loyalty.

Best Loyalty Programs

Whether you're planning to implement a loyalty program or in the process of restructuring
your current reward program, it's always a good idea to take notes from other loyalty
programs that have had critical successes. So here goes:

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A Winning Loyalty Program
A good customer loyalty program can generate significant gains in recurring revenue for your
business through higher AOV and repeat sales. While there are several ways to go about
creating an effective customer loyalty program, here are our tips based on what has worked
well in the past:
gradeGive your customer the choice of opting for a physical card, key fob or an app-based
loyalty solution
gradeKeep your loyalty program unique to your brand instead of partnering with other brands
or businesses
gradeKeep it simple - offer points for X currency spend and make it easy for people to track
the points. Also, avoid long list of exclusions and fine print
gradeInclude a sign up bonus for new members that offers free points of up to 50% of points
of the next reward
gradeImplement achievable reward thresholds based on the average spend of your customers
gradeOffer a wider redemption choice which gives your customers the freedom to redeem
their points on what they like
gradeOffer special 2X or 3X rewards on non-peak times of the week or month on slow
moving products
gradeMake sure the rewards can be redeemed from the day a customer reaches a certain
reward threshold. This will encourage repeat visits
gradeOffer special points with limited validity to encourage repeat business
gradeCommunicate the benefits of your loyalty program across all customer touch points
(e.g.:-app, in store, desktop etc.)
gradeDon’t limit point earns only to purchases; reward them for social sharing, brand
promotions, reviews etc.
gradeDesign your loyalty program around your customer and what they value most - is it
discounts? Is it personalized experiences? Or is it exclusivity?
gradeAlways set a grace period on the expiry date of points so customers who may have
missed a deadline can still save their points
gradeAlways set goals for your loyalty program and measure them with a CRM
gradeUse personalization to understand what type of rewards resonate best with each
customer personas
gradeAssess current customer satisfaction levels before implementing your loyalty program.
This will help you gauge its benefits much better
Types Of Loyalty Programs
Choosing the right type of loyalty program is a critical factor that will decide whether it
becomes successful or failure. And which program you choose should depend on your
customer base, your business model and your brand positioning. So make sure you factor all
of these before choosing the model for your loyalty program.
 POINT
 TIER
 FEE
 CASHBACK
 REWARD
Point-Based Loyalty Program
This is the simplest and most common loyalty program model where customers earn a
specific amount of points for every transaction or specific action. These points can then be
redeemed for discounts, products or services. The Point-based loyalty program works great
for frequent and short term purchases.
Pros:
Maintains price integrity
Flexible, customizable and currency can be sold to partners to fund the program
Promotes higher AOV, purchase frequency and conversion
Ability to target high value customers
Access to extensive customer data and insights
Cons:
Higher exit costs
Need to have a contingency on balance sheet for point liability
Reward fulfillment can be more expensive
5 Ways To Add Value To Your Customer Loyalty Program
If your loyalty program doesn't add value to your customers, it won't be long before your
customer jumps ship to a competitor. Here are some ways to increase the value of your
loyalty program.
1Communicate With Your Customers
Get constant feedbacks from customers regarding the benefits of your loyalty program
through in store and online surveys. Another way to figure this out is to compare what your
customers are choosing vs. what you are offering. After a thorough analysis, you should be
able to come up with insights regarding what your customers are actually looking for from
your loyalty program and what type of rewards attract them the most.
2Reward For Initial Engagement
Once a new customer engages with your brand, make sure you reward them. While most
brand do this, they often miss out on finding unobtrusive ways to remind them about these
points. A great way to do this is to reward customers for social following or email opt-ins.
This gives you a chance to push special offers and reward redemption options to these new
customers.
3Reward Your Customers Creatively
Most customers expect to be rewarded when they make a purchase. However, the best loyalty
programs reward customers when they are not expecting it; so go ahead and offer your
customer a special bonus points along with a personalized birthday mail. Even better, try
sending a certain segment of customers a simple "You're Awesome!" mail along with free
points. It would cheer them up and create a positive reinforcement with your brand. These are
just simple examples, try to think of creatively engaging your customers while incorporating
your brand persona and business model.
4Support A Charity
According to research, 83% of Americans want brands and retailers to support charitable
causes. This is a great opportunity for you to leverage your loyalty program to allow
customers to donate points to charitable trusts and organizations. For example, Canadian Red
Cross allows members to donate using AIR MILES and Aeroplan miles. You can implement
a similar loyalty program strategy where your customers can donate to a charitable cause that
is related to your products and services.
5Offer Innovative Rewards
For your loyalty program to stand out, it needs to go beyond discounts and promotions based
rewards. When you provide loyal customers with a unique, personalized experience, it makes
a long lasting and valuable impression compared to gifting them something they would have
ability to purchase anyway. And if you are able to connect that connect that incredible
experience with your brand persona, you have hit the loyalty marketing jackpot! A great
example is Theory11, an online seller of magic tricks and other party trick accessories. As
part of its loyalty program, the brand offers customers various training sessions over Skype.
Customers who are higher up the loyalty tier get access to private training sessions and a
handful of top tier customers get the opportunity of a lifetime - a one-on-one session with
David Blaine.
Ideas For Loyalty Programs
Ditch The Card, Go Mobile!

Loyalty cards usually get lost in the wallet and are cumbersome to carry around. We highly
recommend a mobile app for your loyalty program
Build A Referral System In To Your Program

This will work well for a restaurant brand. Instead of offering free meal/discount/coupons on
every 10th purchase, offer them a 1+1 free offer on every 5th purchase.
Align Your Program With Your Brand Persona

If your brand is built around 'best value' and 'lowest price', then focus on offering cashbacks
and discounts. If your brand serves a premium customer segment, opt for experiential
rewards.
Invest In A Good Loyalty Program Software

A Loyalty Program Software is the core platform that tracks and manages your loyalty
program. So, rather than investing in a complex one, try to ensure it fits your business needs.
Reward Feedback

Encourage your customers to give feedback on your products and your loyalty program. A
simple reward for sharing their opinion goes a long way here!
Keep It Fresh!

Try to keep your loyalty programs fresh and engaging by offering special, limited period
offers for earning as well as redeeming points
Be Social

Create an exclusive coupon code for your social followers to make them feel special and
encourage them to become brand advocates

The Metrics You Need To Measure Your Loyalty Program

How do I measure the success of my loyalty program? As more and more businesses are
focusing on tying marketing efforts to their revenue; it has become critical for marketers to
show effective ROI on loyalty programs.
Here are the key metrics you should be tracking to measure the effectiveness of your
customer loyalty program:
track_changesCustomer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is simply the overall revenue contribution you can expect
from a customer during his/her engagement with your brand. To calculate CLV, you need to
first calculate the Customer Value
Once you get the Customer Value; finding the Customer Lifetime Value is simply
multiplying it with the average lifespan of the customer. The trouble is getting the exact
lifespan of a customer is not easy; especially if you're a relatively new brand. A good thumb
rule to take is 3 years.
track_changesRedemption Rate

Redemption Rate is a percentage which indicates at what rate are your customers are
redeeming their loyalty points. A high redemption rate indicates that your customers are
highly engaged with your loyalty program. A healthy benchmark is a 25% redemption rate;
anything less than that and it indicates an issue with the redemption process of your loyalty
program, i.e., your customers are earning loyalty points and are not spending them. Here's
how you calculate the redemption rate of your loyalty program.
track_changesActive Engagement Rate

This ties in with Redemption Rate in that it measures the number of customers who are
actively engaged with your loyalty program (through points earned and redeemed).
track_changesRepeat Purchase Rate (RPR)

While CLV is a great way to measure the long term impact of your loyalty program, the
Repeat Purchase Rate (RPR) gives you an overview of the short-midterm impact. The Repeat
Purchase Rate (RPR) basically gives you the percentage of customers who have made more
than one purchase for a period of 1 year. One of the primary objective of a loyalty program is
to increase repeat purchases and thus measuring the RPR is critical for gauging the
effectiveness of a reward program. Also, remember that the RPR has a major impact in
increasing the Customer Lifetime Value (CLV)
Why Loyalty Programs Fail
stopCryptic CommunicationThis is the most common suspect in ruining an otherwise great
loyalty program. If a customer doesn't understand the tiers, earn/burn policies and rewards
associated with your loyalty program at the first glance, you have a problem that needs
immediate fixing
stopImpossible Reward StructureIf you have setup a very steep reward structure, your
customers are going to get disenchanted and ignore your loyalty program
stopTrying to Accomplish Everything at OnceLayering your loyalty programs with too
many things (social media, referral bonus, coupons, and discounts) overcomplicates it
stopStaff/Employee IgnoranceWhen a store employee is unable to explain the program to a
customer, it creates a bad customer experience
stopBuild & Forget ApproachYou created a loyalty program and never bothered to promote
it on your website or social media
Fixing Ineffective Customer Loyalty Programs
buildStep back and go through your loyalty program rules with an objective mindset and see
if you are able to comprehend the tiers and earn/burn rules. Even better, ask your
friend/family read about the program and ask them what they understood. This is a great way
to fix unclear communications.
buildEvaluate the average spend of your customers and the frequency of visits to arrive on a
reward structure that is financially viable to you as well as be valuable to your customers.
buildWhile all your marketing efforts can be layered into your loyalty program, it should be
done carefully. The best way to do this is to treat the loyalty program as a central platform
and connect other channels in a modular form. e.g.:- your social followers can receive bonus
points for sharing/liking your page, your customers earn 2X points for referring their friend
and so on.
buildMake sure your loyalty program is an integral part of employee and staff training. Try
gamifications and leaderboards to encourage staffs to actively learn more about the program
and promote it your customers.
buildRevive and refresh your loyalty program by introducing new rewards and redemption
options. Try to invest in a loyalty program management software which automates the
campaigns and other aspects of your loyalty program. A marketing campaign centered on
your loyalty program is another great way to kick start a depleted program.
Artificial Intelligence & Machine Learning Powered Loyalty Programs
AI and Machine Learning have the potential to fundamentally revolutionize the retail and
loyalty industry. The reason? Loyalty is closely linked to customer experience and AI is
becoming impressively accurate in predicting human behaviour and purchase patterns.
Here's how AI will impact Loyalty Programs:
memoryPredictive Insights
Historically, customer data collected through loyalty programs have been used to target
customers with relevant messages. However, with the help of AI and Machine Learning;
brands can take this several notches up to predict customer behaviour and influence purchase
patterns. Imagine getting real-time information of every customer who walks in to your store
along with insights on what they are most likely to purchase. Advanced AI algorithms is
capable of predicting human actions long before the thought even starts taking shape in the
subject's mind.
memoryPrescriptive Analytics
AI-powered insights can instantly give you a segment of customers who are more likely to
spend more once they move into the next tier of your reward program. Now all you have to
do is offer them 3X points on their next purchase as a special gift. Prescriptive analytics can
be applied to a wide range of retail scenarios to reduce churn, increase conversion rates and
improve overall customer experience.
memoryFraud Preventions
Loyalty point accounts are frequent targets for fraudsters, mostly due to their low-level, rule-
based security. They typically work like this - if this specific anomaly happens, then raise an
alert. The trouble is that once a fraudster identifies a rule, he/she can easily bypass it. AI
works a little differently; it monitors millions of transactions and creates a flexible protection
layer capable of identifying and stopping an attack in real-time.
memoryIntelligent Interfaces
AI-powered voice assistants like Alexa and Siri have so far been mostly confined to their
virtual avatars. As consumers become more comfortable with these technologies, they are
likely to show up in the physical realm as shopping assistants and other customer service
roles. In the near future, it won't be farfetched to imagine that a customer makes a purchase in
a retail store without ever interacting with a human.
Over the years, retailers have faced a major dilemma when it comes to loyalty programs -
how to increase revenues without negatively impacting the customer experience. AI and
Machine Learning can help retailers with intelligent insights that can increase the overall
sales, conversion; while ensuring a great customer experience.
And that brings us to the next big thing looming large over the loyalty horizon - the
Blockchain Loyalty Programs.
Blockchain Loyalty Program
Last year, a dozen companies like Singapore Airlines, Rakuten & Chanticleer (parent of
Little Big Burger, American Burger Co., Hooters, Just Fresh, and BGR) have announced their
intent to launch blockchain-based loyalty programs to encourage customer engagement.
Integrating your loyalty program into a blockchain essentially involves setting up an
integrated yet open system. Think of the blockchain as the Operating System and the loyalty
program software as an application running on this OS.
Let's get the obvious out of the way - private blockchains and branded cryptos are still very
nascent technologies. So why are top brands and businesses experimenting with it?
Interchangeable RewardsBlockchain-based loyalty programs allows brands to offer rewards
across multiple products and services, thereby giving customers virtually unlimited freedom
for reward redemption.
Higher FlexibilityBrands can easily track rewards across several engagement parameters like
content consumption, beacons or IoT product use.
Cost EffectivenessBrands have often struggled with expanding their loyalty programs across
affiliates and partners as it involves expensive system integrations. A blockchain loyalty
program can significantly reduce development, integration and security costs.
Anti-FraudBlockchain members in a network have their key information shared in a
distributed ledger–– this is a core feature of blockchain. This 'single source of truth' concept
makes loyalty fraud extremely difficult to execute.
Sounds great! So why blockchain loyalty are programs not being adopted by everyone? Here
are the not-so-great stuff about blockchain loyalty programs:
Overhyped?Let's be honest, most enterprise blockchains are still in Proof-of-Concept stages
and are focused on generating more Press Releases than actual deployments.
Steep learning curveBrands will have to incur significant marketing spend in educating
customers on how to use blockchain.
ScalabilityThis is a critical issue plaguing public blockchain networks and programs with
high volume transactions.
Less DataBlockchain loyalty programs allow only limited access to Personally Identifiable
Information (PII) data due to limits on how much PII can be put on a shared network.
 Customer Loyalty Program
 Introduction
 Timeline
 Current Landscape
 Benefits
 How it Boosts Sales?
 Best Loyalty Programs
 Making An Effective Loyalty Program
 A Winning Loyalty Program
 Types of Loyalty Programs
 Making it Better
 Ideas
 Measuring the Loyalty Program's Success
 The Success Metrics
 Roadblocks
 Fixing Ineffective Programs
 Future of Loyalty Program
 AI & ML
 Blockchain Loyalty Program
Learn how leading brands like Giordano, Peter England, Tunglok & REDTag are increasing
sales and conversions with omnichannel loyalty programs.
Point-Based Loyalty Program
This is the simplest and most common loyalty program model where customers earn a
specific amount of points for every transaction or specific action. These points can then be
redeemed for discounts, products or services. The Point-based loyalty program works great
for frequent and short term purchases.
Pros:
 Maintains price integrity
 Flexible, customizable and currency can be sold to partners to fund the program
 Promotes higher AOV, purchase frequency and conversion
 Ability to target high value customers
 Access to extensive customer data and insights
Cons:
 Higher exit costs
 Need to have a contingency on balance sheet for point liability
 Reward fulfillment can be more expensive

Tier-Based Loyalty Program

A tiered loyalty program works to provide both short term rewards and long term,
aspirational benefits once a customer reaches a specific level. This is a great way to
encourage repeat purchases as well as increase the average order value. This is a very
effective loyalty program model since fundamentally affects the behaviour and purchase
patterns of consumers by tapping into the basic human traits relating to social status and
acceptance. If you're planning to implement a multi-tier loyalty program, please make sure
that you convey the benefits, earn/point process for each tier clearly across all channels.
Pros:
 Allows you to focus on high-value customers
 Ability to customize rewards to each customer's preferences
 Aspirational purchases leads to higher revenue
Cons:
 Not very attractive for casual and low engaged customers
 Might have a negative impact when customers are downgraded
 Complex and requires clear communication to be effective
Fee-Based Loyalty Program
A fee-based loyalty program appeals to highly engaged customers who have already made up
their mind what they want out of your loyalty program. For fee-based loyalty programs to be
effective, it needs to offer a very relevant value proposition to the customer whether it’s in
form of free shipping, special discounts or priority access to sales. Amazon Prime is a classic
example of a fee-based loyalty program that garnered universal acclaim and acceptance.
Pros:
 Access to pre-qualified and highly engaged customers
 Membership fees often nullifies the program cost and even becomes an alternate
revenue channel
 Access to insights on high-value customers
Cons:
 Not very attractive to moderately engaged customers
 Potential for higher volume of operational issues
 Lack of data on low/moderately engaged customers will impact long term growth
  Limited adoption due to cost factor

Cashback Loyalty Program

Cashback programs are simple and straightforward - spend X amount and get Y amount as
cashback. They have been effective in reducing customer churn rates in a variety of industries
like retail, banking and insurance.
Pros:
 Simple & straightforward value proposition
 Customizable to a multi-tiered program offer more value to loyal customers
 Drives incremental visits and sales
 Often perceived as a higher value compared to discounts
Cons:
 Rewards loyal and casual customers alike
 No instant gratification
 Easy for competitors to replicate
Reward Loyalty Program
Also known as a coalition loyalty program, this type of program involves a brand partnering
with another brand to offer rewards and incentives to a shared group of customers. The Plenti
coalition loyalty program is a good example of a coalition loyalty program.
Pros:
 Customers can earn rewards faster
 Expands the brands reach into a broader customer base
 Reduced marketing, rewards and operational costs compared to standalone loyalty
program
 Reduced financial burden on brand’s balance sheet
Cons:
 Higher churn rates due to ease of shifting loyalty from brand to another within the
coalition
 Limited access to customer data
 Open coalition programs allows your customers to earn points from you and redeem
them with a competitor