The retail industry doesn't stay in one place and has undergone significant changes throughout the years. With an abundance of choices, customers have become more informed and selective. To remain competitive, retailers must stay attuned to evolving customer preferences and values. Building customer loyalty has become an answer for merchants, as loyal customers tend to shop more frequently. One of the most effective strategies for fostering this loyalty and increasing revenue is the implementation of retail loyalty programs. By doing so, retailers can provide an exceptional customer experience and drive repeat purchases.
What Is a Retail Loyalty Program?
A retail loyalty program is a rewards system tailored to tackle industry-specific challenges and encourage customers to shop and interact with a particular retailer more regularly.
For example, a 15 % discount on the entire range for all customers is a promotional offer. However, offering a 15% discount to those who have purchased from you more than 3 times is considered a loyalty program.
Loyalty programs in retail differ from those in other industries because retailers are up against stronger competition for a limited market share, often driven by factors like location and convenience. Additionally, retailers benefit from the potential for high purchase frequency, as customers gain access to a diverse range of products from numerous brands. The programs’ perks make the shopping process easier by offering extended return periods, early access to new products, exclusive discounts, and free delivery.
Customer retail loyalty programs are often transactional and savings-focused. However, there’s always room for improvement and differentiation. Retailers must understand that, in addition to having physical stores, maintaining an online presence is a competitive advantage in today’s oversaturated market.
Why Are Loyalty Programs Important for Retailers?
Loyalty programs should be a top priority for all businesses in the retail industry. They help retailers acquire new customers more cheaply through positive word-of-mouth and retain existing ones by rewarding them for their continued loyalty. This fosters customer loyalty and leads to higher Customer Lifetime Value (CLV) rates. This allows them to increase earnings without increasing their marketing budget.
Retail loyalty programs incentivize repeat customers to choose a particular business over others over and over again by providing unique discounts, points, and special offers. By gathering valuable data on customer preferences and shopping habits, you can personalize marketing efforts, improve customer service, and tailor product offerings to meet specific needs. This approach can significantly increase your store’s sales and revenue and make you feel connected to your customers. When you make customers feel valued they will keep coming back to you instead of going to competitors.
- According to a Nielsen survey, 84% of global respondents indicated that they are more likely to visit retailers that have a loyalty program.
Most retailers, both large and small, provide some form of loyalty program and this data highlights their importance.
Benefits of Loyalty Programs
Loyalty is a strong term. As the saying goes, one cannot buy loyalty but must earn it. It benefits everyone, not just retailers. Many businesses have recognized the value of brand loyalty programs and are now actively implementing them to boost repeat purchases and foster customer loyalty. Surely, they have plenty of substantial benefits but to stand out in the sea of customer loyalty programs and ensure their success, you need to add a personalized touch to them and follow modern trends.
Here are five key benefits of integrating loyalty programs into modern retail marketing strategies:
01. Increases repeat purchases
One of the main benefits of loyalty programs is encouraging customers to make repeat purchases. The rewards programs are specifically designed to drive repeat business. When a customer returns to buy from you again, it enhances your business’s profitability.
02. Boosts average order value (AOV)
Customer loyalty programs are one of the best tools to increase AOV. Loyalty programs can boost the average order value by roughly 14%. Furthermore, they also improve customer retention rates.
Growave’s VIP Tiers are effective for increasing AOV. By leveraging points and special offers, the program encourages customers to come back and add more items to their orders to progress to the next VIP tier.
03. Collects customer data
Collecting and analyzing customer data can help you improve customer satisfaction and loyalty. Thanks to the loyalty program, you can achieve this goal effectively. Through your customers’ participation, they willingly share information about their preferences, purchase behavior, and demographics, enabling you to gain a deeper understanding of your customer base. By analyzing this data, you can improve your services and personalize marketing campaigns.
04. Strengthens customer loyalty
When you reward existing customers for their continued support and repeat business, you make them feel special and valued. This enhances their shopping experience and creates an emotional bond between them and your brand. By fostering this connection, loyalty programs not only enhance customer satisfaction but also drive long-term engagement and advocacy, ultimately leading to sustained business growth.
05. Attracts new customers
A customer loyalty program is a truly multifunctional tool. While it focuses on the needs of current customers, it can also be used to attract new ones. Moreover, you can lower the expenses related to your acquisition activities.
To achieve this, retail companies use referral programs that encourage customers to influence their friends and family members.
06. Increases competitiveness
In the current competitive business environment, building customer loyalty is a necessity. By investing money, time, and effort into a quality loyalty program you can set yourself apart from your competitors. By gathering rich customer data, you can personalize your marketing efforts, while respecting privacy concerns. This not only provides more value to your customers but also helps distinguish your business from competitors.
Types of Loyalty Programs
Different types of customer loyalty programs are designed to incentivize repeat purchases and enhance customer engagement. Each one caters to different consumer preferences, providing businesses with versatile strategies to increase customer loyalty and retention.
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Points programs
Points based loyalty programs are one of the best and simplest ways to promote customer loyalty. Every time a customer makes a purchase in your brick-and-mortar store or on your website, they earn points based on the amount they spend. They can later redeem these points for discounts, free products, free shipping, or other rewards.
This point system is pretty straightforward: earn more to get more. It is ideal for retailers with regular customers making small purchases, such as those who run beauty stores or convenience stores. The point system should be easy for users to understand and calculate.
Tiered programs
Tiered loyalty programs are structured membership systems in which customers are assigned to different tiers based on their level of engagement and spending.
Customers accumulate points with each dollar they spend, and these points dictate their loyalty tier. Each tier grants valuable benefits and rewards. Higher tiers bring even more significant rewards.
Most tier-based rewards programs usually consist of 3 tiers, however, if you want to retain customers for the long run, we suggest adding more levels. For example, you might introduce a “platinum level” tier that customers can achieve after making purchases totaling $5000 within a year. Members of this tier can enjoy exclusive access to superior offers such as early access to new products. This way, you can incentivize customers in lower tiers to strive for higher tiers. Many retailers have transitioned to the tiered system. It has proven effective for fashion retailers, electronic retailers, and grocery chains.
Cashback programs
Cashback loyalty program is a rewards system offered by businesses where customers receive a percentage of their purchases back as cash rewards. For example, if a store offers a 5% cashback and you spend $100, you’ll get $5 back. This cashback can be used for future purchases or withdrawn as real money.
Cashback rewards foster long-lasting loyalty. The immediate reward makes them highly appealing to customers. They usually get their money back right away. Moreover, cashback rewards offer customers flexibility in using or redeeming their money. Another reason why customers love them is that they are rewarding, relevant, and easy to understand.
- 90% of consumers indicated that the current inflation is prompting them to look for cashback rewards and discounts when shopping online.
Numerous online retailers, drugstores, and supermarkets provide cashback rewards.
Cashback loyalty programs are often tied to credit cards, allowing customers to receive a percentage of their expenditures back from the credit card companies.
Coalition programs
Often called “shared loyalty programs”, coalition loyalty programs are partnerships between two or more unrelated businesses that join forces to provide a unified loyalty program.
Customers earn points or rewards when they shop at any one of the participating businesses, which they may redeem at any of the partners. These programs are equally beneficial. Customers have more opportunities to earn and redeem rewards, and businesses profit from shared customer bases, shared customer insights and increased loyalty.
Through a unique partnership between Dubai Mall and Emirates Skywards, customers can earn Skywards Miles with every purchase at any store, dining outlet, or leisure attraction.
Coalition programs are well-suited for shopping malls, coffee shops, department stores, and airlines.
Referral programs
Referral loyalty programs are marketing initiatives in which businesses motivate customers to refer friends, family members, colleagues, and people they know to their products and services.
These programs incentivize regular shoppers to bring in new customers by offering them benefits such as discounts, free products, free delivery, or points that can be exchanged for rewards. The new customers may also receive a benefit as a welcome incentive. This creates a win-win situation: existing customers are motivated to promote the business, new customers receive a perk for joining, and the business can reduce its customer acquisition cost while enjoying increased brand exposure and a growing customer base.
These programs work well for online retailers, gyms and fitness studios, cafes, and restaurants.
Gamified Programs
As the loyalty industry continues to grow, it is becoming increasingly challenging for retailers to engage and retain customers. Implementing gamified loyalty programs could be an effective solution for some retailers.
Gamified loyalty programs add game-like elements to customer rewards schemes to make earning and using rewards more fun, boost engagement, and encourage repeat business. These programs use game elements such as levels, points, badges, quizzes, punch cards, referral milestones, and challenges, to create a more interactive and enjoyable experience for customers.
Retailers should implement a gamified loyalty program to create a fun and engaging experience, enhancing customer loyalty and encouraging brand interaction. Moreover, this strategy helps entrepreneurs differentiate themselves from competitors and build long-term engagement with their customers.
Gamified loyalty programs are most effective for businesses targeting younger or tech-savvy customers. This might be athletic apparel retailers or brands in the tech industry, coffee shops, subscription-based services like streaming platforms, or meal delivery kits.
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Loyalty Program Development
Having discussed the fundamentals of retail programs, any business aiming to retain its customers, build long-lasting customer relationships and increase revenue should implement such a program.
Creating a successful retail loyalty program involves several key steps:
Define your program goals
Before launching a loyalty program, you need to outline what you aim to achieve with your loyalty program. Do you aim to increase customer retention, average order value (AOV), customer lifetime value (CLV), and brand awareness, collect valuable customer data, or enhance customer engagement?
Clearly define your goals. Having specific, measurable, and time-bound objectives will help you guide your program’s design and implementation. Without goals tied to measurable KPIs, your loyalty program is likely to fail. However, implementing too many KPIs can lead to problems, too. Focus on the most important ones.
Customer retention is, of course, the main goal of any loyalty program. However, there are numerous smaller goals you would want to achieve with your loyalty program.
Divide your goals into short-term and long-term loyalty program goals.
Understanding your customer base
Your customers are your main focus. Knowing who they are and what they want will help you create a successful loyalty program. You need to make sure that the rewards you provide reflect your customers’ needs. To accomplish this, you should perform market research, analyze customer data, and collect insights into their preferences to understand what motivates them to make purchases from you.
- Use surveys, feedback forms, interviews to gain a clearer understanding of your customers’ needs and preferences.
- Leverage demographic insights such as age, gender, and location to segment your customers. For example, younger generations seek loyalty programs that encourage sustainable living or environmental conservation. An older audience tends to enjoy exclusive access, VIP experiences, and personalized offerings more.
- Scan social media to gain insights about your products or services, niche, customer interests, and even unmet needs or problems.
- Examine purchasing and transactional data to determine patterns and trends in customer behavior. Measure the AOV to evaluate the effectiveness of your marketing campaigns and understand your customers’ purchasing behaviors.
By understanding your customer base, you can create a standout retail loyalty program that will help your business increase sales and foster loyalty.
Finding the right program type
Once you’ve set your goals, understood your target audience, and learned about different types of loyalty programs, you need to know what to consider before choosing the right type.
Here are the key criteria to consider:
Intent
Your intent shapes the selection of the type of loyalty program. You need to align it with your business goals and customer needs. If you want to retain your customers and keep them coming back for more, programs like tiered or points-based systems are effective, while acquisition-focused intents might favor referral programs. For customer engagement, consider implementing gamified loyalty programs. If you want to boost your company’s brand awareness, it’s beneficial to monitor how frequently your program members reference you on social media. Finally, data-driven intents demand digital solutions for personalized marketing.
As the owner of a retail business, you might favor points programs due to the high purchase frequency.
Niche
Before building your loyalty program, you must thoroughly understand your niche and the specific audiences you aim to serve. You need to know every detail about your loyal customers - their interests, preferences, and pain points. You can craft a relevant and successful rewards program by knowing their preferences and buying behaviors that influence their purchasing decisions. This way, you show your customers that you appreciate them, and they love it.
Competition
In today’s modern world, the retail sector has undergone significant changes and remains highly competitive, yet it continues to play an important role in our lives. Competition significantly influences the selection of loyalty programs as businesses strive to differentiate themselves and attract more customers. They are more likely to offer more innovative and attractive loyalty programs to stand out. For instance, businesses might incorporate gamification in loyalty programs, offer tiered membership benefits, or implement green loyalty programs to build a stronger emotional connection with customers and engage them more effectively. Furthermore, competitors’ loyalty programs set a benchmark, compelling companies to match or exceed these offers to retain their customer base.
Determining the program structure
Choosing the right loyalty program structure involves analyzing historical transaction data to tailor the program to customer behaviors and business objectives.
Effective programs can include point-based systems, tiered memberships, gamified loyalty programs, and exclusive benefits, each encouraging different types of customer engagement.
Begin by designing a program structure that resonates with shoppers. Make it simple. Opt for 3 to 5 campaigns that support your goals. For example, you can reward your customers for signing up, mentioning you on social media, leaving a review, or adding their birthday. Next, set the rewards that shoppers will earn for completing these actions.
Rewards should be diverse, going beyond discounts to include options like free products, gift cards, access to exclusive VIP events or products, and expedited shipping. It's essential to strike a balance between captivating rewards and profitability, with clear benchmarks for success such as customer retention rates, customer lifetime value, and average order value. This holistic approach ensures the program maximizes engagement and fosters customer loyalty.
Make your loyalty program easy to join and use. Ensure your customers can easily understand how it works. Offer clear instructions and simple steps for customers to start earning right away.
Selection of program management system
Choosing the right loyalty program management system is essential for boosting customer retention, loyalty, and engagement. Key factors include a comprehensive set of features such as reward management and robust analytics, and the system’s ability to integrate with existing CRM, e-commerce, and payment platforms.
An easy-to-use interface combined with mobile compatibility is crucial for enhancing user experience. The system should be scalable enough to grow with your company. Security is critical because it helps protect against and prevent fraud and scam activities. Your software should comply with the legal requirements of the countries you operate in. This typically includes GDPR, CCPA, and PCI DSS, but may vary depending on the region.
Consider the total cost of ownership, the features it provides, and evaluate the potential return on investment. Customer support is another important aspect you need to pay attention to. Strong customer support from the provider ensures quick and effective resolution of any issues. Additionally, regular updates and maintenance are necessary to safeguard against emerging security threats and the system should offer personalized offers and rewards to boost customer engagement further.
Promotion of the program
Creating an effective and relevant retail loyalty program requires strategic marketing. Start by dedicating a special page on your website to highlight the program’s benefits, details, and how your current and future customers can join. This page should be visually appealing and easy to navigate. Complement this with blog posts that explain the advantages of joining the program, and provide updates on new rewards and features.
Since most of your customers are active on social media, it makes sense to promote your program there. Leverage popular social media platforms such as Instagram, Facebook, X, and YouTube to reach a broader audience. Use engaging posts, stories, testimonials, and targeted ads to attract new members and keep existing ones excited.
Email marketing can also be a powerful tool to inform current customers about the loyalty program and its rewards, using personalized messages to make them feel appreciated and loved.
Hosting special events or promotions exclusively for members can further enhance engagement and make them feel special, and create a sense of community.
When it comes to in-store marketing, utilize physical signs to advertise the program. Place banners, posters, or table displays to attract customers' attention while they shop.
Lastly, gather feedback from participants regularly to continually improve the program, ensuring it meets customer needs and expectations. This comprehensive approach will help in building a dedicated customer base and increasing customer retention.
Exploring successful loyalty programs across various retail chains
In the competitive retail market, customer loyalty programs are essential for customer retention and repeat business. This exploration delves into the strategies of successful loyalty programs from leading retail chains. By highlighting key elements and real-world examples, we reveal how these programs enhance customer satisfaction, brand loyalty and drive business growth.
IKEA Family
IKEA Family loyalty program is one of the most well-known and popular loyalty schemes in the world, boasting one of the largest membership bases. The program is open to everyone and as a member, you’ll receive discounts on a wide range of products and even get free drinks.
Enrolling in the IKEA Family loyalty program is easy. Customers must create an account on the IKEA website and verify their email. Members receive a physical card upon registration and the digital card will be delivered within 4 weeks. Moreover, the program’s benefits can be accessed immediately.
The IKEA Family loyalty program stands out by providing exclusive discounts, early access to sales, and additional perks to incentivize repeat purchases and create a sense of exclusivity. It builds community through events like workshops and tutorials, which help members connect emotionally. These workshops are free to attend.
The program emphasizes sustainability and aligns with today’s eco-conscious consumers, reinforcing shared values. Members often get updates about eco-friendly products, recycling options, and invitations to join sustainability-focused events.
IKEA Family’s mobile app is another reason for the program’s popularity. Text messages and push notifications from the brand keep consumers engaged, ensuring they are updated on new products and special offers.
Starbucks Rewards
There’s no list of popular loyalty programs that doesn’t include Starbucks Rewards. It integrates a well-thought-out points-based system, tiered loyalty, and coalition loyalty to increase customer engagement and loyalty.
Customers can join using the Starbucks App, and the signup process is straightforward. Once signed up, members can start collecting points, also known as “Stars”, right away, win Starbucks gift cards, track their points, scan their loyalty cards, store payment methods, play games, and more. They can earn their Stars using their registered Starbucks Card or the Starbucks mobile app.
By accumulating Stars, members can redeem them for rewards. For example, with 200 Stars, you can get a handcrafted drink, such as a Cold Brew or latte, or a hot breakfast.
When it comes to tiered loyalty, the UK’s Starbucks Rewards Programme offers two tiers:
Green tier - this status is granted to customers upon registration.
Gold tier - customers receive this status after earning 450 Stars within one year of earning their first star. Gold members receive complimentary extra shots of espresso, selected syrups, and whipped cream.
Starbucks Rewards and Delta SkyMiles are great examples of successful coalition programs. In this loyalty partnership, customers can link their Starbucks Rewards and Delta SkyMiles accounts. When they fly with Delta, they earn Double Stars on Starbucks purchases and miles on reloads of $25 or more to their Starbucks Rewards account. This coalition loyalty program exemplifies how brands can collaborate to enhance customer value, offering mutual benefits that strengthen customer engagement and loyalty for both companies.
LEGO Insiders
LEGO Insiders is the new loyalty program of a famous toy manufacturer. Launched in August 2023, it replaced the previous LEGO VIP loyalty program. The loyalty program includes many features of the old one, plus some additional benefits. Customers' previously accumulated VIP points will continue to be valid for use in the new program. The program welcomes anyone who wants to register on the LEGO website. Signing up is simple. All you have to do is visit the LEGO Insiders landing page.
Earning points is equally simple. Customers can collect points by purchasing LEGO products through the LEGO website and at their official stores. Members enjoy a variety of benefits, including earning points, receiving discounts, gaining early access to LEGO sets before non-members, getting LEGOLAND tickets, participating in family play activities, joining communities, and more perks. At specific times throughout the year, LEGO offers special promotions that let you earn double points.The program is designed to encourage repeat business and increase loyalty and engagement.
LEGO Insiders members gain access to LEGO Ideas, a platform where they can share their projects, vote for others' creations, and potentially see their own designs become official LEGO sets. This approach allows the company to engage its customers effectively, making them feel heard and appreciated.
Membership also grants LEGO enthusiasts access to the LEGO Insiders Community, a space where they can unwind, exchange tips and ideas, gain insights about LEGO sets and designers, and connect with fellow fans.
adiClub
When discussing the best examples of loyalty programs, adiClub stands out. The globally recognized retailer of sportswear and footwear achieved the highest ranking in the apparel category in Bond’s Loyalty Report for both 2021 and 2022. adiClub is easily one of the top retail loyalty programs available today.
The free-to-join loyalty program, adiClub, offers a straightforward sign-up process. Customers can sign up online through social login with Apple ID, Facebook account, Yahoo! or Google account.
The program utilizes a points-based system and tiered structure, incorporating gamification elements to engage its loyal fans. For example, members can earn their first 50 points just by signing up for Adidas' adiClub. They can earn an additional 50 points by filling out their adiClub profile. Furthermore, they will receive 10 points for every dollar spent. As you can see, the adiClub point system is easy and simple to understand.
When it comes to rewards, members can redeem their points for members-only giveaways, exclusive products, products signed by famous athletes, access to sporting events and concerts, charity donations, and other perks. Customers can unlock even more benefits by accumulating points and advancing through different tiers in this program. As they collect more points, they progress to higher tiers, each offering enhanced advantages and exclusive rewards.
DIG Rewards
DIG (formerly DIG Inn) is an American chain of locally farm-sourced restaurants founded by Adam Eskin. Famous for its nutritious and comforting home-cooked meals, DIG sources its ingredients locally and incorporates seasonal items. This New York-based farm-to-counter restaurant chain operates locations in New York City, Philadelphia, and Boston.
The sign-up process is unsurprisingly easy. Customers can sign up either through the app or online. DIG Rewards members can access their accounts by clicking on a magic sign-in link sent to their email. The loyalty app enables users to make purchases, monitor their progress, view their purchase history, manage and redeem rewards, and more.
There are plenty of reasons for customers to join the program. For example, they receive $5 for every $50 spent. Plus, DIG Rewards is available on a mobile app for both iOS and Android. Customers also receive a $5 reward for signing up.
DIG Rewards is based on three tiers:
- Sous Chef
- Chef de Cuisine
- Executive Chef
For every dollar customers spend at DIG Rewards, they earn 10 points toward their tier progress. Each tier has its own perks, ranging from a free dessert as an annual birthday reward to all Sous Chef and Chef de Cuisine perks and a free monthly featured bowl. Additionally, the website provides easy-to-understand instructions on how to earn reward progress with the new program.
Conclusion
Customer retail loyalty programs play a crucial role in fostering long-term relationships between businesses and their customers. By offering rewards, discounts, and exclusive offers, these programs incentivize repeat purchases and enhance customer satisfaction. They provide valuable insights into consumer behavior, enabling retailers to tailor their offerings and improve overall service. Additionally, well-executed loyalty programs can differentiate a brand in a competitive market, driving customer retention and increasing profitability. As technology continues to evolve, integrating digital, gamified, and personalized elements into loyalty programs will become even more essential for maximizing their effectiveness and maintaining customer engagement.
Growave, a loyalty and rewards app for Shopify, offers an effective solution for integrating these modern elements into your retail strategy.
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