5 Types of Loyalty Programmes & Key Advantages to Retailers

You’ve seen them before, both in the real world and the digital environment. Rewards programs are everywhere today. You swipe a key tag or enter a customer ID number at checkout and receive a reward of some type. Points, accruing discounts, access to partner products, and services – these are just a few of the perks that retailers offer within these programmes. What’s behind the explosive growth here, though? Why are so many retailers now offering some type of loyalty programme?

What’s a Loyalty Programme?

First, let’s identify what we mean by “loyalty programme”. These are just rewards programmes by another name, with the focus shifted slightly. Loyalty programmes, according to The Drum, “are making headlines in the consumer and trade press, the big conferences are heavily promoting loyalty keynotes, and there is a huge amount of buzz around two areas, primarily: the biggest players are making huge changes, and the newer loyalty entrants are ripping up the rule book, creating new and exciting member experiences.”

Why, though? It’s pretty simple. These programmes are designed to do one thing above all others – reward customers for their loyalty and increase their fealty to the brand in question. In a day and age when brand agnosticism is on the rise, that bump in loyalty is of inestimable value. Simply put, loyalty programmes offer something of value to customers (points, discounts, products, services, etc.) in exchange for their patronage.

Retail loyalty programmes are generally created by individual companies and made available to customers who make frequent purchases. They come in a variety of shapes and sizes, but several types perform better than others.

A Couple of Real-World Examples

While the chances are good that you’re familiar with the idea of underlying loyalty programmes, it helps to have a couple of real-world examples.

Abercrombie & Fitch: myAbercrombie offers customers a number of rewards including special member pricing, invite-only experiences, and birthday gifts.
They operate on a points-based model, similar to the one made popular by American Express (the more you spend, the more you gain). With myAbercrombie, every member is credited with 10 points for every £1 they spend. 2500 points equates to a £10 reward, which means for every £250 you spend, you’re credited with £10 off your next order.

myAbercrombie also has a VIP membership program, available to customers who spend over £700 per year, which grants customers additional benefits, such as 15 points instead of 10 points per £1 spent and invite-only experiences to exclusive events.

You can also gain points on myAbercrombie by performing non-transactional activities such as referring friends to the program, or by downloading their mobile app.

Types of Loyalty Programmes

A quick look around at UK retailers will show you a broad range of loyalty programme types in operation. These include the following:

• Points – In a basic points system, customers are awarded points for making purchases. Those points can then be redeemed or saved. The standard myAbercrombie program is an example of a points-based system. The most successful programmes allow customers to redeem their points for things that truly matter to them, but this requires a deep understanding of what your audience truly finds value in (Avios is a good example of this, as you can spend your Avios on flights, upgrades, hotel stays, car hire and more, to create a personalised reward for yourself).
• Tiered Points – These are similar to standard points systems, but customers have access to higher tiers. Each tier is based on a specific amount spent. Once a customer spends that amount, they’re automatically bumped to the higher tier, where they earn more points for each purchase and often have access to other perks, such as free shipping. An example of this is the Blue, Bronze, Silver and Gold tier by British Airways to earn Avios, or the myAbercrombie’s VIP program.
• Partner Retail Loyalty Programmes – With this type of programme, customers are rewarded with discounts or access to exclusive offerings from partners. American Express is a good example of a partner retail loyalty programme, offering customers rewards like Amazon Gift Cards or cases of Majestic Wines in exchange for points.
• Upfront Fee Loyalty Programmes – Tesco’s Clubcard Plus programme is a great example of this option. Customers do not need to spend a specific amount in purchases to enrol, but instead are charged an upfront or monthly fee to access the benefits of the programme. With Tesco’s Clubcard Plus, you can pay £7.99 per month and receive 10% off all Tesco-branded products in-store. British Airways/American Express also have cards like the Premium Plus card, with an annual fee of £195 in exchange for more perks.
• Referral-Based Loyalty Programmes – In this scenario, you offer incremental rewards for customers who share your products or promotions with their friends, family members, and others they know, usually through digital media, such as email or Facebook. Harry’s, the direct-to-consumer shaving & grooming goods company, offered incremental tangible rewards (refer 5 friends, earn free shave cream, refer 10 friends, earn a free razor, etc.) to those who were willing to refer their friends through email, Facebook or Twitter and help launch their brand.

Beyond Signups and Building a Customer Base

The most obvious use of retailer loyalty programmes is to entice people to sign up for membership or to become (and remain) customers. However, one benefit that many retailers overlook is the ability to use loyalty programmes to influence customer activity at checkout. By integrating a customer loyalty programme within your eCommerce site, you can empower your customers, offer something of value at each visit, encourage more visits, and even increase the average order value.

Increasing AOV

AOV, or average order value, is one of the areas where many eCommerce companies struggle. It’s tough to run a profitable business when your average order value is in the tank. A simple loyalty programme can offer big benefits here. For instance, a simple notification that spending £x more unlocks a reward can help boost your AOV significantly. For example, we can see this in play with myAbercrombie.

To put power to this advice – the US-based health retailer Dr Axe® managed to increase the company’s AOV by 36% by using in-cart rewards and instant points.

Streamlining the Payment Process

Another benefit of having a modern loyalty programme is that you can use it to streamline your payment process. This can also allow you to address one of the most widespread issues in eCommerce – abandoned carts. If your checkout/payment process is lengthy, convoluted, or confusing, customers will abandon their shopping carts and go elsewhere. For instance, a system like Tesco’s Clubcard Plus makes checkout simple, easy, and painless, encouraging customers to come back again and again.

With myAbercrombie, you can save information like your shipping address, billing information and more, so that checkout is quick and seamless.

Offer Points at Checkout

Earning points offers value to your customers, but you need to make it blatantly obvious what they’re earning, why, and how many points they’ve earned by shopping with you. In the past, customers often had to wait for a statement in the mail telling them about the points they earned for their purchases, but eCommerce companies can turn that paradigm on its ear.

Tell your customers how many points they’re earning right there in the checkout process. That offers an instant reward, but when combined with other tactics, such as tiered points, it can encourage them to go back and add more items to their cart, increasing your purchase frequency, AOV, and reward redemption rate significantly.

Redeeming Points at Checkout

Points can be great rewards for your customers, but if they cannot use them easily, are they all that valuable? Instead, offer a simple way to use points during the checkout process. This can be a simple click of a button, like myAbercrombie offers.

Back to Dr. Axe® once more, the company managed to increase reward redemption by 300% by using in-cart rewards and instant points.

The Wider Benefits of Loyalty Programmes

By this point, the value of a loyalty programme for eCommerce companies should be readily apparent, at least in terms of measurable impact on your sales success. However, those benefits go far beyond this.

1. Increased Brand Loyalty: As mentioned previously, one of the most significant challenges facing retailers today is finding a way to foster customer loyalty in an age when more and more consumers are brand agnostic. A loyalty programme gives you the means to do just that.

2. Less Competition: By creating a branded loyalty programme, you set yourself apart from competitors and enter a different segment of the market. No, it does not change your product offerings, but it does give you a competitive advantage over eCommerce companies that lack a loyalty programme or that have an inferior programme.

3. Less Pressure on Pricing: eCommerce companies must frequently compete on razor-thin margins. The rush to be the lowest priced option online can mean leaving profitability behind. With a loyalty programme, there is less pressure to compete on pricing alone, as you have additional ways to differentiate yourself and attract customers.

To conclude, developing a customer loyalty programme can be an invaluable tool to bolster your eCommerce success, build a stronger brand, and reward your customers for being loyal. With more and more brands creating loyalty programmes, competing brands must begin to consider the cost of not creating one, and with consumer’s expectations of brands higher than ever, there’s never been a better time.

If you’d like to learn more about building a customer loyalty programme on your marketplace, we can help. Book a free discovery call with our team and we’d be delighted to help you develop your marketplace proposition.