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4 types of loyalty programs and their benefits

Loyalty programs can improve brand recognition, increase sales and emphasize an organization's values. Get an in-depth look at four loyalty programs and what they offer.

Customer engagement relies on many factors -- product quality, pricing, customer service and loyalty programs -- to encourage customers to return and commit to the brand.

Customer loyalty programs help organizations reduce sales costs, compile customer profiles for targeted deals and stay in contact with audiences. These programs also benefit customers, who can receive credits toward future purchases, exclusive promotions, discounts, early access to new products and custom recommendations based on their purchasing habits.

Below, explore four types of loyalty programs that companies can institute and their benefits.

1. Tiered loyalty program

Tiered loyalty programs separate benefits into different levels, with more rewards offered to customers in higher program tiers. Some programs use the names of precious metals -- silver, gold and platinum -- or other naming conventions to motivate customers to spend more and reach higher tiers for increased rewards.

Examples include loyalty programs from Hilton or American Airlines, which offer free sign-ups and encourage customers to continue to purchase from them. As customers make more purchases, they can move to higher tiers and gain more rewards over time.

2. Subscription-based loyalty program

A subscription-based loyalty program requires customers to pay an upfront, monthly or yearly fee to join. Subscriptions can benefit organizations looking to retain customers for specified amounts of time.

For example, Amazon Prime is a paid subscription service that offers free shipping and other services to subscribers. Amazon Prime users get free TV shows, music, shipping, photo storage and product recommendations with the plan.

3. Value-based loyalty program

This type of loyalty program differs from others because it doesn't offer any explicit rewards to customers, like discounts or other benefits. Instead, value-based programs emphasize the organization's values and, ideally, also align with customers' values.

With this program, an organization pledges to donate a portion of its proceeds to one or more charities, enabling customers to choose the charity that best aligns with their personal values. Organizations that use value-based loyalty programs aim to facilitate deeper connections with customers.

4. Points-based loyalty program

Points-based programs reward customers with points for each purchase, making them popular in retail environments, like restaurants. When customers reach a certain number of points, they can cash those points in to get a product or receive a discount.

For example, Chipotle awards customers points for joining its program, and for all purchases thereafter. When customers rack up enough points, they can get free food or merchandise, among other rewards.

Benefits of a loyalty program

A successful loyalty program means customers find value in it. To gauge success, an organization should monitor its program's use over time and ensure it converts enough customers.

Once successfully implemented, loyalty program benefits include the following:

  • Enhanced customer analytics. Loyalty programs can capture customers' purchasing habits and demographic information, like age and gender, which provides valuable insights into the company's customer base. Those insights can help identify a marketing campaign's effectiveness so marketers can target customers appropriately to increase sales.
  • Increased product sales. If organizations collect customers' contact information, they can send promotions to encourage repeat purchases or new product notifications.
  • Improved brand recognition and customer loyalty. Loyalty programs can increase brand recognition, as a company can continuously reach out to and engage with its customer base. As customers opt into the program, they get continuous exposure to the brand and reminders of products they use or might like. They can also receive discounts and product promotions that could discourage them from looking at competing brands.

Loyalty programs can help marketing teams improve brand recognition, customer retention and boost sales. Each company must know its customer base well enough to recognize which type of loyalty program would best suit its audience and products.

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