Effective customer loyalty program ideas

Customer loyalty programs reward repeat clientele and incentivize them to buy more from your brand with discounts, freebies, and more. Such programs are effective ways to boost customer retention and satisfaction while also bolstering your company’s profits. 

The statistics back this up: 77% of consumers are more likely to purchase from brands with reward programs, while 70% will recommend them to their friends. Incredibly, 63% are even willing to change their spending habits to reap more prizes.

So, want to reward your local business with increased revenue while rewarding your customers with exclusive offers? Read on to get the full scoop on planning, implementing, and evaluating customer loyalty programs for your business.

Goals of a customer loyalty program

Sometimes, the purpose of benevolent actions is simply to do something nice for someone else. While it’s always essential to treat your customers with kindness and courtesy, this isn’t the goal of most customer loyalty programs. Instead, they’re meant to:

• Increase customer retention – As noted, over three-quarters of consumers are likely to stick with companies that offer rewards programs.

• Enhance customer lifetime value – Customer Lifetime Value (CLV) measures how much one client spends at your local small business over the entire history of your operations. Loyal customers—often those encouraged by the rewards programs they participate in—have a higher CLV, as they’ll keep returning to spend more. 

• Encourage repeat purchases – Oftentimes, rewards programs work by giving a deal, discount, or free item after a certain number of purchases. Such systems inspire customers to buy from your brand to attain those coveted rewards continually.

• Customer engagement – Effective loyalty programs significantly boost engagement by creating interactive and rewarding experiences. Engaged customers are more involved with the brand, often participating more actively and responding positively to outreach efforts.

• Build brand advocacy – As mentioned, seven out of ten consumers are more likely to recommend your company if you offer a rewards program. So, with the right incentives, your satisfied customers will do much of your brand outreach and advertising for you. No one knows this better than Portland-based realtor Joe Kennedy. He leveraged his relationships with existing customers as references on Nextdoor to build his brand and begin doing business for, in some cases, 75% less than he spent before joining the platform.

• Gather feedback and customer data – Modern digital marketing relies on accurate customer information (such as name, location, and gender) to personalize messaging and increase products’ appeal to consumers. What’s the best way to gather this crucial information? Incentivize customers to share it while signing up for your rewards program! 

Types of customer loyalty programs

The exact type of customer loyalty programs you’ll use for your local business depends on the specifics of your industry, your goals, and more. Regardless, these are a few of the most popular and time-tested models currently in use, each catering to the unique needs and behaviors of loyalty program members:

Points-based programs

These programs reward customers with redeemable points for spending certain amounts, buying specific items, and other, similar actions. You may, for instance, give clients one loyalty point for each dollar they spend on your products or services. This setup not only encourages repeat business but also provides valuable insights into customer behavior, helping you understand purchasing patterns and preferences.

After accumulating enough points, customers can put them towards purchasing more of your goods and services or receiving some other sort of reward. How you structure your points-based program is up to you, but it should follow the standard formula of shop, earn, accumulate, and redeem. 

Tiered programs

Tiered programs allow you to sort your customers into different groups based on their spending activity and reward them accordingly. Generally, they’ll give customers discounts, freebies, or exclusive offers based on the tiers they qualify for. 

The specifics of your program will be heavily influenced by how much your goods or services cost, how often people shop with you, and other similar factors. Generally, however, the more someone spends with your brand, the higher the tier they should qualify for and, consequently, the better their rewards should be. 

Paid programs

These types of programs require a registration or ongoing fee. While it may seem counterintuitive to reward your customers by making them pay more, the customer loyalty strategy works: 60% of consumers increase their spending with brands after signing up for their paid rewards programs. 

Customers appreciate and take part in such programs because they view the benefits as worth more than the money they put into them. So, if you’re going to charge your customers to join such a program, ensure the rewards are enticing enough to justify the cost.

Value-based programs

These programs don’t reward customers directly, but instead make donations to charities and other social initiatives when they spend with your brand. You might consider supporting an array of charities that your customers can choose from or choosing a singular cause that most of your base can get behind.

Conscious consumption is skyrocketing in popularity: 71% of modern consumers believe it’s important to shop from socially responsible brands. Value-based rewards programs signal to your clientele that your company takes social responsibility seriously and can attract conscious shoppers with similarly aligned values. 

Designing an effective loyalty program

The most effective loyalty programs draw consumers in and keep them coming back in hopes of attaining more and more prizes. To design yours for maximum customer satisfaction and revenue:

• Understand your audience — Are you selling to bargain hunters, big spenders, or socially-conscious consumers? Knowing the kinds of customers you’re working with will steer you toward the most salient structure for your loyalty program. 

• Integrate your program into your larger marketing strategy – Loyalty programs are effective at retaining and rewarding customers—but they’re only one cog in the grand machine that is modern marketing. Ensure your rewards structure plays into other aspects of your loyalty marketing plan and supports your overall organizational goals. 

• Pick pertinent rewards – If you don’t provide reasonable incentives for customers to stick with your program, they’ll take their business elsewhere. Ensure your rewards are commensurate to the amount of money they spend with your brand and can be attained fairly quickly to avoid clients losing interest. 

Implementation challenges and solutions

While starting a loyalty program is beneficial to your customer retention and bottom line, it’s not without its challenges. The biggest issues facing companies as they implement reward programs for customers include:

• Overcomplication – Excessive rules and regulations, too many tiers, and other, similar pitfalls can convolute programs that, all in all, should be fairly simple to understand and execute. If there’s too much fine print crowding your signup sheet, customers may simply pass for fear of misunderstanding. So, remember to keep it concise and simple.

• Ignoring customer feedback – Loyalty programs are intended to reward your regulars, so they should be designed with their desires in mind. Collect information about customer preferences regarding structure, rewards, and more, and then use this information to tweak your program to be more customer-friendly. This ensures that the program evolves to meet the needs of repeat customers and remains a successful loyalty program.

• Failing to clearly communicate the program’s benefits – Customers are in your program for the rewards but, if they don’t fully understand what they can earn, they may lose interest. Clearly indicate what they can obtain and how long it may take them. You can also reinforce your program’s benefits by reminding customers how many points they have or how close they are to a prize after each purchase. 

• Failing to continually improve – Customers can get bored with the same old prizes and discounts. Switch it up every once in a while by adding new rewards, incentives, and deals for them to strive for. Consider limited edition rewards for different seasons or holidays to capitalize on the peaked interest in those times of year. You can even do as Traeger Grills did and start an online contest incentivizing your neighbors to share stories about your local small business on Nextdoor. While such competitions aren’t technically rewards programs, they’re more exciting and competitive than drawn-out points accumulation and can incite increased interest in your brand. This constant evolution is essential for maintaining a strong customer relationship.

Evaluating the success of loyalty programs

Rewards programs take time and effort to plan, implement, and optimize—so you’ll want to ensure they’re performing as you intended. To gauge their efficacy, be sure to track:

Key Performance Indicators (KPIs)

There are plenty of KPIs you could track for loyalty programs, but some of the most pertinent include:

• Redemption Rate – Redemption Rate tells you how many of your customers are actually using the points or rewards they earn. To find it, simply divide the total number of points or offers cashed in by the amount handed out. Globally, redemption rates sit at just under 50%—so if you’re within or above this range, it’s a sign your campaign is quite healthy and active. This is a direct reflection of customer experience, indicating how effectively your program is engaging customers.

• Customer Lifetime Value – CLV, as previously mentioned, tracks how much a customer spends at your local business over their lifetime. As loyalty programs encourage repeat customers, you should see a notable uptick in individual client spending after implementation. This increase often results from the allure of exclusive rewards that enhance the customer's overall experience and satisfaction.

• Net Promoter Score (NPS) – NPS tracks how likely customers are to recommend your local business—and as noted, 70% of consumers are happy to recommend companies that offer robust reward programs. To add it up, simply ask, on a scale of one to ten, how likely customers are to refer your brand to someone they know. Scores of nine and above indicate committed promoters who truly appreciate your local small business. 

Customer Retention Rate

Customer retention ratehow many clients have stayed with your local business over the course of a given period. To calculate it, subtract the number of new customers you gained over a period of time from your total customer base. Then, divide that total by the amount of clientele you had at the start of the period. 

The closer to one (1) you are, the better. This indicates few customers have strayed from your brand and your customer retention strategies are having their intended effect. 

Return on Investment (ROI) and overall impact on sales

Perhaps the most important metric for a rewards program, marketing campaign, or any other business decision, for that matter, is profitability. ROI is also a classic indicator of a successful loyalty program.

To add it up, simply subtract the amount it costs to implement your program from its current value. Then, divide by the initial cost of the program before multiplying by 100. This will give you an idea, expressed as a percentage, of how profitable your efforts have been.

You’ll also want to track and measure your campaign’s overall impact on your company's sales. There’s no set standard for how much a loyalty program should increase customer purchases, but there should be a traceable increase after implementation. 

Spread the word about your rewards program with Nextdoor Ads Manager

Customer loyalty programs can increase client satisfaction, improve retention rates, and bolster your bottom line. From point-based structures to programs that favor charitable donations, there are several types of reward initiatives you can implement in your day-to-day operations, so carefully consider their differences before deciding what's best for your local small business.

Once you do, use Nextdoor Ads Manager to get the word out about your new loyalty program. Nextdoor lets you promote your local business to real neighbors living in the immediate neighborhoods where you operate. With the ability to target based on specific interests, your ads will routinely reach engaged eyes and get your neighbors clicking to your page.

Sign up for Nextdoor Ads Manager now to shift your customer rewards program into overdrive.

Sources: 

1. Forbes. The Value Of Investing In Loyal Customers. https://www.forbes.com/
2. Qualtrics. What is customer lifetime value (CLV) and how can you increase it?. https://www.qualtrics.com/
3. McKinsey. How paid loyalty programs can help bring consumers back. https://www.mckinsey.com/
4. Shopify. What Is a Loyalty Program? 4 Best Examples (2024). https://www.shopify.com/
5. Forbes. Conscious Consumer Spending Could Be At A Tipping Point. https://www.forbes.com/
6. Investopedia. ROI: Return on Investment Meaning and Calculation Formulas. https://www.investopedia.com/