There are many different types of loyalty programmes out there, each with their own benefits and drawbacks. But with so many types to choose from, how do you go about choosing one that’s right for your business? One thing we know for sure is that loyalty programmes aren’t a one size fits all and what works for some businesses won’t for others.
Let’s have a look at some of the different types of loyalty programmes with examples showing how some of the biggest brands in the UK reward their loyal customers.
Points Based Loyalty Rewards
Point-based reward programmes enable customers to accumulate points that they can redeem for rewards or free products/services. They’re a very popular and widely used type of loyalty program, in fact, 73% of loyalty programs are points based. Many of the biggest brands in the world use this type of programme since it has the potential to be extremely effective and encourages a gamification FOMO interaction with the customer, which is what makes it so effective at driving loyalty.
With points rewards, customers earn a certain amount of points every time they make a purchase or complete a positive action set by the organisation. The amount of points they get generally depends on how much the transaction was worth. These points then add up to give customers rewards such as a discount or a free product or service.
There’s no denying the effectiveness of points based rewards since 86% of shoppers said they’ve joined a loyalty program to collect points for rewards. Point-based reward programs are a great way to create a sense of loyalty and encourage people to choose your business over your competitors.
However, as we’ve already mentioned, points-based programs are extremely popular, but this can actually cause problems. Aside from cost it’s not particularly difficult to implement a point-based loyalty programme and therefore it’s easy for your competitors to follow suit. Particularly in the B2C space, more often than not you’ll be competing with several other organisations running not too dissimilar programs. Therefore, unless your brand equity is particularly strong then this type of loyalty programme can actually be inaffective from a ROI perspective.
A great example of an extremely well-known brand that uses a point based reward programme is Starbucks. Starbucks have made their loyalty programme a huge success, and today it is one of the most widely and regularly used reward schemes.
When a customer with a registered Starbucks card makes a purchase, they get a star, these stars then all add up to earn that customer an exclusive Starbucks reward. So, the more stars customers collect, the more rewards they’ll earn. Simple!
Starbucks has two levels to their loyalty card programme, Green and Gold. Every star a customer collects brings them one step closer to reaching the Gold level and earning more exciting rewards. For customers to achieve Green level, they just have to use their loyalty card once, and after that they will receive a free drink for every 15 stars they collect. In order to reach Gold level, customers must make 50 transactions using their Starbucks card over a 12 month period. Once at Gold level, customers will be given rewards such as free select syrups, extra espresso shots, free whipped cream and free dairy alternatives such as Soya milk.
Upon implementing their rewards programme, Starbucks saw a significant increase in revenue, with executives pointing to the increased participation in the loyalty program as the main driver behind these amazing results. So what did Starbucks do so well?
The way in which a customer interacts with a loyalty program is so important and can make or break the program. Starbucks have developed an innovative and engaging app that makes their loyalty program more interactive. The app makes it really easy for customers to see how many stars they currently have, as well as making it simple to place orders and pay from their phone.
By developing an app, Starbucks have given themselves an advantage that other “card only” programs don’t have. In today’s competitive marketplace and with point-based programmes being so widely-used, it’s not enough to just offer customers a rewards programme, businesses need to make an effort to differentiate their programs from others and UX is an essential part of that. This is something that Starbucks does exceptionally well, since their mobile app generates around 6 million sales per month, making up around 22% of all sales in the US!
When it comes to making a success out of your loyalty program, making it something exclusive can work wonders. After all, we all like to feel as though we have access to something that isn’t available to everyone. Research has shown that 57% of consumers are more likely to participate in rewards programs if they have VIP tiers and exclusive rewards. Starbucks have created exclusivity within their programme through the use of tiers. When a member of their loyalty program gets 50 stars in a 12 month period they achieve “Gold Level” status. Sure members of the Gold Level get some good rewards, such as extra espresso shots and free select syrups, but the true motivator for customers to reach this level is the chance to feel exclusive and important.
However, are Starbucks missing out by making their top tier so achievable? Tiered programs are a really good way to encourage customers to spend more and engage with your brand more, they challenge customers to reach the next level while also creating an element of gamification that customers love. They also tend to be much more effective when the highest tier is reserved for the most loyal and profitable customer. In Starbucks case, according to Lauren Johnson from Mobile Commerce Daily, more than 50% of Starbucks Rewards members are Gold Status customers, this can take away some of the appeal since Gold Level seems quite achievable. Additionally, with just two levels to work towards, the excitement of earning and redeeming rewards lessens the longer a customer is participating in the programme. So maybe Starbucks would see even better results by adding another even more exclusive tier that only 10-20% of customers can reach.
Another well-known company that uses a point-based reward programme is Boots. Boots launched their Advantage Card in 1997, with an offering of four points for every pound spent in store. Every point a customer collects gives them a penny to spend in store.
With an initial investment of £30 million into the scheme, the Advantage Card has become one of the largest reward programmes in the country. The store claims the loyalty scheme has been a great success, with higher retention levels, and more spend in store, leading to a significant increase in overall profits
Loyalty programmes aren’t just used for rewarding customers, they can also give valuable insights to organisations by tracking customer activity and providing data to improve and personalise their service. Boots track their customers’ behaviour using the card to target relevant offers. Additionally, from the customer insights, Boots were able to identify that most of their customers are women aged 25-45, this led them to creating bespoke offers for products targeting this demographic. These insights enable companies to increase the likelihood of customers redeeming their offers due to better relevance.
Point-based reward programmes have clearly been a huge success for many brands over the years and don’t appear to be going anywhere anytime soon, but it’s clear that in order to succeed and differentiate, high brand equity must already exist and usability and UX are absolutely paramount.
Always On Perks Based Rewards
Another popular type of loyalty programme is ‘Always on Rewards’ or ‘Perks’, giving customers access to exclusive discounts or benefits that can be redeemed at any time simply by being a customer. This seemingly altruistic type of programme is often not linked to spend and can be presented to customers as simply another benefit of choosing to shop with you over a competitor. Always on rewards can be a powerful influencer of a customer’s decision through FOMO (the fear of missing out), since customers can clearly see all the things that they would be missing out on if they chose to take their business elsewhere.
There are many examples of leading brands using this type of program including Vitality, Puregym, Lloyds Bank and of course O2. O2 are perhaps the best example, pioneering this initiative of always on rewards back in 2008.
Today their loyalty programme is split into two parts; O2 Rewards and Priority. With O2 Rewards, customers are given 5% or 10% back every three months which can be claimed as extra airtime credit, used for money off tickets to must-see gigs, a new mobile or high street vouchers.
With Priority, O2 customers are given exclusive offers such as weekly treats and discounts on food, drinks and shopping. They’re also offered the chance to buy tickets to the biggest acts at O2 venues 48 hours before everyone else, creating a sense of exclusivity.
O2’s initial aims with their programme was to make Priority Moments the best and most-used loyalty programme in the UK. They intend to continue reaching and rewarding more O2 customers, reducing customer churn and developing positive brand perceptions.
Using their loyalty program, O2 have been able to understand what really matters to customers and to connect with them through personal moments, celebratory moments, and points in their relationship with O2 when they may face an attitude shift, where the risk of churn is increased. O2 have introduced a tiered structure to their programme which have different aims, such as driving everyday engagement, acquiring and reactivating a lapsed user, or to reward customers based on their spend and tenure.
O2 has seen great success from their loyalty programme, enjoying a significant increase in the number of registrations which made it the fastest growing loyalty programme in the UK. O2 Priority gets 75 viewed offers every second and customers redeem 5 priority points every minute of every day. These results show just how popular the programme is with O2’s customers.
Initially, O2 invested heavily in order to develop the programme, however, their foresight has paid off and the programme has exceeded their expectations having delivered a multi-million-pound churn benefit and a significant increase in revenue.
It’s clear that O2’s reward programme is a huge benefit of choosing to remain with them over a competitor, even if they are slightly more expensive. With rewards always being available, customers are able to redeem deals and discounts anytime, saving them money when they need it most.
Vodafone has also recently rolled out a similar loyalty programme to challenge O2 called VeryMe. This programme uses AI technology to tailor and personalise the deals they offer according to each customer’s interests. Daily rewards vary and can include free treats, money off big name brands, such as discounted cinema tickets and a free trials of popular apps. Additionally, Vodafone offer pay monthly customers an extra 2GB data when they sign up for VeryMe Rewards, clearly focussed around encouraging more people to sign up to the programme and drive engagement.
According to Vodafone UK Chief Executive, VeryMe Rewards is designed to be a personalised thank you to customers for their loyalty, and although similar to O2’s initiative in features, AI and personalisation is a core element that they see being a success driver.
Surging in popularity of late, this type of loyalty programme can bring great benefits to businesses and their customers, effectively reducing churn, increasing customer satisfaction and generating new business often at a fraction of the cost of a points based program.
Always On & Instant Rewards Hybrid
Shell have recently announced that they’re launching a new rewards programme which is replacing their current point-based programme with one that offers personalised rewards. This new programme is designed to completely update the way the company rewards their customers for the business they bring to Shell service stations
Pavel Los, who is Head of Loyalty at Shell explained that the way Shell run things has changed, “Loyalty for us is now location based. 60% of our customers have only ever visited two shell sites. Through using the data, our new loyalty programme will give us a clear understanding of our customers and also the variations between markets.”
Shell Drivers Club, the company’s current loyalty programme, will close down later this year with its 1.5 million active users moved across to Shell Go+. From there, the company is hoping to double the number of users. The technology used in the new programme enables Shell to track the customer relationship, see how they’re behaving and to better understand them.
One of the big changes that Shell are making for their new programme is that customers will be rewarded for all spend, not just for fuel. Additionally, Shell will be rewarding customers for each visit, making it worthwhile for them to pop in for their lunchtime sandwich or milk on the way home. Rewards will vary, but ten visits where at least £2 is spent, or £10 on fuel will qualify for a reward. In between this, surprise rewards will be offered based on customer behaviour.
In addition to these rewards and surprises, member benefits will be permanently available through the programme. Examples of the rewards include 10% off hot drinks and Jamie Oliver deli.
When asked about the costs involved with the new programme, Pavel said, “It will cost more, but the pilot we carried out in the UK showed that this is justified by the increase in business the programme generates.”
This new programme combines ‘Always on Rewards’ for customers and also an ‘Instant Reward’ for each time they visit a Shell service station. Not only does this benefit customers through the deals they receive as a member, but they can also receive discounts and offers dependent on how many times they visit a Shell service station. Customers are therefore being encouraged to both choose Shell over their competitors and to visit them often in order to qualify from the rewards on offer.
Only time will tell if Shell’s new loyalty programme will be a success, but their pilot tests on the UK market has already shown a significant potential return on investment.
So there you have it, three of the key different types of the most popular loyalty programs and how some of the biggest brands we all know and love use them successfully. What’s clear is that each route has its own merits and so before implementing any form of loyalty program, marketers must firstly consider their objectives before settling on a preferred route. Whichever form of program is used, in order to succeed it must be seamless in UX and of course portable making technology a core component.
PERX Rewards provide a suite of white label reward based marketing tools designed to help you attract and retain more customers. If you’re interested in finding out more about how PERX can help your business, contact us at firstname.lastname@example.org or call 0333 202 8833.