What Is a Loyalty Rewards Program?

Return to Glossary
A

What Is a Loyalty Rewards Program?

A loyalty program is offered by a business to attract new customers and retain existing ones. The structure of these initiatives varies based on the type of business and customers. Retailers’ loyalty programs, for instance, usually include discounts, rewards, or other incentives to encourage repeat purchases. Usually, the more frequently the customer shops with the brand and the more money they spend, the greater the reward.

For companies that sell to businesses rather than individual consumers, a loyalty program can similarly help encourage repeat purchases. But it can also take the form of a community that creates brand advocates and encourages engagement. In that case, instant rewards or points-to-rewards are used instead of discounts.

How Does a Loyalty Rewards Program Work?

The kind of incentives offered in a loyalty program can vary. Some examples include:

  • Early access to or advance notice about new products.
  • Enhanced services or free merchandise.
  • Special services such as expedited or free shipping.
  • Special discounts exclusively for members.
  • Monetary rewards such as gift cards and prepaid cards.
  • Points that recipients can collect and then exchange for gift cards or other items.

Customers typically join the program by registering their personal details. Depending on the type of program, they may receive a membership number, a portal login, or a rewards card, which is used to identify their purchases or actions.

READ MORE: How to Set Up a Loyalty Rewards Program

What Are the Advantages of Having a Loyalty Rewards Program?

There are numerous business advantages that come with implementing a loyalty rewards program. Some of the most common include:

  • Customer retention. Retaining customers is far cheaper than finding new ones.
  • More frequent and higher value purchases. Customers may buy more often and spend more to get the rewards.
  • Brand advocacy. Customers who are happy with their experience with the loyalty program are likely to become brand advocates. Not only will they spread the word about your products and services, they’ll also be a great resource for feedback and content. 
  • Differentiation from competitors. Offering the right kind of loyalty program can set you apart.
  • Long-term engagement. Customers stay engaged with the business for longer.
  • Customer referrals. In addition to advocating for your brand, loyal customers can refer friends and colleagues, creating new leads in your pipeline.

Do Discount-Based or Reward-Based Loyalty Programs Work Better?

Although some companies use a rewards program that offers discounts, research shows that might not be the most effective option. Aberdeen and Blackhawk Network found that reward-based promotions ꟷ which offer incentives in the form of gift cards or merchandise ꟷ are more beneficial for businesses than incentivizing customers with discounts.

Companies using reward-based programs see a 54% return on their marketing investment, compared with 49.7% for those using discount-based promotions. The report also reveals other annual performance improvements when using reward-based promotions, including average profit margins, annual revenues, customer lifetime values, and cross-selling and upselling values.

Which Structure of Loyalty Rewards Program Is Most Common?

Regardless of whether you offer rewards or discounts as part of your loyalty program, you can build it with several different structures. The most common is points-to-rewards, which lets customers collect points for certain activities or purchases and then, once they reach a pre-set threshold, redeem them for rewards. This type of program can also incorporate a tiered structure with different levels for customers based on their activity or overall spend.

How Do I Implement a Loyalty Rewards Program That Uses Points?

Points-to-rewards programs are very popular, but they can be a little complicated to set up. Start with these steps:

  • Define your mission and purpose. Think about what goals you have for the program and the target audience. This will help you focus on the broader mission as you figure out the details.
  • Decide the actions and values to reward. Prioritize the list of actions you want your customers to take. These may include referring a friend, making a purchase, or signing up for the newsletter. Then, based on your priorities and budget, map out how many points each activity will be worth.
  • Choose the rewards. Now, think about what kind of rewards you will offer to those customers who have collected enough points to redeem them. Loyalty program members will appreciate flexible rewards, such as gift cards or prepaid cards, and getting to choose the rewards they prefer.
  • Share and promote the program to boost enrollment. Customers may not sign up for the loyalty program right away. Make sure you give them many chances to register. Provide calls to action in several locations on the website. Include reminders to register in email newsletters. Post about the program and its rewards on social media.

BHN Rewards’ points-to-rewards solution, PointsJoy, can help simplify the setup and management of these types of loyalty programs. AutoRewards allow you to trigger the automatic delivery of a reward once a customer hits the pre-set points threshold. The Reward Gallery embeds a shopping-cart-like experience for members to redeem points when they want. BHN Rewards has robust reporting and tracking capabilities to give you 100% visibility into your loyalty rewards program.

Related Topics:

7 Reasons a Points-Based Loyalty Rewards Program Is So Effective

A Practical Guide to Building a Points Rewards Program

3 Tips for Effective Incentives Management

Ready to get rewarding?
Let’s go.

Request a demo