In 2025, a strong loyalty program is crucial to boost engagement, increase revenue, and drive customer retention.
After a period of the highest inflation and recession in history, customers continue to change their habits: prioritize essentials, reduce the value of shopping, and demand more from retailers.
Is your program ready for the future? Read these insights below!
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What Is a Loyalty Program
Loyalty programs (rewards programs) are customer retention strategies businesses use to attract customers to buy. These programs usually include discounts, free offers, or other perks consumers earn for repeat purchases.
According to Harvard Business Review (HBR), loyalty program customers are 62% more likely to spend more money on the brand. Supported by data from Forbes, companies with strong loyalty programs grow 2.5 times faster than those without them.
Loyalty Program Benefits
There are many benefits of a loyalty program. Here are the benefits you need to know.
1. Improve Retention
The first benefit of loyalty programs is retention. Not only does it generate higher revenue, but loyal customers spend, on average, 67% more than new customers, according to Forbes. Customer retention is also five times cheaper than acquiring new customers.
2. Reduce Churn
If your business has a high churn rate over a certain period, you miss out on high-value, low-cost customers. Loyalty programs can increase customer retention, lower churn rates, and turn one-time buyers into repeat customers.
3. Increase Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is the net profit attributed to the overall relationship maintained with a customer. CLV tracks how valuable a customer is to you now and how much this ongoing bond will be worth in the future.
Loyalty Program reduces customer churn. Customers who earn rewards will stay and shop more often than non-members. According to Harvard Business Review, loyalty program members spend 13-20% more over time.
Repeat customers spend 67% more than new customers. Those who redeem rewards spend up to 25% more per year than those who do not. To maximize CLV, loyalty programs should:
- Make rewards easy to earn
- Encourages higher spending
- Use data wisely
4. Increase Purchase Frequency
Loyalty programs will increase purchase frequency, especially for low-margin products with shorter sales cycles.
For example, coffee shops: customers purchase takeaway coffee more often if they know they are building loyalty rewards by doing so. Tiered loyalty benefits in this way motivate customers to buy more frequently to qualify for higher tier benefits.
5. Improve Average Order Value
Besides increasing purchase frequency, loyalty programs can also increase the value of each purchase.
This is known as Average Order Value (AOV). Companies can increase their AOV by rewarding customers based on their total spend.
6. Stop Competing Based on Price
Nowadays, it’s too easy for buyers to compare hundreds of prices with just a few clicks. If they only think about the products instead of your store and brand, then you’ll find yourself in a price race to the bottom. Big stores like Amazon are going to win.
One of the benefits of loyalty programs is no need for price wars. If customer emotions are connected, they will differentiate your store and brand. It also offers a much better (and personal) customer experience.
7. Convert Customers into Brand Advocates
If customers promote your business to others, you can also turn a loyalty program into a powerful acquisition channel.
Loyalty programs often include referral bonuses that can turn customers into brand advocates. Some loyalty programs award points not only for purchases, but also for activities that indirectly benefit the company.
8. Collect More Customer Data
Loyalty programs are not just about rewards. Every purchase, redemption, and interaction tells the business what customers want. Instead of giving massive discounts, you send personalized offers that match real habits.
Loyalty members can be identified through an account, app, or membership number at checkout. This means you can discover:
- Who is shopping, how often, and how much they spend
- Which products attract them and which don’t
- What offers keep them coming back
9. Balancing Fluctuations in Off-Peak Periods
Most businesses experience seasonal increases and decreases in sales. It can be challenging to increase revenue in quieter months. Loyalty programs can help offset these fluctuations by offering rewards or special promotions during off-peak periods.
10. Improve Communication and Strengthen the Brand
Last but not least, loyalty programs can strengthen your brand and improve communication with customers.
Regular updates on rewards, exclusive offers, and events provide a touchpoint to interact with customers. This will grow a stronger brand-customer relationship.
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How to Develop And Win a Loyalty Program
Developing loyalty programs must have proper planning, such as targets, engagement, personalization, ecosystem, economics, and data usage.
1. Target
Achieve business goals by focusing on specific customer behaviors to drive improvements among high-value and targeted customer segments.
2. Engagement
Increase customer engagement beyond the transaction through gamified design, signature experiences, and a compelling portfolio of benefits.
3. Personalization
Unlock customized customer experiences, offers, and journeys across touchpoints through advanced data and analytics.
4. Ecosystem
Leverage a network of internal and external assets, such as partnerships with integrated experience, to deliver an unbeatable cross-cutting value proposition for customers.
5. Economics
Maximize the gap between the cost of running a loyalty program, the value that customers perceive, and explore how to build additional revenue streams on top of loyalty assets.
6. Data Usage
Use loyalty data internally to accelerate business priorities across the organization, including CRM, marketing, pricing, promos, products, services, and customer care.
Level of Opportunity to Build a Loyalty Program
Loyalty programs have tiers of value that can be captured from a holistic and integrated customer value proposition. Each tier provides more value, but is also more difficult to activate than the previous tier.
1. Pricing Benefits
Businesses can first unlock the value of integrated pricing and loyalty by using price-based benefits. Pricing can be a very effective way to improve loyalty programs.
Offering exclusive promotions, such as percentages or cash discounts to loyalty program members, is the most convenient way to capture the benefits of integrated pricing and loyalty.
2. Customer Behavior
Once you’ve used price-based benefits to expand your loyalty program, you can try changing the behavior of your loyalty members with better incentives.
One way businesses can do this is through loyalty-based pricing (in addition to cash-based benefits). This can optimize customer lifetime value more effectively than traditional discounts.
3. Personalization
The last level is to build loyalty and price to create new value through personalization, such as special promotions, member benefits, marketing, and personalized customer journeys.
Combine it with data and loyalty insights. For example, customer identification, purchase patterns, and shopping preferences. and pricing levers, discounts, or promotions.
These strategies will always be changing and you should add new tactics to keep customers engaged.
Loyalty Program Must be Clear and Simple for Customers
From the previous discussion, loyalty programs can help businesses to increase retention, reduce churn, and encourage customer purchase frequency. Also, this strategy can help companies to maintain customer relationships and compete without price wars.
The goal of loyalty programs is to use new processes, analytics, and automation to deliver the right experience to customers. If done well, customers may never realize that their experience is different from that of others.