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Don’t underestimate the power of loyalty for your brand. Selling to existing customers is more profitable than constantly trying to acquire new ones, which is why you’re seeing more and more brands shift their resource allocation for customer acquisition vs retention.
Deciding to build out your brand loyalty program is a great first step. Then, it’s a matter of figuring out which of the different types of customer loyalty programs makes the most sense. This can be stressful and overwhelming with so many options to choose from:
- Points-based loyalty programs
- Tiered loyalty programs
- Subscription-based loyalty programs
- Cashback and rebate loyalty programs
- Referral-based loyalty programs
- Coalition loyalty programs
- Hybrid loyalty programs
We’re here to help you make sense of all these choices and pinpoint which makes the most sense for your brand and audience. The truth is, you might offer a combination of these different styles!
No matter which customer loyalty strategies you end up implementing, though, the platform you build your brand loyalty program on cannot be taken lightly. Set yourself up for success with a Shopify loyalty program that offers unparalleled customization and automation today - Rivo.
Benefits of Brand Loyalty Programs
While so many brands find themselves on the hamster wheel of putting all their money into acquisition and chasing new customers, smart brands prioritize retention given how much more profitable it is.
A customer loyalty program encourages repeat purchases, builds lasting relationships, and boosts customer lifetime value (LTV). It gives customers a reason to keep coming back and choosing your brand over the competition, with benefits such as:
- Increased Customer Retention: Keeping an existing customer is far more cost-effective than acquiring a new one.
- Higher Customer Lifetime Value (LTV): Engaged customers spend more over time, leading to greater profitability and better brand sustainability.
- Stronger Brand Advocacy: Happy customers become vocal supporters, driving referrals and organic growth. They can become a marketing channel of their own.
- Better Data & Personalization: Gain invaluable insights into customer behavior so you can refine your marketing and offer more tailored experiences to your customers.
- Competitive Differentiation: A well-structured loyalty program helps your brand stand out in crowded markets where there would otherwise be nothing to set you apart.
It’s not a question of whether or not you need to set up a loyalty program for your brand. Rather, it’s a matter of figuring out how to reward customer loyalty. That being said, let’s dig into the different types of customer loyalty programs below!
The 7 Different Types of Customer Loyalty Programs
There are so many different ways you can go about rewarding your most loyal customers, but this is what holds some brands back from taking the first step. They get stuck at the starting line unsure of which approach best suits their unique customer base.
Chances are a points-based, tiered, or subscription-based loyalty program is going to make the most sense for your brand. You might even find it’s worth rolling out a points-based program for most customers and a tiered loyalty program for those higher up the customer loyalty ladder.
We’ll talk about the pros and cons of each of the different types of customer loyalty programs below to leave you with a clear understanding of your next steps.
Points-Based Loyalty Programs
This is the most common loyalty program type, where customers earn points for certain actions. Obviously that includes making purchases, but you can get creative and offer points for other things that move the needle for your brand:
- Leaving a review
- Social media interaction
- Referring a friend
- Even just signing up for the program!
At any rate, the points earned can eventually be redeemed for discounts, products, or perks. The appeal of this type of program is obvious - simplicity. It works great for businesses with frequent, lower-value transactions, such as retail, beauty, and food industries.
However, you need to be careful about how you structure rewards to make sure the program is actually enticing. Customers won’t participate if it’s too difficult to actually get value, whether that means rewards are too unattainable or not compelling enough.
Because this is the most common style we have a wealth of case studies for points-based loyalty programs here at Rivo. Emi Jay’s Sparkle Rewards program is a perfect example. Customers earn 1 “Sparkle” for every dollar spent. The program generates 10% of all sales today.
Tiered Loyalty Programs
There are levels to loyalty, and tiered loyalty programs are designed with this in mind. Customers can unlock increasing rewards based on engagement. The higher their tier, the better the perks - think VIP treatment, exclusive products, or early access to sales.
This structure plays on status and exclusivity, but you’ll have to do a good job of loyalty segmentation to make sure you’re making the most of this type of program. You need to communicate to higher tiers differently than lower tiers.
This raises a different concern, though. Lower-tier customers may feel left out or underappreciated and will eventually disengage. You need to encourage customers to slowly but surely work their way up.
The Adidas Creators Club is a good example of this. There are four different tiers: Challenger, Playmaker, Gamechanger, Icon. Each has its own perks, offering additional access to drops, exclusive discounts, and free shipping.
Subscription-Based Loyalty Programs
Subscription-based loyalty programs are one of our personal favorites because they unlock a recurring, predictable revenue stream for your brand. Customers are charged a monthly, quarterly, or annual fee for immediate and ongoing benefits.
This is also referred to as a premium loyalty program because it’s the only type where customers pay merely to be a member. Think Costco, Amazon Prime, etc. The way in which these programs inherently reduce churn makes them a valuable consideration.
The kicker is you have to make sure the rewards customers earn through the program offer enough value to justify the fee of membership. Customers will cancel if the perks don’t correlate to the cost.
This could include free shipping on every order, a gift with every purchase, member-only access to certain products or promotions, or anything else you can come up with.
You might want to offer a free trial to get the user accustomed to the benefits - they won’t want to miss out on the perks once they get a taste of the good life!
If you’re wondering how this type of program could look in practice, Fresh Chile is an excellent example. The company drove mid 5 figure ARR on launch and saw a 56% boost in AOV.
Cashback and Rebate Loyalty Programs
A cashback program returns a percentage of each purchase as a rebate or store credit. Unlike points, this system gives customers a more direct financial incentive to keep buying.
Customers are encouraged to spend more on each transaction to maximize the cash back they earn since they see that immediate, tangible value from the program. You can use this as an alternative promotion to discounting - offer bonus cashback periods when sales are slow.
The only problem from the brand’s perspective is that it can backfire if it’s not structured properly and ends up being expensive. It doesn’t work well for high-margin or luxury brands.
So, make sure you offer tiered cashback and always reward it in store credit to keep revenue within the brand. You might see a hit to your margins, but at least the bottom line is still growing.
This is less common in eCommerce but good examples include CVS and Amazon’s Prime Rewards Visa. Both of these brands encourage higher and more frequent spending through a cashback program.
Referral-Based Loyalty Programs
Shopify referral program is one of the most powerful types of customer loyalty programs in that it encourages brand advocacy and brings new customers into your ecosystem.
So how does a referral program work? Both the referrer (existing customers) and the referee (new customer) are given some sort of incentive. It’s a win-win. From the brand’s POV, these new customers are easier to convert since trust is baked into the referral process.
Word-of-mouth marketing is still one of the strongest ways to grow your brand, and this is a way to streamline it. You can keep it simple by offering both parties a 10% discount, or you can introduce a tiered referral program that offers increasing incentives for additional referrals.
Just make sure you’re using the right platform, like Rivo, to prevent customers from gaming the system and exploiting it. We have fraud prevention measures in place for you.
HexClad is a great example of a brand that launched this type of tiered referral program, bringing in more than $450k in revenue within the first 90 days. It helped raise AOV by 17% and the brand saw a 92x ROI from Rivo.
Hybrid Loyalty Programs
You might be thinking how great it would be if you could combine the best parts of some of the different types of customer loyalty programs to form your own hybrid approach. That’s entirely possible!
For instance, you could blend points-based earning with tiered VIP perks to capture different customer preferences. Nike does a good job of this, combining rewards, exclusive access, and gamification into a single loyalty ecosystem.
Just be aware the more moving pieces your loyalty program has, the more complex managing it will be. We recommend starting with a simple hybrid model combining just 2 different styles and expanding from there as you see fit.
Kitsch has done this well by blending the typical points-based referral program with tier-based rewards. Each “tier” earns additional points per spend, so the two different types of customer loyalty programs actually complement each other really well!
Coalition Loyalty Programs
We saved this loyalty program for last because it hasn’t really been all that effective in the eCommerce space, but we wanted to mention it nonetheless in the interest of helping you weigh all your options.
A coalition loyalty program involves multiple brands partnering to share rewards. It does work well if you have another brand that complements yours rather than competes with you. Customers earn points across all participating brands.
This is a really common type of program in the airline industry, where your miles can be redeemed at hotels, restaurants, and various retailers that are partnered with the airliner in question.
It’s not easy to manage, though, which is why it hasn’t quite made its way into the eCommerce industry. It can also dilute brand identity. You want your customers to shop with you and redeem points with you - this style doesn’t necessarily foster the true sense of customer loyalty.
Which of These Customer Loyalty Programs is Right For Your Brand?
There you have it, all the different types of customer loyalty programs at your disposal! Now it’s just a matter of figuring out which makes the most sense for your brand. Here are some general recommendations to steer you in the right direction:
- If you sell frequently purchased, low-cost items (beauty, food, fashion), a points-based or cashback program works well to encourage repeat purchases.
- If your brand has high-value customers (luxury, electronics, furniture), a tiered loyalty program builds exclusivity and rewards top spenders.
- If you want guaranteed recurring revenue (subscription boxes, services), a subscription-based loyalty program locks in customer commitment.
- If your goal is rapid growth and you’re struggling with acquiring new customers profitably, a referral-based program leverages your existing customers to attract new ones.
- If you operate across multiple brands or industries, a coalition or hybrid program expands your audience and maximizes engagement.
Don’t overcomplicate things. The vast majority of eCommerce brands can start with a points-based rewards system to keep things simple and hit the ground running.
Regardless of the model you choose, make sure you’re tailoring rewards to customer preferences to create a program that’s actually compelling. Promote the program regularly to encourage ongoing participation.
Most importantly, set yourself up for success with the #1 platform for retention, Rivo. You can compare Rivo vs Loyalty Lion, Rivo vs Smile.io , and Rivo vs Yotpo to get a better sense of what separates our solution from the rest.
Parting Thoughts on the Types of Customer Loyalty Programs
We hope this guide on the different types of customer loyalty programs has cleared up any uncertainty or hesitation you had in taking the next steps to getting started.
Whether you choose a points-based system, tiered rewards, subscription perks, or referrals, the goal remains the same - keep customers engaged, increase retention, and drive repeat purchases.
The best loyalty programs feel effortless for customers while delivering measurable value for your business. So, build a high-performing loyalty program with the platform trusted by leading eCommerce brands today.
