The Advantages of Loyalty Programs

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Until the last decade, the success mantra of companies was to consistently work on attracting new customers. Most of the investment went into advertising and product launch programs that grabbed the most eyeballs. 

These days, businesses understand the importance of investing more into keeping their existing customer base engaged. 

The numbers also concur. 

It is six times more expensive for a company to sign on a new customer than retaining a loyal customer. Icing on the cake, a loyal customer often inadvertently brings in more customers through word of mouth marketing.

At Ovation incentives we are an incentive and reward  company who have been building positive customer relations for more than twenty years now. With a firm belief in core values of respect, integrity and pioneering spirit, we have been creating and executing reward programs for companies internationally.

In this article we will go over the idea of customer loyalty programs - its benefits and a few models of customer loyalty initiatives. Read on to know more.

How do loyalty programmes work?

Loyalty programs are strategies or practices adopted by companies to enhance their customers’ experience. This involves positive reinforcements in the forms of rewards, incentives or any strategy that keeps them interested in the company. 

The idea is not about having a customer come back a second or third time for a product, but to build a long-term bond. Customer loyalty programs are designed to make the customer feel valued and particularly cared for. This concept has lived very well for a long time, among small-scale businesses that work on a person-to-person basis. Adopting this idea and making it work for bigger corporations takes a lot of thought and insight, but well worth it.

Types of rewards

Reward systems can be broadly categorised as financial and non-financial. Financial rewards involve gift vouchers or monetary advantages that can be redeemed in exchange for loyalty. This can be in terms of points or discounts. Non-financial rewards are focused on making the customer feel special. This can be in the form of exclusive memberships or personalised shopping suggestions. Most well implemented loyalty programs are a combination of both types of rewards:

  • Points earned

The most common type of financial reward system involves points that add to the customer’s profile each time they make a purchase. These points can then be redeemed at the company itself, making it a win-win for both parties. The key to implementing this reward system is to keep it simple and transparent. A complicated calculation system for points per purchase can make the system seem incomprehensible to the customer. This can make the customer feel taken advantage of, creating a drastically negative impact.

  • VIP access

This reward system involves some extra love for customers who pay an advance fee or cross a certain threshold in the points system. It may or may not have a monetary benefit to the customer, rather have easier or earlier access to the products. Early access to discount sales is a huge advantage for customers, as this gives them the chance to shop before the products run out. 

  • Personalised shopping experience

These days, it is not enough to create an impersonal albeit advantageous relationship for the customer. Companies go all out in creating a personalised experience with the use of customer information. Surveys show that customers do not mind sharing their information if it means a better shopping experience.This can mean alerts to indicate products they like, product suggestions that align with their interests etc.

Loyalty program benefits

Customer loyalty programs are designed to build a relationship with customers that go beyond the money. At a practical level, customers often choose the product that is relatively less expensive over company names. However, loyalty programs have been known to be able to override the money aspect and make customers stay for a longer time. 

For example, one of the most time-consuming aspects of online shopping is finding the right product. This task is often mitigated with targeted marketing. 

Most e-commerce websites track the shopping patterns of each customer. This provides a lot of information about their interests and desires. This information can be combined with a reward system that notifies them when their product of interest goes on sale. Sending sample size products along with customer orders is a huge hit among the customers. With the information from the customer shopping patterns, samples of products they are likely to prefer can be a great way to ensure customer loyalty. 

  • Increase customer lifetime values

Customers tend to spend a good amount of money on websites that they are used to and trust, over new websites. One of the key aspects of online shopping is trust, whether it is about product quality or payment safety. This trust is built over time, with websites that encourage customer loyalty. With the right kind of loyalty programs, companies can build a loyal customer base who will invest over a long period of time.

  • Customer experience over money

There are a lot of products in the market these days. The price margin often comes down to very narrow differences. Which is one of the reasons why companies that don’t invest in extra-monetary benefits do not do well in the long term. Customers may visit your company for the prices, but they stay for the experience.

  • Retain existing customers

Studies show that it is six times more expensive to take on a new client than to retain the existing customers. Customer loyalty programs help to keep the customers engaged with the business as well as to stay longer. Loyalty programs often involve reward systems that accumulate or multiply the longer a customer stays with the company. This way, the customer also feels like they have an investment with the company that can be cashed in eventually in terms of a product or service. The longer they stay, larger the investment and better the product/service they can cash it in for.

  • Attract new customers

Although there are several marketing strategies these days, there is nothing that compares with the testimonies of existing customers. Building customer loyalty not only maintains the customer base but also helps it to grow. A positive review from a loyal customer goes a long way to attract new customers.

Examples of loyalty programs

The most common types of loyalty programs involve a reward system where the more the customer spends, the more rewards they earn. The frequent flyer programs and mileage systems implemented by airlines is a good example of this reward system. A lot of airlines provide luxury lounge privileges for people with higher mileage records.

Another kind of reward system involves making a loyal customer feel extra special by introducing exclusive membership programs. This could be a free shipping privilege such as that offered by Amazon and several other e-commerce sites or early access to sale days. This encourages the customer to stay a loyal customer to reap more benefits in the long term.

Amazon prime is a great example of a customer loyalty program done right. It is essentially a lifelong relationship established with the customers. By also giving access to streaming videos with a prime account, Amazon ensures that their customer base doesn’t deplete anytime soon.

Similarly, the Best Western hotel chain offers a global loyalty program that goes all out in treating their frequent customers. This includes free stays and gifts for customers who acquire a certain number of loyalty points.

That said, not all strategies may work as well. 

The JetBlue airlines tried to implement a frequent flyer rewards system that failed miserably due to a practical flaw in its implementation. The strict expiration date policy on miles acquired made it impossible for passengers to ever be able to acquire and redeem points on time.

Starbucks’ Visa strategy is still infamous for being one of the most snobbish programs to ever have been implemented in the name of loyalty. The most unfortunate aspect of this program was that it in effect overlooked loyal customers for big spenders. The scheme involved earning points on the Visa card based on the amount spent at Starbucks, which meant that even one-time big spenders earned more points than long-term customers.


Loyalty programs are great strategies for holding the interest of customers longer and building a community of support for your business. However, these programs have to be well thought out and well intentioned. A genuine effort from the company to express their appreciation for their customers can do wonders for long-term success.