If you’re a customer-focused business, chances are you’ve thought long and hard about customer loyalty. One of the most popular ways to increase customer retention and loyalty is through a campaign to encourage your patrons to keep coming back to your business. This strategy is more commonly known as a loyalty program.
Loyalty programs come in various shapes and sizes, but they generally fall into one of two categories: points programs and recurring memberships. But how do you choose which one to implement at your business?
Points programs, or “rewards programs,” offer customers points for repeated purchases at a business. Once enough points are accrued, they can be redeemed for purchase credits later on.
Points programs are relatively easy to come by – like punch cards or a feature integrated with your point of sale system. However, they haven’t always been found to be effective at actually boosting customer loyalty. This is often because points-based systems do not provide enough value for patrons to prioritize their relationships with a given brand, and businesses often fail to invest in the long-term sustainability of their points programs.
The following excerpt from the May-June 1995 issue of the Harvard Business Review sums up the quandary of points programs.
“[R]ewards programs are widely misunderstood and often misapplied. When it comes to design and implementation, too many companies treat rewards as short-term promotional giveaways or specials of the month. Approached that way, rewards can create some value by motivating new or existing customers to try a product or service. But until they are designed to build loyalty, they will return at best a small fraction of their potential value.”
Recurring memberships offer special perks and benefits for participating patrons in exchange for a recurring subscription fee.
In fact, when it comes to loyalty programs, recurring memberships are the best way to increase customer loyalty. According to a study by LoyaltyOne, more than half of millennials said the rewards in fee-based programs are better than the rewards in free programs.
Recurring memberships require both investment and engagement from your customers. They stabilize cash flow with subscription fees, and they actively bring customers into your place of business to redeem discounts and benefits, which increases the average order value per customer over time.
While it may seem counterintuitive, discounts can actually increase sales and encourage people to spend more. Reward vouchers have even been shown to boost oxytocin levels, making customers happier about their purchase and your business.
Recurring memberships do not give away goods or services for free, rather they offer these services at an attractive discount to an exclusive audience, thus maintaining a profitable margin for your business while giving customers something to feel good about in exchange for their investment.
Unlike generic points-based loyalty programs, membership programs also help to stabilize cash flow with recurring payments you can count on.
Lastly, recurring memberships naturally drive a sense of community among patrons, because they feel like they are “a part of the club.” Such programs also offer a direct line of communication between businesses and their most loyal customers – an invaluable connection for building loyalty and learning about your customer base.
Which loyalty program type should you choose?
At the end of the day, it comes down to what is best for your business and what you can handle operationally. Points programs are easy to implement but don’t foster a loyal patron base. Recurring memberships can be difficult to manage, but they drive the most benefit long term.
So which would you choose? Let us know in the comments.