30 years ago if you walked into your local supermarket you would always see the same two brands of peanut butter, coffee and orange juice. Walk into a supermarket in 2021, and you’ll see more than five different brands for various types of peanut butter you haven’t even heard of (crunchy, smooth, creamy, natural… you name it!).
What happened? In short, the internet. Thanks to the internet, companies no longer have to spend tens of thousands on TV ads to reach their customers. Now, customers are just one Facebook ad, website click and Youtube video away. Not only is there higher reach, but consumers are much more empowered: they can find out more about the company, learn how the products are manufactured, read reviews from other customers and easily check their public records - all thanks to the internet. Customers can now choose to buy products that align with their values, are trustworthy and are personalised to their own preferences.
And this is why customers now trust brands more than institutions, putting companies at the forefront of customer management. As a brand and company, brand loyalty has never paid off more than it does now. And that’s why it’s essential to have an effective customer loyalty program in place.
Generally, there are five different types of loyalty program:
You’re likely to be already familiar with several of these customer loyalty schemes, and might have even used them yourself. As you’ll see, different programs work best depending on what a company is selling and what the objectives are. Let’s dive into some of our favourite examples:
TOMS is a shoe company with an interesting backstory: it all started when founder Blake Mycoskie went to Argentina where he helped deliver shoes to shoeless children. Inspired by the local “alpargata” shoe, he decided to manufacture them for the North American market and kickstart the One for One campaign: for every shoe that was bought in the US, he would donate a pair to young children in Argentina. This was the company’s first loyalty program, and it sold him 10,000 shoes during the first summer.
This is a great example of a value based program that shows you don’t always need a monetary incentive to build loyalty. TOMS essentially used ESG (Environmental, Social and Governance) to build a customer base that fiercely loved the brand, further propelling TOMS into a $329 million business.
The North Face is another well known brand that uses an effective business loyalty scheme. Their points system is cleverly called “Peak Points”, and is straightforward: sign up to the VIPeak Loyalty Programme and get points for your spending. For every $1 you spend online, you earn 10 points or 5 points if you buy in store. These points can then be redeemed for products, similar to credit cards and airline points. Your VIPeak membership also gets you participating in The North Face events, exclusive expeditions and even movie premieres and exclusive events.
Points is a well known strategy that encourages customers to invest more into your brand and products. The North Face takes this to another level by offering incredibly generous rewards that are also exclusive. The North Face understands what their customers truly want (outdoor adventures, useful kit, a community), and have engineered the loyalty program so brand fans turn into brand evangelists.
Sephora also uses a points system, but with a unique twist: not only do you get more rewards the more you spend, but you also get access to their Beauty Insider Community. This is not just a forum where people chat and ask one-off questions, it’s almost like a social media platform in itself. You can join various groups, post images of your makeup designs, ask questions and even join challenges.
They’ve also taken exclusivity to another level. Depending on how many points you get, you join various different tiers: Very Important Beauty Insider for those who spend more than $350 per year, and Rouge for those who spend more than $1,000 (wow!). It’s hard to stand out in the very competitive makeup industry, but Sephora do a great job by focusing more on emotional loyalty drivers rather than just transactional ones. Sephora doesn’t just offer free products, they personalise the rewards depending on your preferences and offer you a place in their community. And it’s obviously working: the loyalty program has 17 million members who are responsible for 80% of the sales.
Amazon Prime implements a tier based rewards scheme: users can pay a one-off annual (or monthly) fee and have access to some great perks. In a highly competitive environment, their loyalty program is what differentiates Amazon from other online retailers. By paying the annual fee, users have access to: free movies, music, exclusive prices, and most of all, free next-day delivery.
For people who buy regularly online, the added convenience is a no-brainer. Their loyalty program is easy to understand, there’s a lot of choice between brands and products and the Prime fee is just the price of two coffees per month. Customers are willing to pay for convenience now more than ever, and Amazon is effectively capitalising on that.
The car manufacturer is well known for its unique target market and sales angle. Its original goal was to create a fancy looking car that was also good for the environment, so being environmentally conscious could also mean being stylish (which says a lot about the influence of fashion on the world). When the company first started out, it relied solely on referrals to drive business. Each Tesla owner could offer discounts of $1,000 to every friend they referred. If you referred 5 friends, you would receive an invite to explore the Tesla factory and attend an opening party. If you referred 10 friends, you would have access to purchasing the Model X, which wasn’t available to the public.
Tesla managed to make a 40x return on every dollar they spent on their referral program, without having to spend anything on advertising. They now offer built-in incentives to successful referrers, such as free miles and entries into a giveaway. Referral programs for high value items are a great way to build brand evangelism while keeping customers within the environment of the brand.
The Body Shop is another example of a brand that has also taken a value-based approach to building loyalty. All their products are animal testing free, use recycled plastic and are sustainably produced. Their loyalty program also involves points: for every £1 a member spends, they earn 1 point. Customers can then choose to donate this loyalty reward to specific charities or use it as store credit.
Once again, the values based approach works well because it aligns with customer values and allows them to connect with the brand on a much deeper level. The Body Shop also invites members to exclusive events, birthday rewards, and exclusive access to the newest products.
You’ve probably seen a few underlying themes across these loyalty programs. To summarise, we could say that the best schemes seem to have the following characteristics:
As a brand, a loyalty program is an opportunity to take the relationship you have with your customers to another level, and have real, true fans. In a world of increasing competition and fierce brand loyalty, this is what will differentiate the great companies from the average ones.
Read about how one small business overcame the many challenges it faced from covid-19.
We explore which technologies are at work every time you tap your smartphone on a payment terminal.