How can loyalty schemes drive brand success?

In today's highly competitive market, fostering robust customer relationships and loyalty is paramount for long-term brand success.

Being able to significantly enhance customer retention, customer lifetime value (CLTV), and help acquire brand advocates, loyalty schemes can be key to ongoing brand success.

With 82% of consumers belonging to at least one loyalty scheme, it’s not surprising that customer rewards programs continue to gain momentum for ecommerce brands and their customers.

In this article, we'll delve into the concept of loyalty schemes, showcase brands that have successfully leveraged them, discuss their benefits, and outline steps for implementing a best-in-class loyalty program.  

What is a loyalty program?

A loyalty scheme (or program) refers to a customer retention strategy designed to nurture customer loyalty, encourage repeat business, and augment brand preference.

These programs have evolved beyond simple punch cards in your local coffee shop. They have become sophisticated platforms that offer unique customer experiences all while providing valuable customer data to the businesses. 

Transactional vs. emotional loyalty

There are two primary categories of loyalty: transactional and emotional. 

Transactional loyalty is driven by tangible benefits such as discounts and exclusive offers. Emotional loyalty stems from a deeper connection between the customer and the brand, which is fostered by trust, personal values, and a sense of belonging.  

Transactional loyalty has been a historical stronghold for brands – the transactional points-based system remains the most appealing one (65%) to consumers in the UK in 2023. 

However, there's an ongoing shift towards the role emotional loyalty has to play, with factors like trust, brand affinity, and personal values emerging as critical drivers for customer retention and engagement. 

Emotional loyalty drives a deeper sense of loyalty by appealing to customers’ emotions and values. It has the power to increase CLTV, improve customer retention, and boost a brand’s resilience.

Both types play an integral role in a brand’s success. A well-strategized mix of both transactional and emotional components serves as a powerful hybrid approach, optimizing customer loyalty and enhancing customer lifetime value in the short and long term.

Businesses can implement these schemes through a selection or combination of functional methods, such as: 

• Points-based rewards 
• Tiered levels 
• Cashback 
• Partnerships  

Loyalty scheme examples

Sephora's Beauty Insider Programme is recognized as the best-in-class loyalty scheme. Being both emotional and transactional, it offers a reward system based on spending, birthday gifts, exclusive discounts, and early access to products.

Simultaneously, it nurtures emotional loyalty through personalized services, beauty classes, and community features that help customers express their individuality and socialize with others.

IKEA is another example of a company successfully using a hybrid approach through its global 100-million-member IKEA Family loyalty scheme. The program not only provides transactional benefits for the consumer such as free tea or coffee or discounts on selected products, but it also works to develop emotional loyalty with members with the chance to unlock benefits such as design consultations.

What are the benefits of loyalty schemes?

Loyalty schemes don’t just provide added value for the consumer – they offer several compelling benefits to the brands who run them. Here are some of them:  

• Increased customer lifetime value (CLTV): By incentivizing repeat purchases, loyalty schemes can significantly increase CLTV. In fact, returning customers have been shown to spend 67% more than new customers.
• Enhanced customer retention: Loyalty schemes foster deeper customer relationships, making them more likely to remain with your brand. Acquiring a new customer tends to be 5 to 25 times more expensive than retaining an existing one. 
• Acquisition of brand advocates: Satisfied loyal customers often become brand advocates. They promote your brand to their network, leading to new customer acquisition. On average, word-of-mouth drives $6 trillion in annual global spending and is responsible for 13% of all sales. 
• Improved customer insights: Loyalty schemes often require customers to provide information about their shopping habits and preferences, offering invaluable insights for targeted marketing and customer retention. Running a digital loyalty scheme through a direct-to-consumer model can provide you access to first-party data to inform future strategic decisions.  
• Mitigated market competition: By solidifying customer relationships, loyalty schemes can help safeguard your business against competition and pave the way to ongoing success and growth. 

With these benefits in mind, the importance of effective loyalty schemes cannot be overstated. 

How to create a loyalty program for your brand?

To reap the above benefits, follow the next steps when setting up a loyalty scheme for your business: 

• Understand your customers: Use data to understand your customers' needs, preferences, and shopping habits. 
• Define the program's objectives: This could be increasing customer retention, boosting average spending, or acquiring new customers. 
• Choose a loyalty scheme: Based on your understanding of your customers and your program objectives, choose either a transactional, emotional, or hybrid loyalty program.  
• Design the reward structure: Ensure the rewards are attractive and relevant to your customer base. It can take a form of a points-, a partnership-, or even a subscription-based system; the choice is ultimately yours. As for the emotional loyalty program, the rewards are typically non-monetary and involve creating personalized and engaging experiences that make the customer feel valued. They include exclusive events, experiential rewards, social/environmental rewards, and personalized offers.
• Implement the program: Leverage technology to integrate the loyalty program into your customers’ shopping experience. When operating an online loyalty scheme, ensure the platform you operate on can support your ambitions with the program. If it doesn’t, it could be a sign it’s time to switch ecommerce platforms.   
• Evaluate the program: Regularly monitor the program's effectiveness and adjust as necessary to ensure it remains beneficial to both your business and your customers.

Successful loyalty schemes require strategic insight and a deep understanding of customer behavior. Whether looking to establish, elevate or deliver your loyalty program, THG Ingenuity’s solutions across technology, marketing, and fulfillment can provide valuable support throughout this process. 

As we move into an increasingly customer-focused era, the importance of hybrid loyalty schemes is predicted to grow even further, marking those that combine emotional and transactional benefits as key predictors of success in competitive markets.  

To learn more about how THG Ingenuity’s expertise can help your brand navigate the complexities of creating a successful loyalty program, contact us today.