Making Sense of Loyalty Programs [Part I]

According to Hubspot, loyal customers spend 67% more than new customers. Loyalty programs, therefore, can contribute a good amount of additional revenue to your bottom line. But there are a wide array of different loyalty programs on the market. So how do you find the one that works best for your business and your customers?

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4 Loyalty Programs Explained

To help you find the right one, we’ve broken down the main differences of 4 common loyalty programs that are used in the hospitality industry.

1. Point-Based Loyalty Program

The point-based loyalty program is the most widely used one. It is often described as being “easy to earn and easy to redeem”. It’s pretty straightforward and aims to encourage frequent and short-term purchases. Points are earned per £ spent and translate into rewards or freebies.

Two successful industry examples using point-based loyalty can be found in Dunkin’ Donuts and Pizza Hut.

2. Tier-Based Loyalty Program

Tier-based loyalty programs give their members ranks (e.g. silver, gold, elite) based on their spend and are often used by higher-priced businesses, such as airlines or hotel chains.

Usually, small rewards are given as base offerings which increase in value for higher tiers. What makes this type of loyalty program so attractive is the fact that customers are committed to spend more in order to move up the tiers to unlock even more benefits. However, tier-based programs are more long-term oriented and customers don’t usually get an immediate benefit.

Hotel chains such as Marriott or the US restaurant chain Chick-fil-A are examples for tier-based systems.

3. Paid Loyalty Program

Paid programs or VIP membership programs aim to create an element of exclusivity for their members. Members usually pay a monthly or annual fee to be able to access all kinds of free perks.

This program is probably best known from the retail industry, e.g. Amazon Prime. Arguably Brewdog’s ‘Equity for Punks’ program comes under this umbrella too. It offers shares in the company as well as discounts in bars and online. Plus some other perks such as an invite to the “Annual General Mayhem (AGM)” – the reality of this was essentially a one-day beer and music festival.

4. Stamp or Punch Loyalty Card

Our last loyalty program, the stamp card is probably one of the most simple, yet highly effective ones. Customers earn a stamp for every purchase which they can exchange for rewards once they have a certain number of stamps.

In general, stamp cards are great for any type and size of business. It’s a simple method of encouraging customers to come back by promising something for free in return for their loyalty, at a small cost to the business. Also, compared to other programs, stamp cards have a visual appeal. Customers can see how many stamps they have left.

Stamp cards are often a typical loyalty program for coffee shops, but big chains, such as McCafé also use it.

To get the most out of this type of loyalty program, businesses should opt for a digital version. A digital stamp card is not only more convenient for customers (no more missed stamps or losing cards), but also allows venues to collect valuable customer data. This data can be used for personalised marketing outreach. 

Watch out for Part II of this blog article, all about how you can turn your loyalty program into a success, including some inspiring customer examples.