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Types of Customer Loyalty Programs

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Lesson Transcript
Instructor: Tara Schofield
In this lesson learn that creating an effective customer loyalty program is beneficial to your customers and also your business. It rewards customers for being repeat clients and encourages them to come back again and again.

Value in Customer Loyalty Programs

Encouraging customer loyalty is a critical part of a business owner's responsibility. Getting a customer is very expensive and it is important to keep the customer coming back for future purchases. A customer loyalty program is a system of tracking customer purchases and the amount spent in order to reward repeat business.

For instance, you may have a loyalty card with your local grocery store that makes you a member of their rewards program. Every time you shop there, you scan your card, which may give you discounts immediately or make you eligible for offers in the future. Providing a customer loyalty program rewards customers so they continue doing business with your company. It helps ensure they buy from you rather than going to one of your competitors.

There are many useful and beneficial customer loyalty programs. Take a look at several types of customer loyalty programs.

Point-Based

A points-based program allows customers to earn points for each visit that can be used later for discounts or free products. The travel industry uses points systems extensively. When you belong to a rewards program for a large hotel chain, it is likely you will earn points for each night's stay or for each dollar spent. These points can be redeemed for free stays with the hotel in the future. These programs are valuable to companies because they encourage the loyalty club members to keep doing business with them.

Tier-Based

A tier-based program is similar to a point-based program in that customers get points and benefits the more they use the program. The more points they accumulate, the better the rewards. A customer may start at the lowest tier, where few benefits are offered, and move up to a higher tier as they purchase more from your company. Points may be earned for things like the amount of a purchase, number of times a purchase is made, number of friends referred, etc. The more activities the customer accomplishes, the faster and further they climb up the tiers in your program.

For instance, you may have a program that has a basic tier, a silver tier, a gold tier, and a platinum tier. You have determined that a new customer will be at the basic tier until they spend $200 with your company. Once they spend $201 they move to the silver tier. They remain as a silver member until they spent $501. Ultimately, they may spend $1,000 and reach the platinum tier. As they move up to each tier, the benefits and rewards are better and more attractive.

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