Why and How to build a loyalty program?

Modern loyalty programs have existed since 1793 when a New Hampshire a salesman started giving customers copper tokens that could be exchanged for products in his shop.

Since their conception, they have grown to become a crucial aspect of almost all businesses.

This article will explore why loyalty programs have become so important and how you can use them to generate growth and sales for your business.

Table of Contents

Why are loyalty programs important?

Nowadays, shoppers are bombarded with countless options of products and services. Many of them are poorly made and heavily marketed. This makes it harder for consumers to have a consistent positive experience, so when millennials find a brand that they can trust they show more loyalty to it. 55% of millennials state that they are brand loyal compared to 39% for older generations.

However, building a relationship with your customers isn’t easy. This is where loyalty programs prove to be a great aid. 76% of consumers report that a loyalty program is a huge part of their relationship with a brand and 83% say that these programs increase their likeliness to keep returning to certain companies.

You might think that it might be hard to increase loyalty in specific types of businesses, but loyalty programs have been used with great success in an array of sectors. Examples include everyone from airline companies to restaurants. 74% of flyers have made purchases based on travel rewards and restaurants used loyalty programs to increase visits by 35%. So, you can be sure that whatever your business type is there are ways to benefit from a strong loyalty program.

loyalty program customer

So, how and how much do loyalty programs contribute to business profitability and growth?

Loyal customers spend more

95% of companies report that members of their loyalty programs purchase more than their typical clients. In addition, if you manage to retain your customers, they will spend on average 67% more in month 31-36 than in the first 6 months. In fact, 49% of customers themselves agree that they spend more after joining a loyalty program.

There are heaps of research showing just how much monetary value repeat clients bring for a business. However, only 18% of businesses focus on customer retention. So, if you make sure that your customers are coming back, you will be securing a part of the market that your competitors are missing out on.

Loyal customers refer others and work as your brand ambassadors

Many companies underestimate the value of referrals. Instead, they spend large amounts of money on search engine and social media advertising. Yet, studies show that this is counterproductive. Referred customers tend to spend more and to be more loyal than those acquired by other means. In fact, the McKinsey management consulting company found that referrals generate twice the sales.

In addition to that, a survey by Invesp showed that attracting a new customer is five times more expensive than keeping one. They also concluded that if a company improves customer retention by 5% profits can increase from 25% to 95%.

To sum up, loyal customers aid your business not only by reducing marketing costs and being more profitable, but also by generating high quality leads through referrals.

How to build an effective loyalty program?

We have already established that efficient loyalty programs offer amazing benefits to businesses. However, 61% of retailers still find it extremely hard to make them work. So now we will explore the key factors that you should focus on when building a loyalty program.

loyalty program strategy

Know your customers

The right loyalty system takes into account that not all shoppers are the same. For example, addressing customers by name and offering recommendations based on previous purchases will make it 75% more likely that you will make a sale. Furthermore, using geolocation (targeting customers with promotions based on where their proximity to your store) can result in 72% of them acting on the CTA. Therefore, gathering data that helps you learn about your customers and using it effectively is crucial when building campaigns.

However, keep in mind that asking too personal questions can be harmful to your business. 71% of Americans are less likely to join loyalty programs if they require a home address.

Go digital

Loyalty systems have evolved since 1793 and vendors no longer need to rely on copper tokens or even physical cards. Currently, 95% of consumers prefer engaging with rewards programs through technology like chatbots, AI, VR and smart devices. Still, many companies are slow to adapt to these changes with 69% still using cards.

Going digital early allows businesses to capture modern customers, including the aforementioned millennial market which is more brand loyal than the previous generations. Also, using modern loyalty systems allows companies to gather more precise data about their members. This makes it easier for them to understand and fulfill their customer needs.

Develop loyalty programs that reward desired behavior

One trap that companies often fall into is that they offer rewards for behaviors that do not translate to benefits for them. For example, many long distance telephone companies used to reward their customers with cash for switching to them as the main provider. Instead of acquiring new users, they only catered to the chronic switcher market, who redeemed the prize from several providers one after another.

A great way to solve this problem is to offer rewards based on purchases. In fact, 50% of consumers themselves state that this is their preferred method of using loyalty points. Some companies go a step further and introduce loyalty tiers. This method is even more effective as 37% of shopper are willing to pay to upgrade their loyalty program tier


In the end, a great loyalty program isn’t made in a day. Usually, companies start of with a general idea and only after learning about their customers and tweaking the system produce great results.

The effort is worth it though, loyalty leaders grow their revenue 2.5 times faster than their counterparts and build meaningful brand relationships with their customers.

So, use these tips to build your own optimized loyalty program or if you don’t feel confident doing it alone, contact us and we’ll help you create a loyalty system that will keep your customers coming back.