Loyalty Programs: Are They for Customer Retention or Acquisition?

Curious whether loyalty programs are more fitted for customer retention or acquisition? How about both? Read our article to learn about the best approaches.

Here’s a tricky question: which task is a loyalty program most suited for, customer retention or customer acquisition? From the name alone, you might vote on retention, but don’t be too hasty. Next-gen loyalty solutions serve just as well to attract new customers as they do to maintain existing ones. All you need is the right sentiment and some innovative features. 

Strive to Both Attract and Maintain

The reason I called my initial question “tricky” is because picking one over the other can be detrimental to your business. Even though repeat customers are said to be 130% more valuable—generating roughly 40% of the revenue for a brand—you should ensure a healthy influx of new customers as well, because today’s new customers will become tomorrow’s brand loyalists.

This sentiment was echoed by the participants of our latest webinar with dotdigital. When asked in a survey about their top marketing priorities for 2021 and onwards, 64% of respondents stated they would focus on both customer retention and acquisition.

The overwhelming majority of respondents in our survey voted for a combination of retention and acquisition as their main focus.
The overwhelming majority of respondents in our survey voted for a combination of retention and acquisition as their main focus.

So we’ve dedicated this article to exploring the various ways you can gear your loyalty program towards decade-long engagement, as well as achieving instant love that prompts customers to hit the enrollment button right away.


Check out our full webinar recording with dotdigital to learn even more about the winning strategies for 2021!

Loyalty Programs as Customer Retention Tools

Helping buyers reach the second or third purchase is often the primary reason companies opt for a reward program. If you manage to get them invested in the program, they will not only choose your brand to make business, but also perform actions that drive additional value. 

1) Tiers

Although the whole structure of a reward program is designed to to keep members engaged, tiers take the cake in terms of longevity. Every purchase customers make adds to their total, and they reach new levels and receive new benefits. 

Most tiered programs have three levels, but if you’re aiming for long-term retention, we recommend adding more. Tiers also keep members in the ring, because they may lose their privileges if they don’t buy anything for over a year, which reduces the risk that they switch to a competitor.

Love, Bonito is a great example of how to generate interest with tiers: the benefits are structured incrementally, and there are even some secret surprises left for Gold members.
Love, Bonito is a great example of how to generate interest with tiers: the benefits are structured incrementally, and there are even some secret surprises left for Gold members.

2) Birthday & Anniversary Rewards

A quintessential surprise & delight tactic, birthday and anniversary rewards provide great motivation for most members to stick to a loyalty program. The recipe is easy: offer customers a freebie or a personal discount during the month of celebration to make them feel special.

There are only two rules to keep in mind:

  1. Change the reward each year to keep them guessing
  2. To avoid freeloaders, let people know that only those who reach a certain tier or annual spend are eligible
LuisaViaRoma’s surprise birthday email campaign was so popular that it ranked third among the company’s top-performing emails. Read more about the campaign’s success in our case study.
LuisaViaRoma’s surprise birthday email campaign was so popular that it ranked third among the company’s top-performing emails. Read more about the campaign’s success in our case study.

3) High-end Rewards

Unlike ordinary rewards, such as coupons or free product samples, experiential rewards hold true value. They range from a picture signed by an influencer, to a one-of-a-kind designer product, or even a luxurious weekend at a spa resort. 

Receiving such a reward creates a lifetime memory for a loyalty program member. Experiential rewards have a high perceived value, but also come at a high cost, so they should be the most expensive listings in your reward catalog. The goal here is to create incentives that require multiple high-volume purchases, or years of frequent, smaller purchases.

MATCHESFASHION exemplifies what it means to have experiential rewards: seasonal gifts, early access, and even a VIP-only lookbook.
MATCHESFASHION exemplifies what it means to have experiential rewards: seasonal gifts, early access, and even a VIP-only lookbook.

4) VIP Clubs

As insider groups within the loyalty program, VIP Clubs are ideal tools for engaging your most loyal customers. Unlike most brand communities, VIP Clubs require members to pay an entry fee or reach a high lifetime spend milestone. In exchange, members can get their hands on luxurious perks, such as early access to the hottest product drops.

As with experiential rewards, VIP Club memberships require prolonged engagement in order to be redeemed. But because the benefits are often transaction-related (such as early access, or free shipping), these memberships motivate members to keep spending in order to make the most out of them.

Swarovski operates a paid membership program, called the Swarovski Crystal society. In exchange for an annual fee, members are rewarded with free jewelry each year and free shipping, among other perks.
Swarovski operates a paid membership program, called the Swarovski Crystal society. In exchange for an annual fee, members are rewarded with free jewelry each year and free shipping, among other perks.

5) Challenges & Badges

In case you wish to nurture customers in a more subtle manner, you can do so by implementing challenges or badges into the loyalty program. Based on behavioral science, these small feats of achievements offer small, incremental benefits for those who perform an action regularly.

For instance, you can dedicate a badge to weekly sign-ins. That means members who visit their account regularly can unlock bronze, silver and gold badges. In the meantime, you ensure they remain up-to-date about the latest offers and campaigns. 

German mountaineering product retailer Bergzeit integrates the Strava tracker in its loyalty program. This lets members receive bonus points for completing workout milestones.
German mountaineering product retailer Bergzeit integrates the Strava tracker in its loyalty program. This lets members receive bonus points for completing workout milestones.

Loyalty Programs as Customer Acquisition Tools

But what about the other end of the spectrum? Rewards can be used as a carrot on a stick to entice customers to join the program and start their journey as a member. Here are the most effective features for acquisition.

1) Welcome Rewards

The most straightforward incentive is the welcome reward. Those who join receive an instant discount, one-time free shipping, or another alluring reward. The value doesn’t need to be high. The emphasis should be on giving something “free” to newly enrolled members.

Welcome rewards are essential marketing tools you should prominently feature on the loyalty program’s landing page. Just remember: the benefit should always tie into a transaction to move people towards their first purchase.

Kellogg’s has a series of opportunities for new members to earn free points. This, in itself, is also a strong incentive for enrollment.
Kellogg’s has a series of opportunities for new members to earn free points. This, in itself, is also a strong incentive for enrollment.

2) Limited-time Freshman Campaigns

Freshman campaigns function similarly to welcome rewards, but they add FOMO to the mix. Freshman campaigns are based on the idea that newly enrolled members earn double points on purchases during their first month. This also ensures they won’t sit on their discounts.

You don’t have to use freshman campaigns throughout the year. If you wish, you can introduce a temporary campaign during the holiday seasons or Black Friday. Doing so helps you capitalize on the holiday rush and gain an edge over the competition. 

During a past holiday season campaign, DSW temporarily made free shipping available to everyone, saying that if customers wish to keep using this privilege in the future, all they need to do is register.
During a past holiday season campaign, DSW temporarily made free shipping available to everyone, saying that if customers wish to keep using this privilege in the future, all they need to do is register.

3) Gamification

Gamified features are also great customer acquisition tools. Just imagine a prize wheel on the loyalty program’s landing page. Visitors can spin it to get a random reward, but in order to redeem their reward, they have to register.

You can also put a twist on existing systems as well. For example, you can use the prize wheel to gamify people’s welcome reward. This feature works even better for apps, thanks to solutions such as App Clips

Learn more about the top gamification tactics from our ebook.
Learn more about the top gamification tactics from our ebook.

4) Referral Program

Word-of-mouth is responsible for 20-50% of purchasing decisions. Therefore people are more willing to enroll if a recommendation comes from a friend. Referral programs are built on this concept, but you can spice things up even more with an innovative reward scenario.

For starters, you can ramp up the recruitment process with incremental benefits, where customers receive more bonuses after the 5th, 10th or 20th friend they invite. Or you can consider tying benefits to the seasonal freshman campaign, whereupon successful recruiters are entitled to the double points event. 

In its loyalty program, Dr. Brandt not only uses referrals, but also incentivized reviews to get the word out on its offers.
In its loyalty program, Dr. Brandt not only uses referrals, but also incentivized reviews to get the word out on its offers.

5) Social Media Contests

Another way to generate buzz and word-of-mouth is to run a hashtag or comment contest on Instagram. Those who upload their image posing with your products are entered into a contest, and a few lucky winners receive the grand prize. 

Social media contests not only boost your brand’s virality, but also help you discover potential new influencers. Plus, a whole new community is exposed to the program, and members of that community will most likely enroll. 

An Instagram contest is probably one of the most effective ways to engage with the community, as participants will no doubt share their experience with friends and family.
An Instagram contest is probably one of the most effective ways to engage with the community, as participants will no doubt share their experience with friends and family.

Get Ready to Rock & Enroll

Neither customer retention nor customer acquisition is a given, simply because you have a loyalty program. Instead, you should design the system to excel in one (or both) of these areas. Hopefully, this article helped you see loyalty programs in a new light. 

Interested in next-gen loyalty programs, which are capable of driving multiple KPIs? We are more than happy to start a discussion on how Antavo’s technology can aid your business. Feel free to include us in your RFP or book a demo

In the meantime, here’s our most popular content, a reward planning spreadsheet to set you on the right track when it comes to brainstorming incentives.

Reward planning worksheet banner

Tamas Oszi

Tamas is a Loyalty Specialist at Antavo with a keen eye for loyalty and customer retention research and trends. He studied philosophy and has a strong background in journalism. Tamas is a true gamer at heart and has an impressive collection of cyberpunk books.

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