Since the launch of loyalty programs more than a century ago, businesses have struggled with implementing the right loyalty program to increase customer retention.

Some companies focus on providing the best rewards. Others focus on making the program easy to use even if the rewards are small. A few even charge a fee for participation. When companies successfully implement a customer loyalty program, the results are tremendous. In fact, successful loyalty program can increase a brand’s market share by 20%. However, over time companies introduce more rules to their program, making it overly complicated. Ultimately this leads to reduced customer loyalty.

What Not To Do With Customer Loyalty

In 1896, the S&H Green Stamp company began providing the first loyalty systems to retailers. S&H would sell their green stamps to retailers. Retailers in turn would give out these stamps to customers for purchases.

Customers collected the stamps and redeemed them for gifts from S&H run redemption stores. Green stamps became extremely popular with both consumers and retailers. In an effort to redefine itself for the internet age, S&H commissioned a study to understand what consumers wanted from modern loyalty programs. Here is what they learned:

1. Consumers are confused and are angered by complex loyalty programs.

Florida based Spirit Airlines ranked dead last in the US News & World Report’s 2015 ranking of airline loyalty programs. It scored a measly 1.16 out of 5 in part because its loyalty program has too many obscure rules, making it difficult to use.

For example, here are just a few of their rules:

• Miles cannot be earned for back-to-back tickets.

• Miles cannot be earned on flights to and from San Salvador, Bahamas.

• Miles cannot be earned for any extra seats that are purchased.

• To receive miles, the name on the ticket must match exactly as the name on the mileage account.

2. Consumers are annoyed when their points or rewards expire.

Spirit Airlines again leads the pack by expiring miles 90 days after they are earned. It has the fastest point expiration in the airline industry. A Facebook page titled ‘Spirit Airlines Deletes Miles’ even exists to gripe about this problem.

One poor customer lamented: “Spirit airlines deleted nearly 19,000 miles. I was saving them for my wedding. Heck, I found out about it when I booked my Honeymoon flight. This is so sad.” Spirit Airlines serves as a prime example of what not to do.

3. Consumers prefer to be rewarded for things they do on a daily basis, such as grocery shopping, rather than occasional activities, such as travel.

Airlines and hotels have partnered with credit card companies to make it easier for customers to earn points. However the Wyndham Hotel group recently took it one step further when they revised their loyalty program, making it easy for customers to earn & redeem points for free hotel nights.

While most hotels require members to earn between 30,000 to 75,000 points to earn a free night, Wyndham members can earn a free night for a mere 15,000 points. This move has lead Wyndham Rewards program to climb from #7 to #2 spot on US News & World report’s 2015 ranking of hotel loyalty programs.

What Can Be Learned From Successful Loyalty Programs

The best and most effective loyalty programs focus overwhelming on making it easy to understand, use and earn rewards. Below are examples from six businesses who have successfully increased customer loyalty and the key lessons to takeaway.

Case Study: Starbucks | Key Feature: Mobile App

Starbucks has had a loyalty program for many years, but it became a powerhouse only in the last few years after the launch of their mobile loyalty app.

The app is closely integrated with Starbucks’ point of sale system. This tight integration allows customers to use the loyalty app to order in advance, pay for orders, track their points and earn rewards. The app has made it extremely easy for customers to use the Starbucks Rewards program.

Program Characteristics:

Loyalty Tiers: Two tiers – Green and Gold

Rewards: Free beverage, coffee, syrups, etc.

Ease of Use: Very Easy. Customers simply use the mobile app to pay for, track and receive rewards.

Simplicity of Program: Very Simple to understand.

Key Lesson: Convenience Using Mobile App

Starbucks managed to create an enticing program by capitalizing on the fact that coffee drinkers are pressed for time and appreciate speed and reliability.

They were one of the first companies to offer a way to earn points “on the go” by integrating a mobile app experience and it paid off in a big way. As marketing evolves and new platforms are introduced, those who take the time to understand their consumer’s behavior will benefit immensely.

Case Study: Sephora | Key Feature: Valued rewards

Sephora has the leading loyalty program in the beauty industry, with one of the highest levels of customer engagement. It has over 50,000 mentions on Instagram alone.

Program Characteristics:

Loyalty Tiers: Three tiers – Beauty Insider, Very Important Beauty Insider (VIB), VIB Rouge

Rewards: Generous amounts of free beauty samples, birthday gifts, exclusive events and promotions for members of higher tiers.

Ease of Use: Easy. Customers simply use their email addresses during checkout to receive points. Often customers don’t even need to redeem the points, as it’s done for them by the sales clerk during checkout.

Simplicity of Program: Very Simple to understand.

Key Lesson: Valued Rewards & Ease of Earning Rewards
Sephora’s customers are overwhelming women who value beauty products. And it taps into their loyalty by giving out rewards that matter to its customers – beauty samples. In addition, Sephora is proactive about converting points into rewards, adding a level of convenience for customers that further increases the popularity of its loyalty program.

Case Study: Shop4Vitamins | Key Feature: Automatic Redemption

Shop4Vitamins is an online-only retailer that has been in business for over a decade. Facing increased price competition, Shop4Vitamins implemented a reward program with an exclusive focus on convenience and deals for their customers. It has led to a 35% increase in repeat customers.

Program Characteristics:

Loyalty Tiers: Three tiers – Silver, Gold and Platinum

Rewards: Store credit for every purchase.

Ease of Use: Very Easy. Customers don’t have to register or even redeem their points. The points are redeemed automatically as soon as they spend a minimum of $50

Simplicity of Program: Very Simple to understand.

Key Lesson: Convenience & Ease of Earning Rewards
Shop4Vitamin’s loyalty program focuses heavily on making it easy for their customers to earn rewards. Customers do not have to register separately for the loyalty program.

Points are automatically converted into rewards. Further, the reward (store credit) is automatically added to the shopping cart during online checkout.

Case Study: British Food Depot | Key Feature: Automatic Redemption


British Food Depot provides quality English and British foods online. They serve expats and lovers of British Food from all over the USA.
British Food Depot implemented a loyalty system that is convenient and easy to use for their customers. As a result, customers have been quick to adopt the program and return to place more orders.

Program Characteristics:

Loyalty Tiers: Single tier

Rewards: Store credit for every purchase.

Ease of Use: Very Easy. Customers don’t have to register or even redeem their points. The points are redeemed automatically as soon as they spend a minimum of $50

Simplicity of Program: Very Simple to understand.

Key Lesson: Convenience & Ease of Earning Rewards
Similar to the Shop4Vitamins example, British Food Depot’s loyalty program does not require a separate enrollment or redemption. Points are automatically converted into rewards as soon as the minimum amount is collected. The ease of earning rewards along with the convenience of using those rewards has increased customer retention.

Case Study: Koffee Cake Corner | Key Feature: Local Appeal

Koffeecake is a New York City based coffee shop with 3 locations. They have opted for a simple, paper-based loyalty program. Customers are handed stamp cards that are stamped with each purchase. They receive a free cup of coffee when the entire stamp card has been stamped.

Program Characteristics:

Loyalty Tiers: Single tier

Rewards: Free coffee

Ease of Use: Very Easy.

Key Lesson: Convenience through Paper-based loyalty
Koffeecake’s paper-based loyalty program is easy to use for both the retailer and the customer to use. The only downside is that paper-based loyalty programs can be prone to fraud and abuse.

Case Study: Costco | Key Feature: Membership Fee

Imagine a loyalty program so effective that 90% of sales are generated from existing customers. A loyalty program so successful that you can charge customers a fee to participate. But wait–it gets even better! This loyalty program is so popular that new customers are eagerly joining every year.

The above scenario describes the Costco business. While Walmart and Target struggle amidst competition from Amazon, Costco has 81 million paying members and growing.

Program Characteristics:

Loyalty Tiers: Three tiers: Gold Star – $55 yearly fee, Business – $55 yearly fee, Executive – $110 yearly fee

Rewards: Deeply discounted groceries and household goods sold in bulk

Ease of Use: Very Easy. Just swipe your membership card during checkout.

Simplicity of Program: Very Simple to understand.

Key Takeaway: Exceptional Reward & Convenience
Costco’s model is successful because they deliver a reward that is highly prized by their customers – deeply discounted products sold in bulk. By consistently offering the lower prices, Costco is able to charge a fee to be part of their program.

The key to the Costco model is providing a highly valued reward and executing exceptionally well. The Costco model was used by Amazon to launch their wildly successful Amazon Prime Loyalty program.

Keep Things Simple and Convenient

Businesses that worry about losing customers can increase customer loyalty by implementing a loyalty program. While it is tempting to think that great rewards are what make a great loyalty program, the real key to success lies in making the program easy to use. As shown by our loyalty program examples, a convenient program will always trump one that has greater rewards.

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