The Four Main Types of Loyalty Marketing Programs

Posted by Hadley Nichols on Thu, Jul 09, 2020 @ 05:03 PM

Closeup portrait of happy successful young woman holding money dollar bills in hand fanning her face, isolated on white background. Positive emotion facial expression feeling. Financial reward savings

Study after study proves that C-store loyalty programs drive foot traffic, create engaged customers, increase the amount of money customers spend, foster repeat business, and provide the store with invaluable customer data allowing them to personalize offers and discounts.

According to the "C-Store Shopper Profile 2018" report by Excentus, 43% of consumers visit a C-store because they belong to the store's loyalty program. That's a staggering statistic, considering the same report found that 44% of consumers patronize a C-store because of its location. Given those numbers, it's not a stretch to say that loyalty programs have changed the game in the C-store marketplace, making those loyalty programs just as important as location in terms of customer choice. That's huge.

That said, there are pros and cons involved with most every decision related to your business, even loyalty programs. Let's look at the upside and downside.

Pros and Cons of Loyalty Programs

In general, all loyalty rewards programs, no matter the type, have pros and cons.

Pros:

  • They allow for the collection of customer data for promotional opportunities.
  • They can all be measured in terms of success and real results.
  • They are all fairly easy to implement.
  • They all give customers a reason to keep coming back.
Cons:
  • Takes time and commitment to implement well.
  • Competition can copy your loyalty structure.

Clearly, the pros outweigh the cons. That, coupled with data from numerous studies, shows there's no question about whether instituting a loyalty program is a good idea. The question is, what type of loyalty program should you choose?

While the types of rewards can vary depending on customer preferences, the types of loyalty programs themselves tend to fall within four main categories: Rebate/cash back, discounts, frequency punch card, and points.

As with loyalty programs in general, each type of program has its pros and cons. Let's do a deeper dive into the types of loyalty programs out there to help you decide which is right for your store.

[Read more about it in Loyalty Rewards 101: Four Main Types of Loyalty Programs]

1. Rebate/Cash Back Program

Cold, hard cash. It doesn't get much simpler than that. Rebate programs allow customers to earn money back from prior purchases and redeem it after a certain amount of time or set amount. The rebate is often a percentage of the total purchases within a period of time. This is usually done in some form of gift certificate in order to bring customers back into the store, but can also be in the form of cash.

In other types of retail, you see this type of program often around the holidays. Buy X amount, get X amount back. Kohl's famously uses it year round, in the form of "Kohl's Cash," in which customers get a dollar value credit for a percentage of their purchase — spend $50, earn $10 toward your next purchase — which they can use the next time they're in the store. Another popular example of this type of program is Capital One's cash back program, in which customers earn a percentage of cash back from every purchase.

Here are the pros and cons of rebate/cash back loyalty programs:

Pros:

  • Easy for customers to understand.
  • Easy for employees to explain to customers.
  • Drives customers back into the store and encourages repeat purchases.
  • Customers often feel like they are accruing value.

Cons:

  • There is no instant gratification.
  • It can be expensive.
  • It may not appeal to infrequent shoppers.

2. Discount Program

A discount program offers a certain percentage or dollar amount off of a purchase. This can apply to a specific product or an entire purchase. This program usually applies instant benefits to customers during check out.

This type of program is common in the grocery segment of the marketplace, and in C-stores as well. A popular example of discount programs is BOGO deals for members, which surprise and delight customers with a 50% discount when they buy two of an item.

Target's loyalty program, REDcard, is built around instant discounts. Members get 5% off every purchase, in addition to free shipping for online orders and a 30-day window for returns. Some retailers offer discount programs, but membership has a fee. Book giant Barnes & Noble charges $25 annually. For that membership fee, members receive 40% off of hardcover bestsellers and 10% off their entire purchase. Bed Bath & Beyond's Beyond+ program costs $29 annually, and offers members 20% off everything.

Pros:

  • There is instant gratification.
  • It is easy for consumers.
  • It is easy for businesses.

Cons:

  • It implies that regular prices are too high and lowers the value of the product.
  • It rewards infrequent shoppers.
  • Gives away margin.

3. Frequency/Club or Punch Card Programs

These are tried and true loyalty programs that couldn't be easier to set up. Everyone knows what punch card programs are about — buy 10 and get the 11th free. Many businesses still use the paper punch card process for this type of loyalty marketing program. Many segments of the marketplace use punch card programs, from coffee shops to car washes to pet stores.

Pros and cons include:

Pros:

  • Easy for the customer to understand.
  • Low cost — just print up cards and hand them out.

Cons:

  • Sometimes it is difficult to prevent fraud — people stamping more than they have purchased.
  • Customers have to remember to carry the card.
  • Doesn't capture any information about the customer.
  • No sense of whether other items have been purchased or how much the customer spends with you.

Utilizing loyalty software for your frequency/club program eliminates the fraud risk and allows you to capture the customer information so that you can send emails or texts to get them back to the store. In some cases you can implement a frequency/club program and still track total purchases so that you know who your best customers are.

4. Points Program

For this program, points are used as currency in order for customers to keep track of their rewards. Customers usually earn points based on the amount they spend with the company. Points-based loyalty programs appear everywhere, from airlines to restaurants to credit card companies and more.

Pros:

  • It is easy for customers to understand.
  • It avoids price discounting.

Cons:

  • There is no instant gratification.
  • Points may take a long time to accrue, depending on the program.
  • Customers may need to be reminded of their status in the program.

One of the most common pitfalls of points-based programs is how long it takes to rack up enough points to redeem for anything meaningful. According to a recent study by All Business, the top reason people stop using or otherwise drop out of a loyalty program is that it takes too long to accrue enough points to make the membership worthwhile. Starbucks knows that firsthand. The coffee giant recently revamped its loyalty program so that their points, or "stars," accrue faster and are available for immediate use.

Bottom line: Make it easy

Whatever type of loyalty program you institute, the key is simplicity, all the way up the chain from how your customers hear about your loyalty program, to how they sign up, to how they use it, to how they accumulate rewards to how they use those rewards. Every aspect of a Tecmark loyalty program is easy! Our dedicated Account Managers are there for you every step of the way to ensure your loyalty experience is seamless.

Simple and effective loyalty programs help drive results, get customers into the store, and encourage repeat business. We believe that in order to be truly successful, a loyalty program should be easy to learn about, understand and use for you and your customers.

Awareness

How will your customers learn about your loyalty program? Your first line of defense — your cashiers. It's vital they have training on not only offering the program to customers as they pay for their purchases, but also the features and benefits of the program. Make sure they have a standard "elevator pitch" (a quick couple of lines that explains the program and the rewards). Also, post signage at the pumps and at the register advertising the program.

Enrollment

Customers do everything on their smartphones, from depositing checks into their bank accounts to getting loans to buying items online. They're used to living their lives in the palms of their hands, and loyalty programs are no exception to that.

It's important to combine technology with loyalty, and we have the tools available to help you stand out against your competition.

We make enrollment easy with our all-digital solutions, including mobile app, Text-To-Enroll, and online interface. Once customers are enrolled, our solutions are easy to use, intuitive and effective. (If your customers still prefer cards, we can support that too!)

One key element about digital enrollment, however, is the number of fields the customer has to fill out. A minimal number of fields means minimal hassle. And customers today are becoming wary of providing too much information because of data privacy concerns. Together, it's a case for requiring just a bit of information to enroll.

Use

Our mobile app solution allows you to stay connected to your customers in the most convenient way possible: through their phones. Customers can download the Rewards Program app either via a direct link from our Text-To-Enroll feature or by searching the App Store or Google Play Store. It's easy to download, easy to navigate and easy to understand.

According to Forbes, providing rewards around engagement encourages users to come back, benefiting a business far beyond that first purchase while also benefiting the customers with a tangible reward. This tactic creates much-sought-after customer loyalty, providing a long-term financial benefit to the business by creating customers who keep coming back. Happy customers who are surprised and delighted by your offers will come back to your store generating more revenue and increasing profits, making you a happy business owner. It’s a win-win for all!

At Tecmark, we're committed to helping you make your loyalty program easy and accessible and, above all, useful for your customers. Questions? Contact us today.

Thinking about a loyalty program? For more information, download our whitepaper, "8 Questions to Ask Before Starting a Loyalty Program."

Tags: Loyalty Marketing, Tecmark, Convenience Stores, Rewards Program, convenience store rewards