#22: building Customer Loyalty programs that work

Customer loyalty isn’t just about keeping customers happy—it’s about creating relationships where customers actively choose your brand over competitors, again and again.

? 65% of a company’s business comes from existing customers. ? Acquiring a new customer costs 5x more than retaining an existing one. ? Customers enrolled in a loyalty program are 80% more likely to shop with a brand again.

The right loyalty program makes customers feel valued, engaged, and rewarded, leading to long-term retention and increased lifetime value. But here’s the challenge: Not all loyalty programs work.

Some programs feel too complex, offer little real value, or simply fail to engage customers. In this issue, we’ll explore how to build a loyalty program that actually drives results and keeps customers coming back for more.

1. The Psychology Behind Loyalty Programs

Loyalty programs work because they tap into human psychology—people love rewards, exclusivity, and progress.

A. The Endowed Progress Effect (Progress Fuels Engagement)

Customers are more likely to stay engaged if they feel like they’re making progress toward a goal. ?? Example: Many coffee shop loyalty cards start with two free stamps, making customers feel closer to their free drink—motivating them to complete the card.

B. Reciprocity (Giving to Get More in Return)

When brands give something for free, customers feel compelled to return the favor with continued loyalty. ?? Example: Sephora’s Beauty Insider Program offers a free birthday gift, keeping customers engaged all year.

?? Key Reference: In Hooked: How to Build Habit-Forming Products, Nir Eyal explores how brands can design programs that keep customers engaged through psychological triggers like progress, rewards, and exclusivity.        

2. Types of Customer Loyalty Programs (Which One is Right for You?)

Not all loyalty programs work the same way. The best type depends on your business model and customer expectations.

A. Points-Based Loyalty Programs (Earn & Redeem)

Customers earn points for purchases, which they can redeem for discounts, gifts, or exclusive perks. ?? Example: Starbucks Rewards lets customers earn stars for every dollar spent, redeemable for free drinks and food. Best for: E-commerce, retail, food & beverage brands.

B. Tiered Loyalty Programs (The More You Spend, The More You Get)

Customers unlock better rewards as they reach higher spending levels, encouraging repeat purchases. ?? Example: Emirates Skywards offers Silver, Gold, and Platinum tiers, with each level unlocking exclusive perks like lounge access and priority check-in. Best for: Airlines, hospitality, premium brands.

C. Paid Membership Loyalty Programs (VIP Access for a Fee)

Customers pay a membership fee for exclusive perks, discounts, or benefits that regular customers don’t get. ?? Example: Amazon Prime charges an annual fee in exchange for free shipping, streaming services, and member-only discounts. Best for: Subscription-based businesses, retail brands with frequent buyers.

D. Value-Based Loyalty Programs (Giving Back Instead of Discounts)

Instead of offering discounts or rewards, brands donate a percentage of purchases to a cause customers care about. ?? Example: TOMS’ One for One program donates a pair of shoes for every pair purchased. Best for: Purpose-driven brands, businesses that want to align with a social mission.

3. How to Design a Customer Loyalty Program That Works

A. Keep It Simple & Easy to Use

?? Mistake: Complicated reward structures confuse customers.

? Solution: Make it easy to join, earn, and redeem rewards in just a few clicks.

?? Example: Chipotle Rewards allows customers to sign up in seconds via the mobile app and start earning points immediately.

B. Offer Meaningful Rewards

?? Mistake: Customers don’t care about rewards that feel insignificant.

? Solution: Give rewards that truly excite your customers.

?? Example: Hilton Honours lets members redeem points for luxury hotel stays, making the rewards highly valuable.

C. Personalize the Experience

?? Mistake: A one-size-fits-all approach won’t keep customers engaged.

? Solution: Use customer data to personalize offers and rewards.

?? Example: Nike+ Membership tailors perks based on a customer’s purchase history, fitness goals, and preferences.

D. Gamify the Experience to Boost Engagement

?? Mistake: A boring program won’t drive action.

? Solution: Introduce milestones, challenges, and exclusive badges to make earning rewards more fun.

?? Example: Duolingo’s Streak System encourages users to keep learning with progress badges and friendly competition.

4. Real Business Case: How Starbucks Created a High-Engagement Loyalty Program

Starbucks Rewards is one of the most successful loyalty programs in the world.

? 39 million active members in the U.S. alone. ? Customers spend 3x more when using the app. ? Personalized offers based on purchase history keep customers engaged.

What makes it work? ? Simple & intuitive: Customers can earn stars effortlessly. ? Personalized rewards: Users receive tailored deals based on their preferences. ? Seamless app integration: Customers can order, pay, and redeem rewards all in one place.

Takeaway: Starbucks turns loyalty into an experience, not just a discount system—keeping customers engaged for the long run.

5. Common Mistakes to Avoid in Loyalty Programs

?? Rewards Are Too Hard to Achieve – Customers lose interest if it takes too long to earn benefits. ?? Ignoring Customer Data – A generic program won’t work—use data to personalize experiences. ?? Not Promoting the Program Enough – If customers don’t know about it, they won’t use it.

? Best Practice: Regularly remind customers of their progress, rewards available, and exclusive offers.

Conclusion and Engagement

A great loyalty program makes customers feel valued, encourages repeat business, and strengthens brand connection.        

?? Engagement Question: What’s the best loyalty program you’ve ever joined? What made it stand out? Let’s discuss! ??

Best regards, Spectra Partner CX team