# Business development
Improve customer retention: loyalty systems and their benefits.
Red Rocket teamMay 7, 20246 min read
In This Article
What is a loyalty system? The benefits of having a customer loyalty systems Types of loyalty systemWhat is more crucial for a business – keeping existing clients or attracting new ones? Well, according to the latest studies, it’ll cost you 5 times more to earn a new customer, than to work on retention.
Building long-lasting mutually beneficial relations with a client is a winning strategy for a business of any kind. That's where loyalty systems come in.
Let's break down what they are, how they work, and the different types available.
What is a loyalty system?
It’s a program that rewards customer’s repeated purchases with perks and bonuses. By providing discounts
and rewards or early access to products, such programs make customers feel that their loyalty is valued and appreciated, which impacts shopping decisions.
The benefits of having a customer loyalty systems
More sales
Who wouldn’t add an extra item to the cart to get a bonus? Hence, increasing the average order value.
Moreover, a 2022 survey has found that 80% tend to buy more frequently from a brand after joining its loyalty program.
Reach new customers
A well-designed loyalty program pushes a client to advocate for your brand within their social circles. They’ll
start acting as brand ambassadors and driving organic growth without the need for a formal referral program.
That’s why setting up a loyalty system for IT services is beneficial.
Valuable data collection
By signing up for your program, a customer gives you their personal information. That data helps you understand
their buying behavior, preferences, and engagement patterns. No need to explain, how valuable that is when
it comes to tailoring your offerings to their needs.
Improved communication
A loyalty program serves as a direct communication channel between a business and a customer. Now you have
a convenient way to share updates on new products, services, and promotional offers.
Types of loyalty system
Points-based programs
Every time customers make a purchase, they earn points based on the amount spent. Once they accumulate
enough points, they can redeem them for discounts, free products, or special offers.
Advantage: clients have the freedom to choose how they want to redeem their points, making the program
more appealing.
Tiered programs
Customers start at a basic level and unlock higher tiers as they spend more or engage more frequently with
the brand. Each tier offers increasingly valuable rewards and benefits.
Advantage: keeps customers engaged and motivated over time.
Referral programs
Customers earn rewards for referring friends, family, or colleagues to the business. The referred individuals also
receive incentives for becoming new customers.
Advantage: builds community.
Subscription programs
Customers pay a recurring fee to access exclusive benefits, such as free shipping, early access to new products,
or members-only discounts.
Advantage: subscription fees provide a steady stream of income, helping to stabilize cash flow.
Value-Based programs
Rewards are aligned with the company's values or causes, encouraging customers to support and engage
with the brand based on shared beliefs or interests.
Advantage: improves brand reputation.
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According to a survey, most consumers in the United States wanted discounts in return for joining loyalty programs. The next most desirable option is earning points and rewards, followed by exclusive or early access
to products.
Clearly, perks and benefits are a must. But loyalty programs can also help people feel more connected to their favourite brands. In a 2022 survey, about half of the people said they joined a loyalty program just to show
their devotion to a particular company.
