Customer Loyalty Programs: The Ultimate Loyalty Guide in 2021

Despite the economic challenges posed by events in 2020-21, customer loyalty, and customer loyalty programs, aren’t in trouble.

In fact, according to research from Yopto, customers are more loyal than they’re often given credit for, and they have more “bandwidth” in their lives for loyalty.

In particular, over the last year many consumers have felt compelled to spend more money with brands they’re loyal to as a way of supporting them through difficult times.

Year on year, according to the research we mention above, customer loyalty actually increased.

However, this increased loyalty comes with demands from the consumers. Demands like, for instance, that brands align more closely to their personal values, and that brands go out of their way to reward loyal customers.

A common, and effective, method for delivering those rewards is through a customer loyalty program.

In this guide to customer loyalty programs, we’ll explain their purpose, their impact, how to build a successful loyalty program and delve deeper into how else you can bolster customer retention.

Skip to a section

1. What impact do customer loyalty programs have on retention and sales?

Studies by Bain & Company, along with Earl Sasser of the Harvard Business School, have shown that even a 5% increase in customer retention can lead to an increase in profits of between 25% and 95%.

As dramatic as that stat sounds, there’s more evidence that customer loyalty programs impact on bottom lines.

Seven stats that show the impact of customer loyalty programs:

  1. Loyalty leaders grow revenues roughly 2.5x as fast as other companies in their industries.
  2. 39% of loyal customers will spend more on a product, even if there are other less-expensive options available.
  3. 79% of consumers say loyalty programs make them more likely to continue doing business with brands.
  4. 73% of consumers are more likely to recommend brands with good loyalty programs.
  5. Adding a loyalty program to an e-commerce platform can increase average order quantity by 319%.
  6. 15% of consumers are more likely to buy from a brand if they are part of a loyalty program.
  7. Loyalty program members spend 27% more when the brand establishes a positive emotional connection.

What’s wrong with loyalty programs today?

61% of retailers cite customer retention as their biggest challenge (Retail Systems Research). In fact, it’s been estimated that companies could increase their profits by nearly 50% by retaining a mere 5% more of their customers.

So what’s the problem? Well, according to research from Edgell Knowledge Network:

  • 81% of loyalty members don’t know the benefits of their programs or how they can receive their rewards.
  • 32% of consumers see little or no value in being a member of their current loyalty scheme.
  • Only 40% are happy with the rewards that are on offer.

The stats show a disconnect between the potential and the reality.

Advocates are the customer retention end game

What you’re ultimately trying to create through your customer loyalty programs is advocates. By advocates, we mean people who will speak on behalf of your brand.

The marketplace for any product is loud, crowded and full of other brands desperate for attention. It’s a huge help when your customers are enthusiastic enough to promote your brand to their peers or colleagues.

This is why it’s so important to invest in developing customers. They go from strangers, to customers, to repeat customers, to true believers. Once they’re emotionally and personally invested in your brand, they’ll promote you to their peers.

For loyalty programs, this is now the benchmark. It’s what your competitors will be aspiring to achieve. Not embracing better customer retention schemes will eventually put you at a disadvantage.

2. What are the different types of customer loyalty program?

If we’re speaking in general terms, there are roughly seven different types of loyalty program:

1. Points

A simple transaction-based loyalty program where points are assigned to purchases. Those points are exchanged for rewards by the consumer. They’re not the most innovative or exciting, but they are easy to introduce and build around.

They’re also the de facto basis for loyalty in many industries, such as the trade supply business.

2. Cash-back

Not dissimilar to the points-mean-prizes schemes we just mentioned, but instead of swapping their points for rewards, the customer earns a form of store credit.

3. Stamp cards

Everyone with a favourite coffee shop or sandwich house is familiar with the stamp card, or punch-card. The customer carries a card in their wallet, and presents the card when making a purchase. After enough purchases, the customer earns a free item.

4. Tiered

Tiered loyalty is where features, prizes, or access are only available to users with a certain level of spend. These programs revolve around exclusivity, and are often deployed by brands with loyal audiences.

The users are signed up with free items, and eventually convert to paid customers as they move through the tiers. A similar concept is common across content production networks such as Patreon.

5. Coalition

A coalition scheme involves your business, and a partner business, signing up to run a joint scheme. It creates a closed loop for loyalty rewards, letting businesses enjoy collective success. The downside is that customers may redeem points earned at competing businesses.

6. Fee-based (premium)

Premium, fee-based loyalty programs are about creating exclusivity, and delivering instant gratification for the customers willing to pay for it. It’s not for everyone – it’s a reward for the most engaged and enthusiastic customers.

7. Hybrid

One size rarely fits all, and you shouldn’t hesitate to mix and match elements from different types of schemes and combine them. In the end, what’s right for your customer base should drive the kind of loyalty program you implement.

A more in-depth explanation of these different program types is available here.

3. How to create a successful customer loyalty program

It’s not possible to give you a step-by-step breakdown of how to build and implement a loyalty program. Sight-unseen, we don’t know all the factors involved.

That includes your legacy programs, the software you currently have in place, and what your program objectives are. However, what we can do is offer you some best-practice concepts that apply to every modern loyalty program.

Harness flexible technology

Having data is great, but the other half of the quiz is the ability to act on it.

Luckily, we have the luxury of working in an era where 3rd party platform and software providers have made it comparatively easy to be reactive and flexible.

Compared to when everything had to be developed in-house, that is. When assembling your loyalty program and putting software and platforms in place, look for flexible and modular platforms that lend you flexibility in the future.

Make data your friend and ally

Data has changed how every business works, and loyalty programs are no exception. Analysis plays a vital role in which customers you will choose to target most aggressively, how best to reach and engage them, and how to refine your loyalty program in the future.

At every step, your decision-making process should be informed by inductive, but smart, analysis of the data at your disposal.

Keep up the communication

Constant communication is vital to maintaining engagement in customer loyalty schemes.

You don’t want to stray into the territory of being annoying and prompting unsubscribes or even customers leaving the system, so start as sparing as possible and use the data available to gauge the right balance.

Depending on the makeup of your audience you may try email, SMS, direct mailers, and possibly social media.

Refine the customer offering

In line with the emphasis on data and flexibility, be sure to adapt your offering to the customer. Respond to changes in your marketplace, changes in customer behaviour, or anything else that might affect how customers interact with your loyalty program.

4. How to retain a customer for life

When we go to events, webinars or seminars about loyalty, a common refrain we hear is “loyalty is about more than points and prizes”. And they’re right.

Loyalty programs are useful, they’re effective, and they will bring serious benefits to your company but you still have to nail the fundamentals.

There’s no loyalty scheme so good it can rescue a company that otherwise doesn’t get loyalty right. Here’s seven things you can do to make sure your customers stay in the fold.

1. Meet expectations, even small ones

Even small things add up when it comes to expectation – things that might not even necessarily be your core skills. Even something as small as a confirmation email not being sent after an order, or an inquiry call not being returned in good time, can be enough to cause a customer to think twice the next time they need your services.

2. Friction and frustration need to go

Patience is a virtue, but it’s not work putting your customers’ to the test. Companies like Amazon have set a near-impossible bar to meet for immediacy and convenience for the public.

It leaves other businesses with a significant challenge to meet with customer expectations about what’s reasonable and possible. We can’t all be Amazon, but we can give ourselves the best chance in a world of increasing demands. Depending on your business, that might include:

  1. Having a selection of payment options available
  2. Streamlining a support portal to minimise time spent looking for answers
  3. Improving search functions to find products or information more easily
  4. Investing in staff education and training to empower customer service
  5. Getting rid of hidden fees to avoid transaction abandons
  6. Clear stock levels on your website to avoid disappointment

When customers do get frustrated, they want to get in touch and talk about it. Which brings us to our next item.

3. Caring for customers is caring about loyalty

When your customers have problems and frustrations, then expect to be able to get in touch and get your help. Not only does that help need to be forthcoming, it has to tick the right boxes. Loyal customers are looking for customer service that demonstrates:

  • Competence
  • Knowledge
  • Coherence
  • Helpfulness
  • Empathy
  • Timeliness

Customers will forgive occasional frustrations if they’re met with the right customer service, but they will move on if they get the impression of indifference of incompetence.

4. Communication builds connection

While balancing it against the saturation concerns we discussed earlier, communication outside of your sales cycle builds connections to your company. Being proactive and positive about sharing updates, changes, or anything else that could affect your customer builds your credibility.

It also shows an investment in your customers beyond when they’re ready to make a purchase.

5. Fit into lifestyles and values

Consumers increasingly make values-driven decisions about which brands they buy from. In the long term, your brand will have to fit in with the needs and wants of customers whose buying behaviours will be driven by not just price, but by ethical and moral concerns.

No one is asking your to save the world all by yourself, but acting to minimise harm in the areas of the world your business affects.

6. Open up the two-way street

As we said earlier, customers want the chance to have their say. Make sure there are avenues available where they can offer their feedback or opinions. Crucially, also, make sure that you hear their feedback and act on it where possible. Then, as we said above, tell your customers about what you did.

7. Take control of your reputation

Your reputation on review sites like Trustpilot has become as important as word-of-mouth in today’s world. Taking control of that reputation, and having a proactive presence on those review destinations, is vital. We wrote more here on how you can do that.

5. Bring back customers that stray

Sometimes customers do leave, but when it’s not down to a catastrophic failure, you can always work to win them back.

Leave the door open

Understanding that a customer has made their choice, and allowing it to happen on the best terms possible makes it easier for them to come back.

While it’s always worth intercepting a leaving customer to see if you can solve their problem before they formally go, when the choice is made, diplomacy is the right way to go.

Look inside

If customers leaving is becoming a habit, then it’s time to act. Look at who they are, which products they’re using, and start proactively talking to that cohort.

Find out what’s happening in their market, or what competitors are doing differently, to arrest the trend before it becomes a crisis.

Tell them you fixed the problem

When customers are leaving, be sure to ask why. If the problem is inside your control, and affecting a sufficient number of people, it has to be fixed. Get back in touch with affected customers once the issue is resolved to let them know.

It gets rid of their initial objection, shows them you’re proactive about your products, and that your customer service is engaged.

Pick your targets carefully

Not every customer will come back, and not every customer is worth your pursuit. Use the information and data at your disposal to identify the most likely customers to return, and build your re-acquisition plans around that data.

6. Innovative customer loyalty program examples

Some of the best loyalty schemes from around the UK, and what they’ve done that makes their audience so engaged.

O2 Priority

A cash-back and tiered system that amplifies user lifestyles

Video source: YouTube

O2 have been running their loyalty program, Priority, for more than ten years now. It runs as a counterpart to their O2 Rewards loyalty scheme, which focuses on giving consumers rewards in the form of airtime credit. Priority, meanwhile, focuses on exclusivity and lifestyle enhancement.

Members of the loyalty program enjoy access to ticket sales, prize draws, educational experiences, vouchers for restaurants and cafes, and more. All of this is accessed through O2’s app, which lets users quickly and easily browse the prizes available to them.

Crucially, many of O2’s rewards are not linked to spend. They’re “always-on” rewards, available to the consumer at any time through O2’s app. These features have made O2 Priority a successful and rapidly-growing loyalty program.

To compete with the success of O2 Priority, Vodafone have recently rolled out an AI-powered daily rewards service, VeryMe, to deliver personalised discounts and treats to their members.

What makes it work: Understanding their customers’ lifestyles, and enhancing those lifestyles through exclusives.

Tesco Clubcard

A successful evolution of the punch card into a points-driven reward and cash-back loyalty program

Video source: YouTube

The Clubcard started 26 years ago, and one was among the first major supermarkets to use a magnetic-strip card instead of stamps. While the use of debit cards and credit cards was only starting to catch on at the time, it had a major advantage – simplicity.

Once the users have their card, they only need to scan it (or have it scanned) when making a purchase to accrue loyalty points. The points add up, and are cashed in for what Tesco call “vouchers”.  That might be store credit for Tesco, or something from their reward catalogue of VIP experiences, special gifts, and even holidays.

Clubcard sits nicely alongside any Tesco shopper’s lifestyle, works as a reward tool or a budget-stretcher tool for customers, and is almost totally unobtrusive to use.

The major benefit to Tesco, beyond customer loyalty, is greater input of data from their audience. While as a retailer Tesco will keep meticulous records of purchases, Clubcard customers’ purchases are tied to the demographic-related information.

That information gives Tesco much more useful data on who shops at Tesco, what they buy, how often, and when. All invaluable information for better serving the needs of their customers and, ultimately, keeping them loyal.

On the quality and scale of data they received after launching the card back in 1994, then Chairman of Tesco Lord McLaurin said, “You know more about my customers after three months than I know after 30 years.”

What makes it work: A simple, unobtrusive loyalty mechanic that delivers massive data benefits to Tesco


A points-driven system with premium flair

Video source: YouTube

As we said earlier, almost everyone who regularly visits a coffee shop has seen a punch card loyalty program. Starbucks takes the punch-card concept, and adds a tiered loyalty system to a familiar process.

As a reward for using the app, or Starbucks card, customers are given “stars”. After saving up enough stars, the customer gets a free beverage. So far, so simple.

There is, however, a tiered element to the system. The lower tier, the “Green” level, is for customers who have made at least one transaction with Starbucks with their app or card. At fifteen stars, a Green member earns a free drink.

However, once a user passes 50 stars in a calendar year, they ascend to “Gold” level. At Gold, customers enjoy more than just free drinks. They earn free syrups, free whipped cream, free dairy-free milks, extra espresso shots, and more.

Starbucks’ customer loyalty program has been a great success, offering a little exclusive treat to thousands of regular customers while feeding Starbucks plenty of data about their customers’ coffee drinking habits.

What makes it work: A simple app, using familiar mechanics, that makes VIP-tier loyalty accessible to everyone

If you take nothing else away, take this

Communication – Customer loyalty programs, and customer loyalty in general, depend on great communication.

Flexibility – Consumer habits, markets, and technology change rapidly, making flexibility important for any customer loyalty program.

Data – Not only is data vital to planning and deploying a customer loyalty program, it’s a vital product of a successful loyalty program.

Lifestyle – Fitting into your customers’ lifestyle is mandatory to bring users in and keep them engaged with a customer loyalty program.

Over to you

Customer loyalty programs are a vital tool to help you improve retention. That’s why we have a system that specialises in just that. That said, your customers need something to attach themselves to, something to be invested in.

Your business needs to turn itself into a company where customer loyalty is earned by your everyday behaviour, and secured with great rewards.

Could screwing up, and making it right, be the best thing you do for customer loyalty?

It sounds like a joke, right? Why would anyone be more loyal to a company that messes up, even if they make it right later on?

Many people out in the world would agree – once trust has been damaged once, you’ve made a permanent and indelible mark on your reputation with a client, shifting the balance of your relationship for a long time.

Well, that might not be so. In fact, many have claimed for years that recovering after a fumble may improve your relationship with clients. It’s a theory called the service recovery paradox.

There’s always been a bit of debate about just how much of the phenomenon is fable and how much is fact, but a recent meta-analysis in the Journal of Service, taking in data on the subject from a wide range of sources, gave us some interesting results.

The paradox explained

Sometimes, your service fails beneath where customers think your service level should be. This could be down to a variety of factors, some of them inside and outside of your control.

First, the company has to fix the problem, restoring service to at least to the level before the failure occurred.

Once the service dissatisfaction is gone, the company can build trust, and build the perceived value of the company according to customers. For some clients, this will make them see your company as more valuable to them than they did before they experienced a dip in service, and be more loyal to your company. In turn, increasing their value to you as repeat customers.

That’s the claim made by the service recovery paradox.

Reality bites

The findings of the study we cited above and others, unfortunately, found that while they could find evidence of the paradox working, it’s not something you should bank on.

Both the meta-analysis, an inductive analysis of all available information to the researchers, along with previous studies, paint a tenuous picture for the customer recovery paradox, with too many contingencies and moving parts to be considered reliable.

A previous study from Mangini found that the customer service paradox relied on:

  • Customers having not experienced previous service failure.
  • That the service failure was not thought of as severe by the customer, and;
  • That the failure was largely out of the company’s control.

Even when these criteria were met, and this effect is produced, the meta-analysis found that the paradox did increase satisfaction somewhat, but didn’t impact buying intentions, word of mouth behaviour, or the brand image.

However – you still have to recover that service. Like many of the things we talk about on this blog, there’s no silver bullet out there, or in this case a convenient paradox to make it easy. But keeping customers in the fold is more important than ever, and paradox or not it’s important to get a grip on it.

Service failure and recovery is a bit of a big subject to get into here, but there’s three big things you can start thinking about this week now to make it easier.

Making amends

Words and demeanour

Too often, companies scramble to offer effusive apologise and prostrate themselves on the good will of their customers. They believe that one mistake, even if they recover from it, should be treated as fatal.

The result is customer service teams that flail from one crisis to the next. Treating every small fire as a towering inferno, and passing that sense of insecure panic on to their customers.

Knowing that your own mistakes aren’t the end of the world, and that for some customers they might even be made happier than when they initially complained, should change the mind-set to helping unhappy customers.

Approach the situation with confidence that you’re a quality provider, that you’re in control of the problem your customer has, and that you can fix it and make amends for the inconvenience. And equip your staff to carry that into their interactions with customers.

Access and actions

Your company needs dissatisfied customers talking to your recovery staff. This is to demonstrate as early as possible that you’re in control, that you can make the problem right, and that you can make repair the problem.

Service recovery hinges on being able to talk to customers, and vice versa. Customers can talk amongst themselves, they can quietly leave, they can even complain on public forums like Trustpilot.

You can try to intercept as much third-party negativity as possible, but your service recovery effort is only effective when you’re in direct contact.

That means having clear, well-signposted and well-maintained channels for complaint, manned by knowledgeable, conscientious employees. Not having these in place makes it impossible to run effective service recovery, and takes the idea that customers will be more loyal to your company, regardless of any paradoxes, off the table.


Rewards make excellent service recovery tools, particularly when dealing with individuals’ complaints. Over a long period, an occasional cash-value reward as a sign of gratitude or, sometimes, apology is a great investment. It’s a relatively small outlay for you but isn’t easily forgotten by customers.

This is particularly effective when you can personalise how you reward. It’s not practical to try and warehouse a gift fit for everyone, so it’s most likely that you’ll be using a multi-choice product like a gift card or reward code. You can’t “personalise” the gift itself, but you can personalise the message around it.

For instance – if you know a customer uses your insurance company to insure a vintage vehicle, you can deduce they have a passion for cars. While you’re delivering them a reward, it might be prudent to point out the customer can enjoy their gift at a track day.

You’re not just showing that you’re reticent about a service failure, you’re showing that you see and appreciate that there’s a human being behind the account number and complaint.


If you’re not sold on the science when it comes to the service recovery paradox, you’re not alone. There’s definitely more research to be done into the phenomena, but it’s an idea worth talking about.

However, regardless of your opinion on customer service phenomena, service recovery should be a priority. Especially as the world heads into uncertain economic times – money and time spent keeping customers now is money exceptionally well spent.