Even though it’s easy to determine that customer loyalty works, knowing how to reward your customers through loyalty rewards and practices can be quite troublesome; especially now when loyalty rewards are competitively flourishing in numerous markets around the globe. What are the main reward systems out there and where would each fit? We attempt this question in what follows to help you make better and more confident loyalty decisions for your company.
We also condense some of the latest insights that research from around the world tells us about rewards in general.

The Main Different Types of Reward Systems

1. Points-Based Rewards

Description: Your customers can earn points for taking certain actions or following certain spending patterns. They collect, accumulate and then redeem them for rewards. The more points they have, the more valuable their reward will be.

Insight: This system is fitting for companies looking to build long-term relationships with their customers since the more points they accumulate, the more valuable are their rewards. For those customers who don’t like accumulating an waiting, smaller rewards could be offered for a smaller amount of collected points.


2. Draws on Prizes

Description: In this reward system, loyal customers enter periodic draws on prizes whose winners are chosen at random.

Insight: Such a reward system is most suitable for companies looking to acquire new customers through offering them the chance to win valuable prizes as soon as they join the loyalty program. It’s also suitable for existing customers who like the rush of entering draws and dislike waiting long to win something valuable. The more the offered rewards fulfil one or more of your customers’ needs, the more they could overlook all those times when they don’t win. And, through offering a wide range of rewards, more customers could win in each draw.


3. Tiers-Based Rewards

Description: Tiers-based reward systems grant more benefits and perks that come in the shape of different offers from different merchants, to customers who invest more in your business’ services and products. Additionally, higher-tier customers are also granted higher accumulation factors, which means that the points they accumulate are multiplied by a certain factor. The higher their tier, the more valuable their rewards should be.

Insight: If a company is looking to make its customers feel more valued the more they consistently spend, tiers-based systems are the way to go. Additionally, a tiers-based system with lucrative rewards could encourage upselling to customers in lower tiers.


4. Cashback

Description: Through this system, a percentage of what your customers spend on certain services or products during a given amount of time is returned to them on a regular basis as a reward. It could be literally returned to them as cash, or as other rewards from your company or your loyalty program’s partners that would cost them the returned amount.

Insight: Similar to the points-based system, cashback encourages customers to build long-term relationships with the brands that offer them with more emphasis on stimulating their spending patterns.


5. Promos

Description: In this classic rewards system, customers find pre-generated codes that they could redeem for a reward through a website, mobile app, or SMS for rewards either from your business or from one of the brands you’ve teamed up with in your loyalty offering. The codes could also be their entry into rewards on various prizes.

Insight: It encourages sales from potential customers and fosters loyalty in existing customers through instant rewards or opportunities for getting rewards.


Things to Consider While Making the Decision

Rewards could be offered in exchange for your customers’ purchases, but also for their feedback on your products and services or information about their behaviour.

Apart from discounts, coupons, vouchers, products, and services, think of offering your most loyal customers more special rewards. These could include special access to products before they hit markets and invitation to exclusive events.

61% of millennials prefer to donate their rewards to charity instead of personally redeeming them according to a global KPMG survey conducted in 2019. So, making that option available will certainly attract this segment and enhance your brand image in general.

Low-spending customers are encouraged to spend more when invited to declare their instant reward preferences, according to Canada-based research by the Spiegel Research Centre. The research also found out that this doesn’t work as well with high-spending customers. This allows your customers to interact with your brand’s loyalty program form the very start. Customers who engage more with your brand spend more in the short and long-run. Declaring the ratio of instant to delayed rewards also makes your loyal customers’ experience more personalized.

Other experimental research also found that immediate rewards like cashback and gift cards are more effective than delayed ones in promoting brand loyalty for low-involvement purchases such as gas and groceries.