When assessing a loyalty program’s success, many companies assume that they can simply copy another company’s rewards structure by looking at popular brand loyalty examples — which is misleading. There’s a big difference between how points are utilized to earn a reward versus the actual emotional ties that customers develop with brands.
This article provides an in-depth analysis of how many successful brands have created their promotional strategies and how those strategies often fail to produce the same results when replicated due to the absence of the underlying factors responsible for driving ongoing purchases.
This article provides a breakdown of the differences between behavior-based loyalty and emotion-based loyalty, allowing us to replace the typical, pseudo-scientific assessment of market conditions with actual knowledge of how customers will continue to purchase.
Understanding Brand Loyalty Examples and Categories
The categories of loyalty are as follows:
Behavioral loyalty is repeat purchases driven by convenience (location), price (cost), or usability (ease of use).
Attitudinal loyalty is when a customer demonstrates preference for a brand through word-of-mouth communication.
Ecosystem lock-in occurs when customers become entrenched in a system due to the difficulty in gaining access to another platform or service, either through accumulated content or services, or their attached devices or data.
Lastly, program loyalty is defined as when customers only return to a brand to acquire discounts.
If you create a strategy without first determining what type of customer loyalty you wish to establish, you may end up wasting time and money. True brand loyalty examples show it exists outside of points, discounts, and tier levels. A reward system should be a supplement to an already worthwhile product, or at least not be the only reason why someone would buy from you.
Consider how to build a retention engine that will truly make money by looking at the brands mentioned, what drives customer behavior, what claims might be misleading, and how you can use this to create your own retention strategies for your specific market.
17 Brand Loyalty Examples Evaluated by Mechanism
1. Apple
Apple is probably the most frequently used of all brand loyalty examples. Competitors often say the reason for Apple's success is purely emotional or aesthetic. However, this is only a small portion of the entire picture.
Apple's business model revolves around being able to lock people into the Apple ecosystem. This is primarily done through "switching" costs. Once an iPhone user backs up their photos to iCloud, purchases an Apple Watch, and begins using iMessage with other users, it would take a substantial investment of time and effort for them to switch to a competitor (e.g., Android). They have a high degree of attitudinal loyalty, yet it is reinforced through the mechanisms of the technology they use.
For most small businesses, this is a strategy that cannot easily be duplicated. While customers may love your design, it cannot be assumed that this fact alone will guarantee their continued loyalty. As such, small businesses should focus on increasing the value of the product to the customer through continued use (i.e., creating value over time).
2. Nike
Nike builds loyalty based on identity/community as opposed to transactional relationships with its customers (i.e., selling them a pair of shoes). The way Nike accomplishes this is through services, specifically the Nike Run Club app and other training apps, by fostering community.
Many of their customers identify with being athletes, and they can measure their day-to-day activity using the various tools provided by Nike. This, in turn, results in zero-party data for Nike. Nike has detailed information on their customers based on the output from the Nike+ app.
They know a customer's average running frequency and goal(s) (for example, improving speed or training for longer runs). They can also estimate when that customer's shoes will most likely need to be replaced. Using this data, they create specific offers for running products based on the customer's needs.
This approach works for brands that are focused on fitness and lifestyles, and it will not work for brands that sell a utility-type product. If a customer thinks about a product once or twice a year, do not attempt to build a community around the product by influencing them daily.
3. Sephora
Sephora has created a standard of tiered membership within their Beauty Insider program. Sephora uses a points-based system; however, the value is not in points, but rather personalized product offers and exclusive access.
With every dollar that a customer spends, the customer moves to a higher tier. With each tier a customer moves into, that customer receives access to more desirable products and special behind-the-scenes events. This works because makeup is a product that a customer frequently purchases, and customers have a high emotional connection to makeup products. Ultimately, customers like to feel acknowledged.
One of the lessons that others can learn from Sephora is the collection of customer data. Sephora can make personalized recommendations for specific colors based on previous purchase history. The lesson that should not be repeated by others is to make the highest tier achievable without much effort; once that happens, it is no longer perceived to be exclusive.
4. Starbucks
Starbucks Rewards is a digital convenience/habit-based rewards program. All rewards are tracked through a mobile application that combines the ability to order, pay for and earn reward points.
Starbucks maintains a closed cash system with all of their customers' money in the application. Customers can pre-load money onto the Starbucks application, thus giving Starbucks an upfront payment for future purchases. In summary, this model works exceptionally well with high-frequency, low-cost daily purchases; however, it would not work with high-ticket items. There is no duplicating when your customers buy only one time every 6 months…
5. Amazon Prime
The Amazon Prime model is a traditional customer loyalty model. Customers pay a large upfront fee for the benefit of a year of usage.
The psychological rationale for this model is sunk costs. Since customers have already paid the membership fee, they are more likely to buy all of their products from Amazon to “get their money's worth”. This completely alters how customers buy products.
The effectiveness of a paid loyalty program is dependent upon the fact that the customer is able to perceive benefit immediately and frequently. A paid loyalty program will not work if the customer does not perceive immediate benefit for the first month of the program.
6. Patagonia
Patagonia is one of the strongest brand loyalty examples based on shared beliefs. In this case, the mechanism of value-based loyalty is the environment.
They do not utilize standard loyalty points like a lot of retailers do; but instead offer a repair program and a buyback for used clothing. The primary behavior that results from value-based loyalty is that the customer pays a premium for the product due to the fact that they believe the product is durable.
Value-based loyalty can only be utilized when the brand has an authentic mission. It will be rendered ineffective immediately if the brand claims to be mission-driven and is not executing on the promise. Customers can easily see through inauthentic mission statements to the truth.
7. LEGO
LEGO has built a community around its products which is facilitating retention of customers. Their model facilitates the co-creation of products by LEGO customers.
LEGO maintains a very active platform called LEGO Ideas where customers can submit their ideas for LEGO product designs and customers can vote on which designs will be produced as a result of the customer participation. If a product design is chosen for production, the individual that submits the idea will receive a percentage of the sales. As a result of this model, LEGO customers become very loyal to the LEGO brand because they view themselves as part of the company.
Co-creation creates intense advocacy. Co-creation only works with highly creative products. However, co-creation communities aren’t suitable for products that are primarily consumables or basic supplies.
8. Harley-Davidson
The Harley-Davidson brand has created a sense of loyalty through a feeling of social affiliation and a series of social rituals and activities. Group identity is a mechanism for creating this loyalty.
People who own Harley-Davidson motorcycles tend to join official riding clubs, attend motorcycle rallies, and purchase clothing with the Harley-Davidson logo. Social pressure to remain connected to the Harley-Davidson community helps maintain customer loyalty to the brand. A person who decides to leave the Harley-Davidson brand may lose contact with their local riding friends.
Harley-Davidson created this level of loyalty through many years of effort and through many local motorcycle events. Therefore, a significant portion of their revenue is from high-priced lifestyle purchases, and it cannot solely be attributed to digital marketing.
9. Coca-Cola
The Coca-Cola brand uses consistency to form habitual loyalty. This is achieved through a process of creating long-term memory structures.
Coca-Cola does not use reward points to create loyalty; rather, Coca-Cola has successfully built habitual loyalty through the availability of their products in every location and by maintaining the same branding (style and colour) for decades. Coca-Cola is chosen as a beverage primarily due to familiarity.
Coca-Cola’s consistent availability and branding have given it a scale that very few small brands can achieve. However, smaller brands can follow Coca-Cola’s example of consistency. They should strive to develop a strong, uncomplicated memory of their brand by maintaining the same colour, style and messaging for as long as possible.
10. Disney
Disney’s brand uses cross-property storytelling to create nostalgia in its fans. Their mechanism is the ability to span different stages of a person’s life.
A child watches Disney movies and when that child becomes a teenager, he or she will want to visit Disney’s theme parks. Many fans return to the parks and share their first visits with their own children. This emotional connection spans generations.
It is difficult to copy Disney’s method of building loyalty, since this requires owning vast amounts of intellectual property. However, smaller brands can adapt this process by building up family connections over time and providing customers with memorable local experiences.
11. KFC
KFC in the UK and Ireland has been using gamification to keep customers engaged with their brand and returning frequently. The Rewards Arcade is an app that delivers a low-fidelity game-based experience.
Reports from the vendor claim there was a 26% increase in weekly active users of the app and that 86% of the users play the game during each visit. Reports state that 24% of those who play the game make purchases more often.
These statistics are based on vendor analytics. Therefore, you must pay close attention when reading them. A game will drive initial app opens, but a game won't assure future profits. The success of gamification is limited to foodservice, where impulse purchases are prevalent.
12. Hyatt
Hyatt's Confidant Rewards is focused on supporting travel agents and travel industry professionals. Hyatt uses a B2B recognition program due to the tiered nature of the recognition.
According to vendor data, Hyatt has reported a 42% increase in loyalty program revenues year-over-year and a 43% increase in hotel bookings. Hyatt reports an increase in the percentage of hotel bookings made directly by customers (i.e., the reservation was made directly with the hotel) — from 531 to 548.
These statistics illustrate how rewarding the person who makes the purchasing decision benefits not only the customer but the vendor as well. In a B2B environment, loyalty can frequently entail rewarding the middleman/procurement officer instead of rewarding the actual end user of the product or service.
13. Dixxon
Dixxon sells flannel shirts and utilized a backdated reward program to kick-start the program when they initially created it.
When Dixxon created the program, they provided customers with rewards points for any order previously placed within a 12-month period from the store opening date (the date of launch).
The resolution of this problem is that many loyal customers frequently feel as if they have been disregarded for not receiving the same recognition of loyalty. By implementing this solution, Dixxon experienced an increase of 5,000 customer registrations in the first 24 hours post-launch.
According to the vendor, members of Dixxon make six times more purchases as compared to non-members (with a claimed return on investment of 16x). An inventive example of how to implement a program launch is to use a tier system. However, be careful when determining your 'best' customers. Most times, your best customers will become your first members because they are displaying self-selection behaviours.
14. Jordan Craig
The use of various customer incentives (rewards) and targeted segmentation formed the basis of Jordan Craig's strategy. To accomplish this, Jordan Craig uses a combination of tiered levels (or tiers) and data analytics to create an experience for customers that promotes exclusivity based on brand identity.
According to a vendor case study, Jordan Craig's program has demonstrated an increase in average order value of 12.23% and has attracted an average of 4% of customers to join its loyalty program. In addition, the customers who are members of the loyalty program have an average of 68% repeat purchase rate, while non-member purchases average only 21% repeat purchases.
To apply this knowledge to your business, you can use your loyalty program data to customize your email and SMS communication with your customers. As you learn what tier a particular customer belongs to, you can have a tailored conversation with them. However, you should always be cautious of the terms "59x return on investment" as it most often does not take into account the cost of goods sold.
15. Outwork Nutrition
Outwork Nutrition has a straightforward and simple process to follow for their cashback program. Customers earn five points for every dollar spent and can redeem those points for cash back when they leave reviews. According to reports generated by vendors, Outwork Nutrition has an average increase in the number of purchases by 19% within 30 days, 10% of customers enrolled in the loyalty program, and 75% of the customers used coupons from the program.
Supplements are different from most general merchandise because of the predictable cycle of repeat purchases. While a 30-day window is too short of a timeframe to show and prove sustainable loyalty, it provides an excellent opportunity for a short-term spike in sales.
16. Taste Salud
Taste Salud has built their tier program around the foundation of integrating their voice into the design of the program. By doing this, Taste Salud has established a mechanism of only supporting brands that align with their messaging. The naming conventions of their various tiers (Pre-Game, Happy Hour, Fiesta & After Party, rather than traditional ones such as Gold or Platinum) help further solidify the concept that the rewards program is an offshoot of the product itself.
Offering such a program doesn’t have to incur any cost to create positivity within your customer (i.e., negative sentiment often associated with a ‘typical’ loyalty program). Therefore, a rewards program that feels boring is likely to be perceived in the same way as any other bank.
Conversely, providing a legitimate uniqueness in the naming of your program that embodies the sense of special membership and elite status of a social club will produce positive impressions and connection between your customer and the rewards program.
17. SABO
The fashion industry has a unique appeal to fashion buyers because of the exclusivity that exists with their product. In order to leverage that appeal, SABO employs a system whereby there are four tiered levels within its mechanics, but the most elite (the ‘secret’ tier) is not disclosed until a customer spends a minimum amount of money each calendar year.
The ‘hidden’ status of the benefits creates an inherent interest to learn about them. Therefore, consumers are willing to spend an inordinate amount of resources simply to find out what they can’t have.
This model leverages the desire for exclusivity and unique benefits that are commonly found in the fashion, luxury, and beauty markets. Additionally, based on the high levels of desire for luxury items and aesthetics, customers find tremendous value in being able to acquire items and services that others cannot simply due to the unique recognition attached to being a member of this exclusive tier.
Aligning Your Customer Retention Program to Your Market
While it may be tempting to pivot from your traditional customer retention strategies and implement what you believe to be a universal method, you must not forget that each of your businesses has different conditions that must be met in order to create the desired result from customer retention. If you have a low-margin business, giving people a cash discount will eat away at your profit. You should focus on non-discount benefits (like brand recognition), word-of-mouth (or) referrals.
If your product has a long repurchase cycle (like cars or heavy equipment), having a loyalty program cannot force a buyer to buy sooner. You can still develop loyalty by educating the consumer over time, looking at other successful brand loyalty examples in your niche, and using messaging focused on the product life cycle, offering extended warranties, as well as premium service options.
The Measurement of Retention Success
Measurement of retention success is an area where companies fail miserably with their retention strategies.
The most common error regarding the measurement of retention efforts is using the total revenue generated by all members and saying the retention program is successful based on this number. This measurement method is incorrect.
To correctly measure retention, it is necessary to measure incremental revenue from the retention program to determine if there were incremental purchases made because of the retention program or whether the retention program only allowed companies to offer discounts to customers who were going to make purchases anyway.
Member enrollment numbers do not represent actual member spends as they do not show cancelled/member accounts or single-purchase customers.
The vendor's ROI number will typically not factor in the product costs.
Self-selected groups who are part of a loyalty program typically spend more than non-members and they are used to comparison in order to look back at historical data. Because of this, you must track active members (those who have purchased) and run a cohort analysis to see how a particular group of customers behave over a twelve-month period.
Incremental Loyalty Return is the only number that matters. You can calculate Incremental Loyalty Return to arrive at the total incremental gross profit that has been generated through the loyalty program. Subtract the total cost of the loyalty program from the generated Incremental Gross Profit and calculate the ratio of net profit to total costs of the loyalty program.
Understanding Real Program Costs
The cost of a program is higher than just paying for software, marketing & all the lost margin you gave away with discounts. If you don't subtract the costs associated with providing the rewards from your costs, then you're lying about the numbers.
The Bottom Line of Retention Economics
Loyalty isn't about amassing points; it's about a brand consistently delivering high-value, visible & distinct products.
Reward Programs: Helpful or Just Filler?
A rewards program is simply a way to give more exposure to a product. If your core product is weak, your customer service is slow & your shipping is late, no incentives will entice the customer back.
Instead of looking at retention as just a software solution, companies should view retention as an inevitable outcome of running an excellent business model.
Exposing Your Retention Leaks
Why do companies with high amounts of member sign-ups often see no increase in overall company sales?
It's easy for marketing departments to inflate numbers by creating a database of members at checkout by forcing the creation of an account. Most of these members have absolutely no desire to return.
They diminish your metrics. They cost you money to store in your software, as well as to market to through automated messages, but return no incremental buyer behavior. Sales increase only when your incentive mechanism prompts changes in a buyer's purchase habits with relevant prompts.
How can collecting zero-party data damage initial sales?
Brands attempting to build comprehensive customer profiles usually cause consumers to perceive significant effort to make their first transaction, which results in many customers dropping out of the buying process. Many customers will abandon their carts after companies ask for their birth date, fashion preference, and lifestyle habits before making any purchase.
The most effective data strategies ask for profile information after successful delivery of their first item & frequently allow customers to earn rewards for fulfilling their profile.
What is holding mid-size brands back from developing community models similar to larger companies?
Community management takes dedicated resources; the mid-market does not have personnel dedicated to consistently moderating & nurturing an active community. Companies copy many successful large brands like Harley-Davidson and LEGO by developing a forum or social media site to create community affiliations.
However, after about a month those websites become either inactive, or full of spam.
Developing a real community requires a significant amount of paid employees, continual quality content & good product that encourages interaction between customers. Without these resources, building a forced community will actually harm the brand image.
Why can average purchase amount increases alone be a poor indicator of a program's success?
By leading customers to add more items into a single cart in order to reach a reward threshold, a successful loyalty promotion may cause a customer to lose future purchase opportunities.
Customers may purchase three products instead of one today but may not return for a full year. Additionally, many loyalty promotions have been constructed with significant discounted values associated with the requirement to make higher purchases first.
When reviewing purchase amounts, an increase in the average amount per order may lead to a decrease in total annual profitability, which is one of the most common areas of failed returns in retention-focused marketing campaigns.