Customers are signing up for loyalty programs at an increasing rate. A new report from Colloquy shows 3.3 billion people are enrolled in loyalty programs as of February 2015. That’s a 26% increase from 2013. Considering the popularity, it begs the question: What do customers really want out of a loyalty program?

From free merchandise to exclusive offers, what kinds of rewards attract and maintain customers the best? We’ve got the answers. With a little help, you can create an irresistible loyalty program.

Offer Enticing Rewards

Impressive rewards are the cornerstone of your loyalty program. According to a worldwide study by eMarketer, the most attractive offers in the U.S. are free products, gift certificates or cash back for frequent purchases. Product discounts and free shipping are also high on the list.

What do these rewards look like within your loyalty program? Here’s a list of popular reward examples:

• Double rewards/points
• BOGO (buy one, get one free or at a discounted price)
• Free upgrade with purchase
• Free item with purchase
• Particular dollar amount off
• Percentage off entire store
• Percentage off particular item (e.g., 25% off 1lb of coffee beans)
• Discounted items (e.g., $1 pastry)
• Deals on a group of items (e.g., 50% off one pastry, sandwich, or soup)
• Day of the week deals (e.g., Wednesday only specials)

Depending on your business, you can pick and choose which rewards are a good fit.

Download our free customer loyalty success guide to learn how to drive customers back 2x more.

Develop a Reward Structure 

An effective loyalty program isn’t just about what goodies you give away; it’s about how and when you give them away. You need to structure your program to keep customers happy, while at the same time, watching your profit margin.

The best solution is to create a simple, tiered rewards system. You start out with small, obtainable rewards that customers can achieve easily. Then gradually up the ante. The more customers purchase, the better the rewards.

At Fivestars, we suggest setting up these three tiers:

• First tier = Point Burners

The first reward should be something customers need often and can redeem easily. This not only attracts people to your program, but it also provides an instant incentive that encourages customers to come back.

• Middle tier = Loyalty Creators

This reward gives customers a popular or staple item after shopping frequently at your store. It keeps customers interested as they work their way to being one of your most valued customers.

• Last tier = Intangibles

This reward is the toughest to get and is reserved for the most loyal customers that frequent your business. Since you’re catering to frequent customers here, you can offer exclusive deals or double points on purchases.

Need an example? Let’s say you own a boutique and your rewards program offers one point for every dollar spent. Start off with a quick, easy-to-get reward. For example, a customer who accumulates 150 points gets a free pair of earrings. That’s the Point Burner. With an additional 150 points, the customer gets a free t-shirt. That’s the Loyalty Creator. With 500 points, a customer gets $50 store credit. Only the most loyal customers will reach this goal. It’s the Intangible reward.

The idea is to set up a system that provides enough incentive to make customers return.

Provide Exclusive Rewards & Priority Service

Sure, a lot of people join loyalty programs to get free stuff. However, customers also desire exclusivity and top-notch service. According to eMarketer, surveys found that, aside from free products and discounts, customers want exclusive access to sales, higher priority service, and elevated status. Offering a VIP status program can achieve just this.

What kind of efforts are customers willing to make to earn elite status? According to a report by Colloquy, customers are willing to buy promotional products to earn bonus points, purchase items more frequently and only shop at the businesses that are affiliated with the rewards program to maximize points.

In each status level reward customers with special features, the ability to earn more points, more personalized customer care, access to new products or upgrades, invites to events, the ability to share discounts with friends or family, exclusive deals, and/or luxury items that are reserved for the most loyal customers.

According to survey results by Mintel, more than one-third of Americans are drawn to loyalty programs due to the exclusive deals and coupons.

Additional tips to keep customers happy

• Keep members up-to-date on points and status

Always provide customers with their points balance and status at checkout. Let them know how close they are to their next reward, and encourage customers to use an app that shows points accumulated.

• Offer a good deal

If you offer a discount or a coupon, it should make the customer feel like they’re getting a good deal. However, to keep your profit margins in check, it’s a good idea to include a stipulation like $5 off a purchase of $30, or a free dessert with the purchase of any entrée.

• Don’t require a card

You can give customers a rewards card, but they shouldn’t be required to show it. Your loyalty program should allow customers to check in or redeem rewards using additional methods such as a phone number. Customers want hassle-free memberships with limited maintenance.

What kind of rewards do you offer customers? Tell us what works for you in the comment section below.