3 Types of Loyalty Apps For Brands, Retailers and App Developers

In-app rewards can significantly increase user engagement. Rewarding users for staying loyal inspires them to come back to an app again and again.

In our article about gamification dynamics in mobile apps I already talked about rewards as a user retention strategy. Generally speaking, there are two types of rewards: digital rewards and physical goods. In this article we’re going to talk about various loyalty rewards programs based on physical goods.

Loyalty apps can be developed for an individual retail business, as a marketplace for daily deals, or as a loyalty platform for brands.

Loyalty app for retailers

Letting customers earn points within a branded mobile app encourages customer loyalty to your product or service. Points can be used as in-app currency that can be collected and exchanged for a reward.

In order to deliver value to your customers, you should know their needs and understand their expectations. This is hard to figure out initially, so you should take some time to perform customer research and analyse user interaction with your app. Loyalty programs only bring meaningful results after you know your customers and how they use your app.

Despite the fact that loyalty rewards systems are widely used by retailers, many believe that theseprograms are unsustainable as a business model, especially in low-margin businesses or industries.

Starbucks loyalty program

However, some businesses definitely benefit from app-based loyalty programs. Starbucks comes to mind as a bright example of an extremely successful loyalty reward campaign. Starbucks uses starsas in-app points. Earn enough stars and you get a free drink — under one condition. You must pay with a registered Starbucks, Teavana, or La Boulange card, or with the official Starbucks app. By rewarding their most frequent customers and letting users send eGifts to friends via email, Starbucks mobile loyalty app offers a personalized service, that is appreciated by their customers.

Loyalty cards and mobile payment

Starbucks allows you to pay with a card or a mobile device, keeping their service up-to-speed with the latest technologies and encouraging customers to use their loyalty program. In truth, most loyalty programs — such as those commonly used by grocery stores — are rather inefficient. Starbucks made their loyalty card program work with the help of the humble gift card.

Starbucks thought they could offer precisely the gift (card) you needed for your venti-latte-with-soy-loving friend. But it turned out that within the first year, 75 percent of Starbucks loyalty cards were actually being used by the original purchaser!

Starbucks also recognized that their customers prefer credit card payments over cash payments.So they created a speedy alternative to swiping credit cards through payment terminals.

The Starbucks one-touch mobile pay system makes it easier for users to pay for their coffee and reduces in-store queuing times considerably. All that customers need to do is simply scan an on-screen barcode at the point of sale. Starbucks keeps their app connected to the existing loyalty cards already familiar to customers.

LevelUp is another mobile payment system that supports app-based loyalty campaigns. Their system allows local businesses to accept mobile transactions using NFC, iBeacon, and QR Code technology, and is powered by Braintree payment gateway. To pay with LevelUp, users scan a QR code displayed on their phone at LevelUp terminals.

LevelUp charges businesses a 1.95 percent flat commission for transactions, and offers a number ofloyalty campaigns. Campaigns can be customized for different applications and serve various purposes from customer acquisition to surprise rewards.

Read also: Which payment system should you integrate into your app?

Marketplace for daily deals

There are many marketplaces for daily deals, including the well-known Groupon. Creating such a marketplace requires partnerships with local retailers, who must be persuaded of the benefits of daily deals as a brand promotion and customer loyalty strategy.

Groupon

Groupon offers one coupon (or “Groupon”) per day in each of the product category it serves.Offers are only fulfilled if a minimum number of customers sign up, meaning that if demand is too low then no one actually receives the deal of the day. Groupon makes revenue by keeping half of the money paid by the customer for a coupon. For example, if a customer purchases a $30 Groupon for a one-hour massage (regularly valued at $60), then Groupon keeps $15 and the business offering the massage gets the other $15.

Groupon’s suite of services for merchants includes not only customizable deal campaigns, but also credit card payment processing capabilities and point-of-sale solutions powered by Breadcrumb POS system that runs on iPad.

Downside of the loyalty business model

Loyalty programs are not all successful. The business model of Groupon has frequently been criticized on various grounds. Some customers have complained of poor service due to a large number of customers purchasing the same deal. When it comes to physical products, small businesses might not have enough inventory to meet demand.

Groupon’s idea provides merchants with tools to promote their services and encourage sales, whether they’re offering discounts on food or lower rates on vacation packages or hotel rooms.

However, offering unbeatable deals does not always result in customer loyalty. Groupon often attracts one-time bargain hunters, who are neither interested in shopping with the merchant on a regular basis nor paying full retail price.

Loyalty platforms for brands

Brand loyalty apps are a form of brand promotion. In other words, the app works across a number of retailers, offering rewards from a specific brand (Nike, for example). With this model, customers generally collect in-app points by making purchases at retail stores.

There is some speculation as to whether retailers actually benefit from these types of third-party apps. On the one hand, third-party apps bring a loyalty platform to a brick-and-mortar store without need for a retail store to develop their own costly mobile application. On the other hand, the app customers are using isn’t promoting the retail store’s own brand. In other words, the relationship is between customers and a loyalty platform, not between customers and a retail store.

What’s more, loyalty platforms collect customer data and can potentially provide this data to retail competitors.

Shopkick

Shopkick, a mobile commerce loyalty app, is an example of a loyalty platform that keeps customer data to itself. It shows customer data to retail partners only after that data has been anonymized and aggregated: Skopkick doesn’t give out any identifiable user data. As long as Shopkick works with multiple retailers, it may sweep away the users from the branded retailers’ mobile app to their own loyalty platform.

But from the point of view of a loyalty platform developer, Shopkick is a pretty good idea. It provides kicks (points) for walking into stores, scanning items at stores and making purchases. Users can redeem their points for gift cards from various retailers, as well as iTunes song downloads and movie tickets. Customers can also receive special discounts on specific products at specific stores.

Shopkick earns money for each kick a customer earns. It also collects a percentage on each purchase made after a customer uses the app. The precise percentage of this commission is undisclosed.

If you can’t build a loyalty platform, use an existing one

Sometimes it might make sense to use an existing loyalty platform that offers partnerships with a large number of brands. Punchcard is a location-based shopping app that lets customers redeem rewards from retailers and brands — including major brands like iTunes and Amazon — in exchange for points that customers collect by taking photos of their receipts.

Punchcard partners with mPOINTS loyalty program to reward their users. mPOINTS works with anumber of apps that attract users to their content by giving them a chance to earn a rewards in the form of gift cards, charitable donations, merchandise or a contest entry to win an iPad or a Kindle. Points can be earned for tracking a run in a fitness app, engaging with in-app advertising, finishing a game level, checking in at a point of sale and more.

Loyalty programs are usually associated with commerce. But who said that your fitness app, for instance, can’t reward users for tracking runs?

EveryMove does this pretty well with their proprietary points system that makes it easy for different health and fitness brands to promote themselves by rewarding users.

You can find more mobile loyalty platforms here.

Read also: Dating app development with music discovery features

In order to reap the full benefits of customer loyalty, consumer-facing businesses must create a differentiated experience, consistent with their brand and tailored to specific customer needs.

Originally published at yalantis.com on October 22, 2014.