Referral vs Loyalty vs Membership: Which Retention Strategy Should You Use?
Customer retention isn’t one-size-fits-all. The three most powerful strategies—referrals, loyalty programs, and memberships—each have unique strengths.
So which one should you use? Let's break it down.
1. Loyalty Programs
What it is:
Customers earn points or rewards for making purchases or completing actions.
Best for:
- Increasing purchase frequency
- Rewarding repeat customers
- Boosting customer LTV
Pros:
- Encourages consistent buying behavior
- Familiar and easy to understand
- Works across industries (DTC, fashion, CPG, etc.)
Cons:
- Can become expensive without good controls
- Often needs tiers or gamification to stay interesting
When to use it:
You want to increase repeat purchase rate and have high purchase frequency (e.g., beauty, supplements, fashion).
2. Referral Programs
What it is:
Customers refer friends and get rewarded when those friends buy.
Best for:
- Acquiring high-quality new customers
- Leveraging word-of-mouth
- Building a viral loop
Pros:
- Scalable CAC (you only pay when you gain a new customer)
- Great for social/viral products
- Builds community
Cons:
- Not all customers will refer
- Needs trust + a smooth referral UX to succeed
When to use it:
You want organic growth with high trust. Also great when you have product-market fit and happy customers.
3. Memberships
What it is:
Customers pay or opt into a program for exclusive perks, access, or benefits.
Best for:
- Creating brand loyalty and exclusivity
- Offering gated content, perks, or discounts
- Monetizing loyalty itself
Pros:
- Recurring revenue
- Great retention lever
- Adds “status” and community feel
Cons:
- Requires clear value proposition
- Can be harder to scale if perks are manual or costly
When to use it:
You want to create a premium experience or monetize your top fans. Great for brands with strong community or high perceived value.
So... Which Should You Use?
Goal | Best Strategy |
---|---|
Increase repeat purchases | Loyalty |
Acquire new customers | Referrals |
Build community + margin | Membership |
Do it all | Combine them |
Bonus: Combine All Three with Toki
Toki lets you run loyalty, referrals, and paid memberships in one seamless system—fully integrated with Shopify.
No need to choose. You can launch a full retention engine with flexible automations and modern design.
Final Thoughts
There’s no single right answer—just the right strategy for your brand. Start with your goal, then layer in the strategy (or combination) that supports it best.