Customer loyalty programs can go a long way toward helping you improve customer retention because they provide a low-cost incentive for existing customers to continue buying your products and services.

Customer loyalty programs come in a wide variety of shapes and forms. It's up to you to decide which one is right for your business. With that in mind, here are some of your options:

1. Prepaid Discounts

Prepaid discounts offer customers a reason to buy a certain amount of product or services in advance. For example, a bagel shop could run a baker's dozen discount, offering customers a punch card good for thirteen bagels. The cost of the punch card would be equivalent to the normal price of a dozen bagels, thus rewarding the customer with a free bagel for buying twelve in advance.

2. Buying Level Discounts

Buying level discounts are very similar to prepaid discounts with one difference - instead of being rewarded for buying products or services in advance, the customer is rewarded once they reach a certain level of purchasing. Going back to our bagel shop example, the customer would still use a punch card. But instead of paying for a dozen bagels in advance, the bagels would be purchased as needed and the free bagel reward given after the punch card has been "filled" - indicating that the customer has reached the twelve bagel threshold.

The disadvantage of buying level discounts is that they have become so commonplace that many people won't participate in them simply to avoid cluttering up their wallet or purse. The key is to make the reward enticing enough that they can't refuse.

3. Membership Programs

Some retailers have been very successful at using membership programs to attract and retain customers over a long period of time. Membership-based retail operations (think Sam's Club and BJ's) leverage their buying power to offer discounted prices - but only after the customer has demonstrated his loyalty by becoming a member. Admittedly, membership-based retail is not right for every business. But you might want to consider offering a membership discount option as a way to reward committed customers.

4. Upgrades

Upgrades are another cost-effective way to reward customer loyalty. In most cases, the costs of upgrades are negligible compared to the feelings of goodwill they create in your customers. Airlines have been using upgrades for years, offering passengers a bump up to first- and business-class as rewards in their frequent flyer programs. These upgrades don't cost the airline anything since the number of people paying full fare for the better seats is rarely enough to fill them. However, by using upgrades as a reward, the airlines are able to keep their customers coming back time and time again.