How to Launch Effective Customer Loyalty Programs for eCommerce
Customer loyalty programs help grow the number of returning customers, and, ultimately, boost sales for your eCommerce business.
Learn how to choose the right program for your business, and how to execute it effectively.
As customer service guru Shep Hyken once said, “There is a big difference between a satisfied customer and a loyal customer.”
Yes indeed, Shep. But what exactly is the difference?
Just because a customer enjoys your eCommerce business’ products doesn’t mean they’re going to keep their shopping exclusive to you. Someone else might offer a better price or better shipping options. So how do you keep your hard-won customers and not lose them to the competition?
The answer: customer loyalty programs.
Businesses use loyalty programs to reward customers for consistently choosing them. The programs themselves should inspire customers to shop with you over your competitors. Yes, even when it might be more convenient to shop elsewhere.
Think this doesn’t work? A full 71 percent of customers say loyalty programs improve their relationships with brands.
Loyalty programs have a lot of benefits for businesses. To name a few:
- They enhance a customer’s identification with your brand
- Increase sales
- Stimulate brand advocacy
- Inspire lost customers to shop with you again
Turning a customer into a loyal one isn’t easy and the competition is particularly high for eCommerce businesses. A winning loyalty program can help you thrive in the online sales world.
In this article, you’ll learn:
- Why you should invest in a loyalty program
- Different types of loyalty programs
- Examples of how to grow your business with loyalty programs
- Insider’s tips to make your loyalty program shine
Why Customer Loyalty Matters
If your attitude is, “Big deal, let them shop with the other guy. I’ll just keep bringing in new customers,” expect to start losing business rather than gaining it. Wooing new business is costly. However, it’s easy for businesses to measure the costs of customer acquisition (CAC).
On the other hand, the lifetime value of a customer (LTV) is a more complex calculation. That means that many businesses ignore the value of returning customers because they’re not able to crunch the numbers.
One thing is clear, however: the real value is in returning customers. Businesses that focus on customer acquisition ignore customer retention at their peril. Business analysts repeatedly emphasize this.
That’s because returning customers spend more money, are easier to sell to and are more likely to become brand advocates. The math says it all:
- On average, it’s five times more costly to attract a new customer than to maintain a returning one.
- The odds of making a sale to an existing customer is 60-70 percent vs. only 5-20 percent odds for a new customer.
- Returning customers produce 23 percent more revenue and profits than new customers.
Put simply, returning customers are an eCommerce’s bread and butter. And loyalty programs are an important tool in ensuring brand fidelity. By rewarding customers for coming back, you’re telling them that you value the relationship with them.
What Kind of Rewards Should I Offer?
Ok, so now you understand how important it is to retain your customers with a loyalty program. But what kind of rewards should you offer your customers? There are lots of possibilities:
- Free stuff
- VIP access to new merchandise
The sky is the limit. The important thing is to know what your customers like and give it to them through your loyalty program.
How to Structure A Winning Customer Loyalty Program
If you haven’t got a clue how to structure your loyalty program, read on. You’ll find out what top brands do to keep their customers coming back. You’ll also find out which kind of system would be appropriate for your business and see some customer loyalty program examples.
The Points System
The points system is a popular type of customer loyalty program. It works like this: for every purchase a customer makes, they acquire points. Many customers like this system because it’s easy to understand.
The idea is that the more you spend, the more points you earn. Customers then have the incentive to keep shopping with your brand in order to rack up more points.
Sephora’s simple point system is a winner with customers. It allows them to redeem their points for their favorite products or for discounts.
This type is perfect for businesses that cater to frequent purchases of low-cost items. It gives customers a sense of immediate gratification – a dollar spent is a point earned. Top tip: offering free shipping for customers redeeming their points is a great way to earn extra loyalty.
The Tiered System
This system is more popular for high-end brands that sell big-ticket items (but not always – see Victoria’s Secret example below). The tiered system encourages customers to either a) buy a big-ticket item or b) buy more frequently to get pushed into the next tier.
Tier systems work for customers who have a long-term investment in the brand.
Instead of merely trading points for merchandise, the tiered system offers other types of benefits. Bigger discounts, first in line for newly released products, invitations to showcases or events and other perks.
This type of loyalty program really encourages longevity. With the points system, you can keep earning and spending points. A tiered program, on the other hand requires a longer commitment to see results.
Sometimes companies mix a points system with a tiered system. This combines the immediate gratification of the points with the long-term commitment of the tiered system. That way customers get the best of both worlds and you get a customer who is in for the long haul.
Paid Membership System
Amazon Prime is the most famous paid membership loyalty program. Prime members get a long list of benefits including fast and free shipping and music, movies and shows streaming. They even get food delivery in certain locations.
This type of VIP paid membership definitely inspires loyalty. If a customer has to pay to be part of the club, you better believe they’ll want to get all they can out of their membership.
Prime members are Amazon’s big spenders. According to a report by Consumer Intelligence Research Partners, LLC, Prime members spend an average of $1,500 per year. Compare that to $625 per year from non-Prime Amazon customers.
Depending on what kind of business you have, one or more of these systems could be right for you. Again, many companies combine systems to great success. You design your loyalty program based on customer response and preference.
The Insider’s Tips
What else do you need to know to design your best loyalty program? Here are some insider tips from the best customer loyalty programs:
Your customer loyalty program needs to be branded. That means that everything about the program from the images to the language should all look and sound like your brand.
For example, Victoria’s Secret uses a tiered loyalty program where members have an “Angel Card”. The Angel Card has three different levels. There’s the standard Angel, Angel VIP and Angel Forever.
The image below is highly recognizable – from the pink hearts to the branded images on the cards, everything about it says Victoria’s Secret. Your loyalty program should reflect your brand’s image. That way, you give them more of what they love: your brand’s look, feel and style.
We live in the age of personalization. That’s because technology has evolved to allow us the most intimate details of our customer’s preferences. We know their purchase histories, geographical location and their likes and shares on social media.
Today, customers respond to brands who demonstrate mastery of personalization.
In a study by Wunderman, 56 percent of customers feel more loyal to brands who “get them”. That means understanding their priorities and preferences.
So, how do you communicate with your loyalty customers in a personalized way? Here are some must-dos:
- Say it with a text. Nothing’s more personal than your customer’s smartphone. Today, many customers prefer receiving promotional texts from a business. So make sure you give your customers the deals they want on the device of their preference. It’s easy and convenient for the customer.
- Always use the customer’s name. A “Dear Mary” sounds friendly while a “Dear Valued Customer” sounds like a used car salesman. You know their name, so use it.
- Make your offers relevant. Don’t waste time shooting blanks. Target your customers by knowing what they like.
You wouldn’t send an email or text with a coupon for a free pint of ice-cream to a customer who consistently buys lactose-free products. Or offer discounts on anti-aging products to a customer in her 20s. Make sure the offer is something they would use based on their purchase history.
- Speak to their demographic. Customize your emails to reflect where your customer lives, their age range and interests. A professional in his 50s from New York wouldn’t talk the same as a teenager from L.A. Speak your customer’s language to make them feel like your brand “gets them”.
Give Them Experiences
Experience is the buzzword of the decade. In fact, experience-based businesses like hotels and restaurants have been booming. But, apparel has seen a decline of 18 percent since 2016.
This is particularly negative for eCommerce businesses. But instead of seeing an obstacle, find an opportunity.
A loyalty program that links rewards with experiences can give customers what they crave. Consider partnering with a travel agency, events agency or directly with an airline or hotel chain. That way, you can offer discounts on flights, hotels, events tickets to VIP clients. That will drive those experience-thirsty customers to your site!
Promote Social Awareness
Millennials and Gen Zs tend to offer their loyalty to brands who demonstrate social concern. The shoe brand TOMS got its start by offering to give a pair of shoes to someone in need for each pair of shoes they sold. Since then, the brand has expanded its social reach.
Today, TOMS customers support clean drinking water, maternity care and anti-bullying campaigns. They offer a range of products that support a variety of causes. The ad below helps promote programs to protect elephants from poachers.
When a brand delivers values and not just a product, customers who share those values will naturally want to support that company. That’s because they know their money is helping causes they believe in. That shared concern forms a strong bond between customer and retailer.
Some brands offer incentives for loyal customers to become brand advocates. Referral programs that reward customers for getting friends to sign up increase customer loyalty.
In order to tell friends and family members what’s so great about your product, they’ll be reliving their own experience. This reinforces their connection to your brand.
In the case of Mizzen + Main, a men’s casual wear company, they’ve taken the brand advocate system one step further. Their best customers help their design process by working with their innovation and VIP team.
Imagine having such a strong connection to the very development of your favorite product. It will not only make you a lifetime customer, but it will also reverberate throughout your circle of friends, family, and colleagues.
Smart eCommerce businesses know the value of customer loyalty. They also know customer loyalty programs increase retention.
Your to-do list:
- Figure out which type (points, tiered, paid or a mix) works best for your customer base and business.
- Apply those insider tips making sure your loyalty program is branded and personalized.
- Add some experience-based benefits and social awareness to the mix, if appropriate.
- And enjoy the benefits of having your best customers become your brand advocates. Let them spread the news about your great products to their circle of friends and family.
There’s an important point for you to remember. You’ll have to do some research, beta test, find out what works and what really doesn’t work. The fine-tuning is a consistent process for those whose loyalty programs really shine.
Have you already started a loyalty program for your eCommerce business? What tips can you share that work best for you?