The Beginner’s Guide To Customer Loyalty Programs

Selling on your own website gives you one huge advantage vs. selling on marketplace sites like Amazon or Etsy:

Repeat sales from loyal customers.

The first sale to a customer matters, but if you really want to make your ecommerce business a success, you need to focus on the 2nd, 3rd, 4th….you get the idea. As the infographic shows, it is 6-7 times more expensive to acquire a new customer than it is to keep one. Your bottom line won’t love you for chasing new customers.

Customer loyalty programs work, but most businesses get it wrong.

In our Beginner’s Guide you’ll learn:

• What a customer loyalty program is and how it can impact your brand’s bottom line
• The different types of customer loyalty programs
• How to design a rewards program that attracts the right type of buyers
• The best way to launch, promote and measure your loyalty program

Click on the infographic below for full size image, tweetable stats and sources.

Hopefully, you’ve taken great pains to make sure your user experience is excellent. There’s more to keeping a customer than making them happy during their first sale, though. You need to entice customers to return. That’s where customer loyalty programs come into the picture. They’re easy to set up and enrolling customers isn’t that hard.

What is a Customer Loyalty Program?

A customer loyalty program is a relationship between a brand and customer. The company offers exclusive products, promotions, or pricing; in return the customer agrees to “go steady” with the business through repeat purchases or brand engagement.

Before you get started, make sure your goals are clear and you’re doing it for the right reasons. If you design a customer loyalty program around discounts, you’ll attract cheapskates and your program will more than likely fail. In fact, 77% of these transaction-based programs fail in the first 2 years.

The goal should be to attract the right customers, and create profitable long-term relationships with them. But if you focus too much on the money and have no intent of understanding your customer and meeting their needs, you’ll fail.

Ready to get started designing a killer customer loyalty program?

Ok, let’s dive in!

Types Of Customer Loyalty Programs

Points Programs

Loyalty point programs let customers accumulate points that they can redeem for rewards or free products/services. They’re so easy to set up that 73% of loyalty programs are points based, making this the most popular type of loyalty program by far.

A lot of ecommerce businesses struggle to get customers in the virtual door. If that’s a problem that’s keeping you up late at night, referral marketing can help. And you can take that to the max with points-based loyalty programs.

Not all points are tied to money transactions – some may be earned from social sharing, emails, or other actions customers take to drive traffic to your site. In fact, your loyalty program shouldn’t be purely transaction-based. Get your best customers to send you more business and reward them for helping you.

9WLOVES (Nine West)

Nine West makes their point system clear. $1 = 1 point. It doesn’t get any simpler than that. We love that they give surprises to customers on their birthdays. Who says only kids can get free stuff on their birthday?

IHG Rewards Club

IHG keeps their rewards site user-friendly and provides plenty of ways for members to earn and redeem points. Travel and hospitality companies have some of the best loyalty programs around. Study them to improve yours.

ToyZoo Rewards

Talk about a user-friendly explainer page – ToyZoo has a well-designed, easy to understand rewards program. It’s success is no surprise.

Pros

• Tangible value for the consumer
• Flexible and customizable
• Can drive desired consumer behavior
• Easy to understand
• Lots of loyalty program apps and software to choose from
• Avoids price discounting

Cons

• Point program operation can be confusing
• Need to be clearly explained
• Might require a catalog or separate redemption site
• No “instant gratification” (gamification can fix this)

Thanks to the ease of use and customizability of points programs, they’re perfect for most ecommerce business, regardless of size or target market.

Spend Programs

In spend programs, customers get loyalty credit for the amount they spend at your business. You can use similar discounts without an upfront email capture to keep customers coming back, but you’d lose out on a lot of valuable information (and a captive audience!). This kind of program is very easy to understand, create, and maintain. They’re an effective way to cut your churn rate and increase transaction amounts.

Kohl’s Yes2You Rewards

Kohl’s dominates cash-back rewards for brick and mortar, and they’ve carried the same strategy over to ecommerce beautifully with Yes2You Rewards with a simple to understand, mobile-friendly system that offers clear benefits.

Shop.com Cashback

Shop.com’s Cashback program is introduced beautifully with an opt-in popup that illustrates the programs benefit to the user and maximizes conversions.

Fawn & Forest Rewards

Although the page layout could be better, fawn&forest beautifully explains how their program works. Design can make a major difference, however. Don’t waste space like this on your explainer page. Make sure you’re optimized for mobile AND computer use.

Pros

• Tangible value
• Intuitive rewards system
• Encourage repeat business
• Increase transaction amounts
• Easy to set up
• Easy to maintain

Cons

• May not let you gather as much data as other types of loyalty programs
• Can decrease perceived value of products/services
• Higher cost to your business

Spend programs are a great option for retailers in fast fashion or other, similar industries that rely on high numbers of transactions and retail products with high markup.

Tiered Programs

An improved version of points programs, tiered loyalty programs give customers rewards based on different levels of spending or points. They are growing quickly in popularity because they can be highly targeted and customized easily, and customer segments can be target pre and post-payment In some tiered programs, customers are offered gifts, free products/services, privileges, or exclusive products.

GILT Insider

To introduce their Insider program, the GILT Group posted a press release. Smart move, and a great way to let existing customers know about the program, especially if you link to it on your homepage.

Sephora

Sephora clearly illustrates the benefits of each tier in a fun and easy to understand way. Scroll down the page for each tier, and you’re presented with beautifully illustrated reasons to signup – the most attractive level is, obviously, the VIB Rouge.

Best Buy

Best Buy provides an easy to understand chart for potential rewards members, complete with details on how to qualify for each level.

Bulletproof Coffee

Bulletproof coffee makes their program tiers easy to understand, although the point quantities might be a big daunting for some customers.

Pros

• Decreases churn rate for most valuable customers
• You don’t invest in low-end customers (saves you cash!)
• Uses gamification to motivate customers to higher levels

Cons

• Unlikely to draw new site visitors into joining on the first visit
• Not universally appealing (great for targeted campaigns, but not as a general, stand-alone strategy)
• More complicated to set up

Tiered programs are great choices for e-commerce service providers, luxury retailers, and companies in the travel and hospitality industry.

Paid Programs

Paid loyalty programs provide an exclusive feel by incorporating a monthly or yearly fee that members pay for access to special services, discounts, or unique opportunities. Although the customers these programs draw may require more coddling, the increased transaction value is substantial. The program’s barrier to entry draws prospects further into your marketing funnel, and provides an incentive to continue making purchases on your site.

Amazon Prime

To overcome the barrier to entry, Amazon Prime offers a 30-day free trial for new members. They’ve also found ingenious ways to market the program as part of the checkout process, on pop-ups, and even incorporating “try prime” into the Amazon logo on every page.

Newegg Premier

Newegg has largely copied Amazon’s placement techniques for program enrollment, but they’ve mastered the visual approach to benefits with an attractive, flat design and intuitive images.

Pros

• Higher spend per customer
• Easy to understand
• Provides additional (ancillary) revenue stream
• Highly-targeted
• Value is obvious to subscribers

Cons

• First-time visitors most likely won’t see value
• Barrier to entry may dissuade some customers
• May require increased customer service efforts

Paid programs are perfect for larger retailers, and also make a smart pick for luxury product and service sites. Information businesses can also make good use of this loyalty program model.

Punch Programs

One of the simplest and oldest loyalty program designs, punch programs are extremely popular in brick and mortar businesses, but their adoption in e-commerce isn’t as prevalent. The idea behind punch cards is that customers are rewarded for purchasing a particular product or service with “punches.” One punch is given per purchase. After a set number of punches are collected, they receive a product or service of equal or lesser value free of charge.

Hotels.com Rewards

Simplicity in action. This is easily one of the best punch card rewards programs in e-commerce, with a beautiful explainer page.

L’Oreal Gold Rewards

Another beautifully simple program, but one problem – if L’Oreal weren’t such a household name, that sign-up form would send customers running. It’s asking for way too much.

Pros

• Easy to track online (potential advantage over brick and mortar punchcards)
• Familiar program model for customers
• Can be highly targeted or appeal to mass customer base
• Low implementation cost

Cons

• May decrease perceived product/service value
• Common target of loyalty program fraud

A great choice for new loyalty programs, but tracking data and preventing fraud can be an issue. Ideal for experience-based industries like travel, although they work well with consumer goods that are high value and high consumption, too.

10 Tips For Launching A Reward Program

Launching a reward program is an important step in growing your business, and one you don’t want to mess up.

1. Keep it simple

If your program is a hassle to use or difficult to understand, it won’t be used. Simplicity and predictability is key to creating a trust-based customer experience.

2. Start with your existing mailing list

You already have loyal customers. They like you enough to join your mailing list. Use that to your advantage and make them feel special at the same time by offering them a chance to be the first members of your loyalty program. You can iron out the kinks and make sure your program is perfect with the help of an audience you know will be receptive.

3. Make it easy to join

Ask only for the information you really need. Loyalty programs can be great lead capture incentives, but no one wants to share their life story with an ecommerce retailer.

An email capture, and maybe your customer’s name and birthday (if you offer something special to help them celebrate, like a discount), are all you really need at this point.

4. Make earning rules simple

If no one understands how to earn in your program, they may ignore it. The simpler the rules are, the more likely your customers are to actively try to earn.

5. Make spending rules simple

Once again, simplicity is huge. If customers have to jump through hoops to spend, they may feel that your loyalty program isn’t such a great deal, after all. Even if they loved the simplicity of earning, and your company.

6. Launch in digestible chunks

Noticing a theme here? Don’t overwhelm your program members. Launch the program in easy-to-understand chunks so that each part of it feels like a natural progression from the previous step.

7. Don’t overwhelm customers with options

Keep your rewards transparent, worthwhile for your customer, and easy to use or acquire.

8. Have your end goal in mind

You started your business with a solid foundation – a business plan that helped you see the viability of your vision and a clear path to your goals. The loyalty program deserves equal attention. It’s the path to keeping your customers, and your bottom line profitable.

9. Use automation

You focused on simplicity for the customer. Don’t forget simplicity for you, too. Automation can reduce the workload on your end, while helping your customers to feel appreciated and in touch with your business. That personal touch is important. Speaking of which…

10. Make it about your customer, not about money

From the rewards you offer to the way your program feels to the customer, make it about them. If you’re only thinking about earning on your end, you’ll miss the mark and you might destroy your credibility with the customer in the process. People crave a personal connection, even (or perhaps more so) in e-commerce.

Why Online Rewards Programs Fail

Reward and loyalty programs sound like the key to instant success so far, but most fail spectacularly. According to Cap Gemini, 89% of social media sentiment regarding loyalty programs was negative.

Sure, people are more likely to talk about things they don’t like, but that’s a startlingly high statistic.

Cap Gemini reported that the key reasons for negative social media sentiment about loyalty programs were:

• a lack of reward relevance, flexibility & value (44%)
• a lack of a seamless multi-channel experience (33%)
• customer service issues (17%).

That gives you a few places to strengthen your loyalty program before you launch it, but there are more steps you can take to make sure it’s a hit, too.

How much do you like colonoscopies? Yeah….not many people could call them enjoyable. Make sure your sign-up form doesn’t feel like one to your customers. Asking for too much information is something that 38% of people feel loyalty programs do, according to Bond Brand Loyalty. Coupled with the lack of personalization and dynamic loyalty program content that plagues many loyalty programs, you’ve got a recipe for failure.

Another common cause of loyalty or reward program failure is focusing too much on just the transactions that bring you revenue.

Sure, you need to keep your bottom line in mind, but a loyalty program can be so much more – if you do it right, it’s a powerful tool for referral marketing, too. Focus on building a relationship with your loyalty program members. Listen to your customers and act on their comments. To get the highest ROI possible from your loyalty program, help them love you so much that they become volunteer brand ambassadors.

Part of helping your customers to market you is making sure you provide opportunities for engagement outside of sales transactions. Gamification models help with this, and keeping active social media profiles and informative, interesting content on your site will help, too.

How to Measure Customer Loyalty

You can tell by the look in your significant other’s eyes what mood they’re in. Brick and mortar store owners can tell how customers feel based on comment cards and conversations with customers. But ecommerce is a different world.

Keeping track of your relationship with your customers isn’t an option. It’s a requirement. Track your customer relationship’s pulse with these metrics:

Customer Lifetime Value

Many ecommerce entrepreneurs slowly leak profitability by spending more per customer than they are worth. Once you figure your product profit margin, add in marketing, fulfillment, shipping, and staffing costs your bottom line can get away fast.

CLV =  customer value * by the average lifespan of a customer

To calculate customer value you need to know two things:

• Average Order Value (Total Revenue/Total Number Of Orders)
• Purchase Frequency (Total Orders/Unique Customers)

Customer Value = Average Order Value * Purchase Frequency

To calculate average customer lifespan, look at the average time between purchases.

For more on CLV, I recommend you check out this article from Smile.io

Adoption and Redemption Rate

It’s relatively easy to calculate program adoption rate. You just have to look at the number of people enrolled divided by total number of customers. So if you have 1,000 with reward points and 10,000 customers your adoption rate is 1%.

More importantly, though is your customers are spending those points and giving you more business. Here is how to calculate your redemption rate.

Redemption Rate=Number of Points Spent/Total Points Issues

Churn Rate

Although it seems pretty straightforward as a measure of how many customers you lose vs. gain in a given period, you can calculate churn rate in many ways. According to Wordstream:

“you can measure client churn in one or more of the following ways:

• Total number of customers lost during a specific period
• Percentage of customers lost during a specific period
• Recurring business value lost
• Percentage of recurring value lost”

The lower your churn rate is, the better your business is doing. Keep that number as close to zero as possible!

Retention Rate

Wait….hold up. I bet you’re wondering about what the difference between churn and retention rate is. They’re opposites. Customer Retention Rate doesn’t take new customers into account, while churn rate does. Zendesk tells us:

There are three pieces of information you need to calculate customer retention:

1. Number of customer at the end of a period – E
2. Number of new customers acquired during that period – N
3. Number of customers at the start of that period – S

…CRR [customer retention rate] = ((E-N)/S)*100)

Alex McEachern does an excellent job of listing some other metrics that can help you track your customer loyalty, with and without loyalty programs. Check out his article on the Smile.io blog for more numbers to track.

Promoting Your Rewards Program

You’ve invested a lot of time and effort into creating a worthwhile loyalty program, but let’s be honest. If no one knows about it, it might as well not exist.

You need to promote your loyalty program to really see any revenue from it. You can do that via email, social media, or your website. The best strategy, however, is to combine the three.

Marketing Your Customer Loyalty Program To Your Email List

Earlier in this guide, I mentioned that you should start with your own mailing list. Don’t forget to do it. At the same time, actively work to grow your mailing list and encourage new members to join your loyalty program, too. Consider offering a special perk or benefit to your email subscribers who join the rewards program. When they joined your mailing list, chances are high that you ‘paid’ for their subscription with an incentive offer. This is the same kind of transaction, and deserves just as much investment on your part.

Publicizing Your Online Store’s Rewards Program on Social Media

Once you have the kinks worked out and are confident that your program will be a hit, start advertising it on social media. Focus on platforms that your demographic gravitates towards (for example, Pinterest tends to be dominated by women, while Reddit is predominantly a men’s platform). Check out this post on Social Media Examiner to master social media loyalty program launches. Make sure your campaigns are carefully targeted, and get the right content to the right potential members at the right time.

Using Your Website to Promote Your Rewards Program

On your website, you’ve got a relatively captive audience. The people on your site are already interested in your company. Don’t get lazy, though. Offer an opt-in freebie, discount, extra points, or some other incentive to entice site visitors to join your membership program. Lightboxes and pop-ups work well for advertising your program, as do reminders in the checkout process. In some cases, they can increase signups by up to 1,375%!

Customer Loyalty Tools and Apps

Now that you’ve mastered the basics of loyalty programs, it’s time to find a loyalty app or software program to make creating your program that much easier. Keep your eyes on our blog for more.

• Smile.io
• Spark Base
• Loyalty Lion
• S Loyalty
• Antavo

Keep in mind that not every loyalty program app works for every platform. Before you get your heart set on one, check to make sure it’s compatible with your e-commerce site.

Do You Really Need A Customer Loyalty Program?

Loyalty programs, as you can see from this guide, are a huge help in e-commerce. They increase customer retention and transaction value while cutting your costs. If you’re really serious about making the most out of your e-commerce website, sign up for our newsletter today. You’ll get great content like this, as well as tips and tricks from industry pros.

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