Whether you are just starting out or have been in e-commerce business for years, building a loyal following of customers is crucial to your business’s success. It can be hard to make sure your loyal customers come back time and time again. But there are a few tried and true ways to make your customers feel appreciated.
But when you go online to find a good resource on how to start building your loyal customers, it becomes overwhelming. You have 2,32,00,000 e-commerce resources in front of you that experts have written. You are now facing another problem – how do you choose what is right for your business?
The answer is simple: Use this guide! Why you ask?
Well, we have spent 249 hours researching and finding the best resources for you and rounded up some of the best practices, tips, and examples on running successful e-commerce loyalty programs. In this guide, we will break them down for you so that you can easily use them as inspiration for your own loyalty program.
If you are like most e-commerce business owners, who are tired of spending 25% more money on adding new customers instead of retaining current customers alone should motivate you to read on and take action. Let’s get started.
What Is an E-commerce Loyalty Program?
An e-commerce loyalty program is a marketing strategy companies use to encourage repeat purchases and increase customer retention.
The program usually takes the form of a series of perks, discounts, and special offers that customers can earn by purchasing at the company’s online store. Some loyalty programs even go so far as to give users the ability to earn free products or services by completing certain offers or tasks.
These types of programs are popular because they can help businesses reach the elusive goal of increasing customer lifetime value (CLV). In fact, you may have heard about them before if you’ve ever shopped online. Some of the most popular e-commerce loyalty programs in existence today include Starbucks Rewards and Sephora Beauty Insider.
The most important thing to remember when implementing a loyalty program is that it’s not all about discounts.
The Biggest Challenges for E-commerce Companies in Terms of Customer Retention
Customer retention is one of the most critical aspects of e-commerce. It’s a lot easier to retain a customer than it is to get one from scratch.
According to a recent industry survey, in Southeast Asia, an average of 71% of customers who return to an e-commerce site come back within 30 days. And about 86% to 92% of respondents were more enticed to shop where a loyalty program is part of the deal. This means that when you lose a customer, you stand to lose a lot of potential revenue.
But what are the biggest challenges that prevent e-commerce companies from retaining customers? Here are five of the most common customer retention challenges:
Finding the right customers
If you want to keep your customers coming back, you need to ensure that you’re offering them a great price. This doesn’t mean that you have to discount everything in sight.
80% of SEA (Southeast Asia) consumers are willing to pay a meaningful premium for brands whose practices align with their values.
You need customers who want what you’re selling and will pay for it, but not every potential customer is a good fit for your business. Not every person who wants to buy from you is a good customer. If you’re not careful, you could end up spending time and money on customers who aren’t worth the effort.
Keeping it simple
It’s easy for an e-commerce company to get carried away with all sorts of features and incentives. But the truth is that customers don’t really care about them.
If you want people to come back again and again, then it’s best if you keep things as simple as possible – especially when it comes to your website design and shopping cart functionality. The simpler this is, the more likely it is that people will find what they’re looking for quickly and easily – which will help ensure that they’ll come back again!
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Lack of customer service training
Customer service employees need to be trained to deal with customer concerns and complaints in a way that builds trust and goodwill. This includes things like knowing how to:
- Handle refunds and returns
- Responding quickly to customer requests
- Using empathy and creating a positive experience for customers.
According to the Bain report, the e-commerce GMV in the SEA region will double from $120 billion in 2021 to $234 billion by 2025. As the number of online shoppers increases, so does competition among companies.
The competition in the e-commerce industry is fierce. Even if your product is unique and well-designed, several similar products are likely out there. Competition often leads to price wars that hurt retailers’ profits and make it harder for you to stand out from the crowd.
You have to constantly be on top of your game and be able to deliver an amazing experience every time.
Keeping up with tech trends
Technology has changed so much over the last few years that it can be extremely difficult for companies to keep up with all the latest innovations and developments. Customers expect their shopping experiences to be seamless and easy, so any sort of glitch — whether it’s an error with your site or a problem with an order — can lead them to abandon your store and shop elsewhere.
The average person checks their phones an average of 58 times each day, and this number is increasing by 9% each year. This means that in 20 years, people will be checking their phones every 3 minutes!
As an e-commerce business owner, you have to stay on top of all the latest technology trends and ensure your company can provide customers with a seamless experience every time they visit your website or mobile app.
Why should you implement an e-commerce loyalty program?
Customer loyalty programs are more than just another way to get your customers to spend more money. They have been proven time and again to increase customer satisfaction, retention, and sales by creating a sense of community among shoppers.
According to a survey by Accenture, 36% of consumers who have received a loyalty program reward in the past 12 months say they would be more loyal to their favorite brands if offered more incentives. In addition, 42% would consider switching brands if another brand’s rewards program was better.
There are several reasons why you should implement an e-commerce loyalty program.
Easier customer acquisition
The first benefit of a loyalty program is that it makes it easier for you to attract new customers, especially if you have a small budget for advertising and marketing. By offering them some reward for signing up, you will likely get more people on your mailing list or returning to your website.
Stronger brand allegiance
When you implement an e-commerce loyalty program, it’s not just about increasing sales—it’s also about strengthening your connection with customers. You’re building brand allegiance among your customer base when you offer rewards and incentives for repeat purchases and loyalty. These are people who are more likely to buy from you again and again because they know that your products and services are worth their time and money.
Customers who feel like they’re being rewarded for their repeat purchases will be more likely to keep coming back — and they’ll tell their friends about your business in the process.
Boost sales with repeat purchases
E-commerce is competitive. If you’re not offering something special and unique, someone else probably will—and then what? You lose out on a sale and risk falling behind in the race to be number one in your market.
That’s why implementing an e-commerce loyalty program is so important. It gives you a competitive edge by rewarding repeat purchases and encouraging customers to come back again and again!
Increase customer lifetime value (LTV)
If you’re an e-commerce business owner, you know that your customer lifetime value (LTV) is one of the most important metrics for your business. The LTV of a customer is the average amount of revenue that a customer will bring in over their lifetime.
By implementing an e-commerce loyalty program, you can increase this metric by providing customers with incentives to shop with you repeatedly.
Improve overall customer experience
You can use a loyalty program to improve your customer’s overall experience with your brand. These programs allow you to reward customers for their purchases, which helps them feel more connected with your brand.
This creates a positive relationship between you and your customers and encourages them to continue shopping with you in the future.
Increase efficiency and lower costs
The most obvious benefit of having an e-commerce loyalty program is that it increases the efficiency of your business. Instead of manually processing customer requests, you can automate the entire process with a few clicks in your portal. Once you have set up the system, you must collect points from consumers when they make purchases and transfer them into rewards or other incentives.
The only cost involved in running an e-commerce loyalty program is paying for the setup and maintenance of the software, which can be done by either yourself or an agency. You don’t need to hire new staff members or increase operational costs because everything runs automatically through the software.
What types of e-commerce loyalty programs are there?
There are many different types of e-commerce loyalty programs. Some are straightforward and simple: a customer earns points for each purchase and can use those points to redeem discounts or free products. Other programs are more complex, with multiple levels and tiers encouraging customers to make repeat purchases.
Here are some of the most common types of e-commerce loyalty programs:
Points programs are the most common type of e-commerce loyalty program. In this program, customers earn points for every purchase and can redeem them for future purchases. Points can be accumulated over time or used immediately.
You can use a point system like the ones below:
- Points for every dollar spent (e.g. 1 point = 1 Thai)
- Points for every product purchased (e.g. 1 point = 1 Thai)
A popular example is AirAsia’s Frequent Flyer Program, where you accumulate miles every time you fly with them. For every x number of miles, you can redeem for free flights, upgrades, hotels, and other travel services.
Advantages of Points Program:
- Easy to set up and manage
- Great customer retention strategy
- Encourages repeat purchases and referrals
Disadvantages of Point Program:
- It can become too complicated with multiple tiers and multiple ways of earning points (e.g., purchase vs. referral)
- It can be difficult for new users to understand how points work if the store owner doesn’t provide clear instructions
In this type of program, customers must pay a fee to participate in the loyalty program. This can be done through a monthly membership fee or with each purchase made using their card. Paid programs offer the most flexibility because you can customize your benefits and rewards based on who signs up for them. However, these programs require more work from you as an owner because you must manage all aspects of the program yourself.
These are usually subscription-based services where customers pay a monthly or annual fee to get access to the platform. The subscription fee can be paid either monthly or annually and can be paid via credit card or PayPal payment gateway.
A popular example of a paid program is ShopBack by Shopee, where merchants pay a fixed monthly fee for their accounts, which allows them to offer discounts and promotions to their customers through ShopBack’s platform. The merchant will receive payment gateway fees from ShopBack if they collect payments through it instead of using their payment gateway, like PayPal or Stripe.
Advantages of Paid Programs:
- A great way to get customers to return more frequently
- Encourages customers to spend more
- Easy to implement (just need enough budget)
Disadvantages of Paid Programs:
- Not all customers will join the program (e.g., those who value privacy)
- Companies need to implement a system that tracks purchases, which could be costly if not done properly
- You need a budget to run these types of loyalty programs, which may not always be possible for smaller businesses or startups
Tiered loyalty programs
A tiered loyalty program is a type of membership program where customers enjoy different loyalty program benefits depending on their rank.
Tiered loyalty programs come in two types:
1) Member-only tier – This is where members can enjoy exclusive offers and discounts that non-members cannot receive. This type of loyalty program is best suited for e-commerce businesses that sell unique products such as fashion accessories or home decor products;
2) Elite tier – This type of tiered loyalty program is suitable for e-commerce businesses that sell general merchandise such as books and electronics because it allows customers to earn points when they purchase items from your store. In addition to earning points, members can also redeem them for discounts or free shipping for future purchases.
Tiered loyalty programs come in all shapes and sizes. Some companies offer different tiers based on the number of transactions, while others use price points to determine the tier level. Some companies even combine both approaches.
The most famous example of a tiered loyalty program is Amazon Prime. Amazon Prime members pay $99 annually for unlimited 2-day shipping and other perks like free streaming videos, Kindle ebooks, and more. If you’re looking for an example of a tiered loyalty program that doesn’t cost anything, though, we would recommend checking out Sephora’s Beauty Insider program. As a Beauty Insider (their highest tier), you get free makeup samples when you shop online and in-store and exclusive offers throughout the year, such as birthday gifts and early access to new products.
Advantages of Tiered loyalty programs:
- It’s easy to implement, track, and manage
- Increases average order value
- Enhances brand awareness
Disadvantages of Tiered loyalty programs:
- Tiered loyalty programs can be hard to manage when there are too many tiers or levels (especially if there are multiple tiers within each).
- It may require increased customer service efforts
Universal loyalty programs
A universal loyalty program is a loyalty program that can be used across multiple brands. A great example of this is the Starbucks Rewards program. The Starbucks Rewards program is not just for Starbucks customers but also partners with other brands such as Lyft, Uber Eats, and more. This allows you to earn points towards rewards and redeem them with different partners. This makes it easy for consumers to participate in multiple brands without opening multiple accounts or dealing with multiple apps.
Advantages of Universal Loyalty Programs:
- Easier to get started: A universal loyalty program makes it easier for businesses because they don’t have to build up their own customer base from scratch. Instead, they can use their existing customer base and attract new customers by offering them incentives through the loyalty program.
- More opportunities for cross-promotion: With universal loyalty programs, there are more opportunities for cross-promotion between brands within one ecosystem. For example, suppose you’re an Uber Eats driver who happens to order food from McDonalds or Starbucks during a shift. In that case, both companies can send you coupons or discounts on future orders through email or push notifications on your phone (if you opt in). This creates a better customer experience and brand loyalty.
Disadvantages of Universal Loyalty Programs:
- Universal loyalty programs are sometimes less effective than other loyalty programs because they don’t give customers a reason to choose one brand over another.
Perk loyalty programs are very popular among e-commerce businesses. Customers love getting freebies and discounts on their favorite products and services.
Perks can be in the form of cashback, vouchers, discounts, and even free gifts. The most common examples are petrol points, Airline miles, DBS/POSB rewards points, shopping vouchers, and free gift vouchers.
Perks can be used in many ways to incentivize customers to shop more often or simply as a way to say thank you for shopping with us.
Popular brands that use this loyalty program include Sephora and Shutterfly.
Advantages of Perk loyalty programs:
- Promotes repeat purchases from current customers and brings in new ones
- Provides an incentive for customers to buy more from your store (e.g., 10% off when you spend $100)
- It makes it easier for customers to convert into paying customers (because it’s easy for them to see how much they’re spending)
- It enables you to provide better customer service by focusing on your best clients first
Disadvantages of Perk loyalty programs:
- They are more complicated to set up than traditional reward points programs because they require more inventory and resources.
- The main disadvantage of perk loyalty programs is that it’s not easy to set up. You need to create terms and conditions for each reward that you offer. This is time-consuming and costly if your website has an extensive catalog of products or services.
Subscription-based loyalty programs
Subscription-based loyalty programs are those where customers sign up for a subscription in exchange for rewards. These are good for businesses that offer recurring services or products. For example, if you have a subscription box business, it would make sense to have a subscription-based loyalty program where customers pay a monthly fee in exchange for receiving their box at the same frequency every month.
Loyalty programs like this can be easily integrated into your existing website so new customers can sign up online and existing customers can manage their accounts online.
For example, suppose you’re running an e-commerce store selling organic beauty products. In that case, you might offer free monthly shipping as part of your subscription program so that customers don’t need to pay shipping fees every time they order something from your store.
Advantages of Subscription-based loyalty programs:
- Subscription-based loyalty programs offer recurring revenue, which is generally easier to predict in cash flow and profitability compared to one-off purchases.
- Subscription models can also help you retain more customers by providing ongoing value and service.
- A significant benefit of subscription-based loyalty programs is that it allows you to build a relationship with your customers over time, which ultimately helps you establish trust and credibility within your industry or niche market space.
Disadvantages of Subscription-based loyalty programs:
- Requires customers to sign up for a subscription plan which may be difficult if they aren’t sure if they want to commit to it or not.
- Not all customers are willing to pay for subscription services so consider offering free trials before making them pay for something they don’t even know if they like or not yet!
- You must find a balance between cost and value when creating your subscription service, so make sure it works.
A hybrid loyalty program is a mix between a points-based program and a rewards-based program. These programs reward customers for purchases and give them points for sharing content, referring friends, and more.
For example, a hybrid loyalty program could be:
A points program + an instant rewards program (e.g., cashback)
A points program + instant rewards + discounts on specific items
A points program + instant rewards + exclusive offers and early access to new products/services
There are many ways to create a hybrid loyalty program, so it’s important to understand the pros and cons of each type before deciding what works best for your business.
Sephora is a good example of a hybrid loyalty program, which offers a points system for its physical stores and an online store where it sells products directly from brands. By combining both channels into one program, Sephora ensures that customers will continue shopping with them, whether online or in-store, no matter where they shop first.
Advantages of Hybrid loyalty programs:
- Allows you to reward your customers for actions other than just spending money on your website or app
- The more they can earn points, the more likely they will engage with the program and keep coming back!
Disadvantages of Hybrid loyalty programs:
- It can be not very clear for some people who are used to pure points or pure rewards systems
- Time-consuming to set up transparent systems so that customers know exactly how they’re being rewarded
Loyalty Program Approaches to Stay Relevant
Loyalty programs are a powerful way to improve customer relationships and drive business growth.
According to a survey conducted by Antavo:
- 30.3 % of APAC respondents said their loyalty program was more emotional than rational—9.6 % above the global score.
- 57.6% of companies in the region plan to offer personalized rewards and offers in the next three years—9.3% above the global score.
- 85.7% of respondents agree or strongly agree that setting up loyalty rules without coding would be an asset—15.3% above the global score.
However, loyalty programs aren’t just about collecting points — they’re about making customers happy and keeping them coming back for more.
Here are some tips you can use to ensure your loyalty program is staying relevant:
- Know Your Audience
You need to know what customers want, what they’re looking for, and what they expect from your company. This will help you create a better product or service that meets their needs and keeps them returning for more.
- Create an Engaging Website
A good website can be like an online store without the hassle of having actual inventory on hand. This means that everything you sell must be available at all times and in all sizes, colors, etc. If something isn’t available when someone tries to buy it, they’re going to go somewhere else where they can find what they want right away.
- Make Sure Your Products Are High Quality
You want people coming back again and again because there’s something special about your products — not just because it’s convenient (though convenience matters too!). That means making sure all your products are high quality so that each purchase
Loyalty programs shouldn’t just be designed for one channel. Offer a seamless experience across all channels so customers can earn or spend points wherever they choose. This way, you can provide them with the best possible experience and keep them returning for more.
Customers expect this flexibility from businesses today, so it’s important to have an omnichannel approach to your loyalty programs.
- Membership page
The first thing you should do when building your loyalty program creates a membership page where customers can see all the benefits of being part of the program. This will give them the information they need to decide whether or not it’s worth signing up for your loyalty program.
You want this page to be simple and easy for customers to understand so that they can make an informed decision about joining your program without having to dig through complex information or fine print.
- Multicurrency, multilingual
Loyalty programs are global by nature. You want to ensure you’re offering the right rewards and experiences for different geographies and cultures.
You also need to ensure they’re local enough to resonate with consumers. For example, suppose you have a rewards program that offers a discounted price in Indonesia. In that case, you’ll want to provide the same discount for each country and city you serve. That way, when people redeem their points, they get something they want and will use.
10 Tips For Successfully Launching A Reward Program
A well-designed rewards program can differentiate between losing customers and retaining them for life. But there are many things to consider when launching a new program, such as how to set up the program, what incentives make sense, how to market it properly, and how to ensure it’s effective.
The key to creating a successful program is understanding how to communicate the value of the rewards you’re offering effectively.
Here are 10 tips for successfully launching a reward program:
- Have a clear focus
Reward programs should be designed to meet specific business objectives. They can be used to:
- Increase sales
- Improve customer retention or
- Build brand affinity
If you don’t know what you want from your program, it’s unlikely that you will succeed. Once you know what you want from your program, the rest will easily fall into place.
- Choose the right rewards
Rewards are the most important part of your loyalty program. If you get this wrong, you won’t get the results you want.
To choose the right rewards for your customers, ask yourself these questions:
- What do my customers want?
Find out from surveys or interviews. You can also use Google Analytics to see what people are searching for on your site or look at their shopping cart abandonment rate to see what they may be interested in. This will help you figure out what products and services would make good rewards.
- How much should I spend on each reward?
Don’t go overboard here —offering high-value rewards is important if they cost too much money. People might not be incentivized enough to redeem them. We recommend a $5-$10 range per reward point – anything more than that and people may feel like they’re being nickelled and dimed over time (and less likely to redeem). On the flip side, if you offer too little value per reward point, customers will feel disappointed.
When choosing rewards, you need to remember that the more relevant they are to your target audience, the better it will be. This ensures they are more likely to be engaged and purchase from your store.
- Make it easy to earn points
One of the biggest mistakes businesses make when creating a loyalty program is making it too difficult for customers to earn points. This can turn your customers off and leave them feeling like they are not getting any value from your program.
Ensure to make earning points as easy as possible, so they don’t feel they need to spend too long trying to get them. This will help build trust with the customer and give them confidence in the program by showing them how easy it is to use.
- Give members multiple ways to redeem points
There are two main ways to use points: a discount on future purchases or a credit towards a specific purchase. The first option is more flexible and widely used, but it can also create confusion and lack of clarity.
For example, if you offer 10% off all purchases, it’s unclear which products are eligible for the discount. If you’re selling electronics and apparel, a member could quickly get confused about whether they can save 10% on an iPad or just an iPhone case.
The second option is more straightforward because it uses a simple currency model. This gives members a sense of how much they need to spend to earn enough points for their desired reward. The problem with this method is that it’s restrictive — if you want to offer discounts on certain items, you’ll need to make them exclusive, which means they won’t be available to everyone.
- Use promotions sparingly
Promotions are a great way to drive traffic, but they can also be highly effective in driving customer acquisition. However, if you use them too often, they will lose their effectiveness. You must strike the right balance between too many promotions and too few.
- Start with a little, then give more
If this is your first time launching a loyalty program, don’t try to do too much at once! Start out simple by offering free shipping or discounts on future purchases as incentives for customers to sign up for your rewards program. You can start adding new features later as needed or when your customer base grows significantly.
- Focus on value, not price discounts
Discounts are the easiest way to get people to join your loyalty program, but they don’t necessarily make them loyal. You want customers who really love your brand and are willing to buy again and again because of it.
You want them to feel special when they shop with you. That’s why we recommend focusing on giving away special offers that matter to people — not just discounts on things they’ll buy anyway.
You can do this by giving them access to exclusive products or services or by offering them rewards that they won’t find anywhere else.
For example, suppose you’re an e-commerce store selling wedding dresses and bridesmaid dresses. In that case, you could offer a free style consultation with a seamstress or a discount on alterations for anyone who signs up for your loyalty program.
Or, if you have a travel business, you could offer free airport pickup for local guests during their stay in exchange for joining the program (and maybe even give away some tips about what food places are best nearby). The possibilities are endless!
- Consider using a third-party rewards platform for your program
Rewards programs can be complex and challenging to set up. If you’re not an expert at technical systems or don’t have access to a team of developers, it may be worth considering using a third-party rewards platform instead of building your own system from scratch.
Many companies offer turnkey solutions for loyalty platforms to build your own rewards program or providers that offer white-label solutions where they handle all the technical aspects of running the program for you.
If you’re looking for this kind of service, make sure to do your research and find one that suits your needs.
- Get customers excited about participating
If you want to boost your brand’s loyalty program, getting customers excited about participating is important. This can be done by implementing games and competitions and encouraging them to return more often.
For example, offer a reward for every purchase made or give the chance to win a prize draw every time they use their points. You can even offer exclusive deals and discounts to reward loyal customers who have been with your business for a long time!
- Make it easy to join and use
The more steps you take to join your loyalty program, the less likely people will sign up. Make sure that joining is quick and easy by asking only for the minimum amount of information necessary. Also, ensure that there aren’t any questions requiring too much thought — people don’t have time for that!
How To Promote Your Loyalty Program
Loyalty programs are a great way to build customer relationships, but they can be difficult to promote.
After all, it’s not like you can just hand out flyers or posters saying, “Be loyal to us and we’ll reward you with free stuff.”
Fortunately, there are plenty of other ways to get the word out. Here are our top tips for promoting your loyalty program:
- Create an amazing landing page or website for the loyalty program.
A great loyalty program is useless if people can’t find it. Make sure that your customers know about your loyalty program and how to sign up for it. If you have a physical store, make sure you have signs and posters around it that advertise your rewards program.
If you have a website, make sure there are links on all pages where customers can sign up for the program. You should also include information about the loyalty program on receipts, emails, and anywhere else where customers might see it.
- Create a hashtag for social media.
Creating a hashtag is an easy way to promote your loyalty program. A hashtag is a word or phrase that can be used to tag posts on social media, allowing people to find and engage with those posts more easily. It’s a great way to get people talking about your loyalty program since customers will start posting about it themselves!
- Engage influencers and ambassadors.
Influencers are people who have a large social media following or are experts in their field. They can be very helpful in promoting your loyalty program to your target audience.
You can ask them to share their experiences with your brand and products in their own words. This allows you to reach new audiences while incentivizing influencers to promote your brand. Consider offering them free products as a thank-you for their support.
- Leverage your current customer base.
If you’re just starting, you may not have a large existing customer base to promote your loyalty program. But that’s not a problem. If you have any customers, use them to help promote the program for you.
The best way to leverage your existing customer base is by sending out a direct mail piece or email blast with an offer for a free gift or discount code for the new program. You can also include a printed coupon with this promotion that they can redeem on their next visit.
If you don’t have enough customers to send direct mail or email blasts, consider using social media instead. Posting on Facebook, Instagram, Twitter, and other sites is another great way to spread the word about your loyalty program and get more people involved!
- Use pop-up banners online and in-store to promote the loyalty program.
Website pop-ups, when used rightly on website to promote your marketing offers, are the most effective ways to capture attention. According to OptiMonk research, the average popup conversion rate on an e-commerce website is 11.09%. And surprisingly, cart abandonment popups had the highest average conversion rate of 17.12%. This is why it’s important to use them when promoting your loyalty program.
Pop-ups can be used anywhere from your website to social media, but they’re especially powerful for using on ads for advertising campaigns. They’re also great for creating sales or promo codes that can only be redeemed by customers who have signed up for the loyalty program.
The economic value of loyal customers
According to a study by Avanto, 57.6% of respondents offering a loyalty program reported that their organization measures the ROI of loyalty, scoring 9.6% below the global trend.
Here are some of the statistics from the same research report which explain the economic value of loyal customers in the e-commerce industry:
- Customer loyalty impact on strategic decisions
66.7% of loyalty program owners agreed that customer loyalty and loyalty marketing has a significant impact when it comes to their company’s overall strategic decisions.
- Loyalty programs drive growth
78.8% of respondents whose company offers a loyalty program plan to increase or significantly increase their investments in customer loyalty over the next three years.
- Increase in loyalty marketing budget
On average, organizations offering a loyalty program allocate 23.3% of their total marketing budget to loyalty program management and CRM.
As a business owner, you know that acquiring new customers costs much more than maintaining existing ones. Also, loyal customers tend to spend more money on your products and services than first-time buyers do. A customer’s average lifetime value (LTV) ranges from $1,400 to $2,300, depending on the industry and type of product sold.
To understand how much revenue each customer generates over their lifetime as a customer (LTV), use the below formula:
LTV = AOV x Transactions x Time
AOV = average order value
Transactions = the average number of transactions per period (month or quarter)
Time = The average number of periods (month or quarter) a customer actively buys from you
By comparing lifetime customer value (LTV) before and after a loyalty program, you can measure the economic impact that loyal customers have on your business.
How to Measure Customer Loyalty
The key to measuring customer loyalty is identifying what matters most to your customers and then finding ways to measure it.
To start, you need a clear definition of what you mean by loyalty. One common way of defining loyalty is based on the concept of “customer retention” —keeping customers from switching to a competitor.
But there are other elements of customer loyalty, too: For example, how much do your customers trust you? How likely are they to recommend your company? And how likely are they to buy from you again?
You can also measure different aspects of customer loyalty over time. If you track these metrics over time, you can see which actions lead to higher levels of loyalty and which ones don’t work, giving you an idea of how best to invest in improving your business performance.
Here are some of the methods to measure customer loyalty:
- Net Promoter Score (NPS)
NPS is based on how likely your customers recommend your brand to others. It’s calculated by asking one simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” The possible responses are 0-6, where 0 means not at all likely and 6 means extremely likely. The NPS is found by subtracting the percentage of detractors from the percentage of promoters:
NPS = % Promoters – % Detractors
- Customer Relationship Metrics
Customer loyalty is a key indicator of the health of your business. It shows how likely customers are to return and buy from you again. If you want to measure customer loyalty, you need to know how many customers are buying from you and how often. To get this metric, simply divide the number of returning customers by the total number of customers.
For example: 300 returning customers / 400 total customers = 75% return rate
- Customer Lifetime Value
Customer Lifetime Value, or CLV, is a measure of the total revenue that a customer will bring to your business over their lifetime.
The formula for CLV is simple:
Avg. CLV = Average Revenue Per Customer (ARPC) x Number of Customers (N)
Suppose you have 100 customers, and each customer spends $5 per month. That’s $500 in monthly revenue for $6,000 per year. If each customer stays with your company for one year, then your CLV would be:
$6,000 ÷ 100 = $60 per customer
- Adoption and Redemption Rate
The adoption rate is the percentage of customers who purchase your product. It can be calculated by dividing the number of customers who purchased the product in a certain period by the total number of potential customers.
For example, if 10,000 people downloaded your app and 5,000 returned to use it within two weeks, your adoption rate would be 50% (5,000/10,000).
The redemption rate is the percentage of customers who actually use your product after they have adopted it. It can be calculated by dividing the number of customers who redeemed against their total number of adopters.
For example, if 1,000 people downloaded your app but only 500 used it within three weeks, your redemption rate would be 50%.
- Churn Rate
The churn rate is a metric that measures the percentage of customers who cancel their subscriptions or membership. The churn rate for a company can help you determine whether it’s doing well and how it stacks up against similar companies.
Churn Rate = (Cancellations / Total Customers) x 100
Here’s an example: If a company has 1,000 customers and 100 cancel monthly, its monthly churn rate is 10%. If its annual churn rate is 5%, 5% of its customers stop using the product yearly.
If you have more than one product, each one will have its monthly churn rate. However, they all add together to give you an overall annual churn rate for your business.
- Retention Rate
Retention rate is the percentage of customers who return to make another purchase from your company. The formula for this metric is as follows:
Retention Rate = (Number of Customers Who Returned / Total Number of Customers) x 100
For example, if you have 100 customers who purchased from you during a given time period and 75 came back for another purchase, then your retention rate is 75%.
Why Online Rewards or Loyalty Programs Fail
It’s no secret that online rewards programs are gaining popularity, with 74% of consumers saying they have joined a loyalty program in the last year. But not all loyalty programs are created equal.
Many companies have failed to establish successful online loyalty programs because they have not considered the customers’ needs.
Here are some of the most common reasons why online rewards programs fail:
- They’re too complicated.
The first reason that online rewards or loyalty programs fail is that they’re too complicated.
The more complicated the program, the less likely people will use it. There are so many loyalty programs out there now that it’s difficult for people to remember which ones they’ve signed up for, let alone keep track of which ones they’ve used and how many points they have left.
It’s easy to get caught up in a rewards program’s bells and whistles and forget what matters most: simplicity.
You want your customers to be able to quickly access their points balance and redeem them at checkout with as little effort as possible.
- The rewards aren’t worth it.
A loyalty program is a promise. It’s a promise that you will make your customers happy by giving them something in return for their loyalty and devotion to your brand. The problem with most loyalty programs is that they fail because they don’t live up to their promise.
If you run an e-commerce business and want to create a successful loyalty program, you must ensure the rewards are worth having. You need to make sure that whatever you offer as a reward is something that your customers want or would use. If not, then why would they want it?
- The reward process is too long and tedious.
Many companies think giving away free stuff will motivate customers to make more purchases. While this may be true, it’s not enough to make them loyal customers.
A great rewards program gives customers an incentive to shop at your store repeatedly while also giving them a reason to recommend your business to friends and family members. The best way to do this is by designing custom rewards based on your customer’s unique needs and preferences.
- Online rewards programs are only for online purchases.
It’s a common misconception that online loyalty programs are only for online purchases. While it is true that most of them are, many physical stores also offer loyalty programs. You can consider offering a physical reward card or a mobile app that allows users to scan QR codes at your store location to earn points and redeem them later.
- Customers don’t want to be tied down.
If you’re trying to encourage repeat purchases, your loyalty program mustn’t be restrictive. In other words, if the customer has already purchased from you once or twice, they should be rewarded with points they can spend at any time. This way, they will feel like they have control over their spending and are not being forced into buying more products or services.
The key point here is that your customers need to feel like they are in control of their spending. You can do this by offering options such as cashback or discounts on future purchases instead of locking them into a system where only certain products qualify for reward points.
- There’s no sense of security.
If you’re running an e-commerce business and want to build customer loyalty, you need to ensure that your store is secure. You need to give your customers a sense of security when shopping with you, so they can feel confident about purchasing from your store and building up their loyalty points.
The problem is that many e-commerce stores don’t offer this kind of security — and if they do, it usually isn’t strong enough to give their customers confidence in their ability to protect their personal data. If customers don’t sense that their information will be safe, they won’t bother using any loyalty or rewards program.
A loyalty program can make or break your e-commerce site. Having a good one in place can improve customer retention and increase revenue by interacting with loyal customers. A bad one that fails to fulfill its promises will tick off both new and existing customers and hurt your business. So, make sure you know what you’re doing when implementing your loyalty program.
Consistency is key to unlocking repeat business and customer lifetime value. However, it requires the right technology and infrastructure to embed your brand wherever your audience happens to be, at every touchpoint in their journey.
We hope this guide has given you the inspiration needed to implement your own loyalty programs. If you have any questions or comments, please feel free to leave them below!