How do loyalty programs work? A breakdown of running loyalty programs at different stages of growth

A loyalty program is a marketing tool used by companies to encourage continued business from customers by offering various rewards for their loyalty. There are a lot of benefits to loyalty programs for businesses of all sizes, from retaining customers and increasing customer lifetime value to an alternative to competing on price.

Companies like Tesco and Boots invest a lot in customer loyalty. But, what if you’re a one-person show juggling all of the departments of ecommerce? Or, the Marketing Manager for a company growing and working on improving customer experience?

The time and money available to dedicate to a loyalty program will be a lot less than that of Boots and Tesco.

In this blog, we will take you through some best practices for loyalty programs by considering the challenges, time and resources of running a loyalty program for stores of three different sizes:

  • A small business owner (3-4 hours a week)
  • Small to medium business owner (5-6 hours a week)
  • Marketing Manager for a business (7-8 hours a week)

 

Small business owner (3-4 hours a week)

Most online stores will start small. It might be a passion project or a side-gig alongside a full-time job.

As the business grows and order numbers rise, the time and work needed to maintain standard will also rise. But, the business might not be ready to hire another person. A loyalty program is a great tool for improving customer relationships, but like anything else, it will require time to run it effectively.

So, what can a merchant like this do to run a loyalty program in the most time and cost-effective way?

Tip #1: Start simple

Start your program with the basic points and rewards system. Select what activities you would like to reward members for, such as account creation, social engagement and purchases. Decide how many points to give for each activity and what rewards are available in exchange for points.

Customer retention costs five times less than acquisition. Make sure that the rewards you offer are enticing enough to bring customers back to your store.

Tip #2: Increase referrals

Customers are four times more likely to purchase at a store if they have been referred by their friend. This is because the person referred already knows and trusts where the referral is coming from. It is a cheap, easy way to acquire new customers and a feature that small business owners must activate. Use your loyalty program to incentivise referrals through platforms like Facebook and email.

Taylorstitch

Key thing to monitor: Create a reporting process focused on how many of your customers repeat purchase.

Small to medium business owner (5-6 hours a week)

A business at this stage might be growing quickly. The growth is allowing you to spend more time focussing on your ecommerce store.

Your time may still be stretched, but you’re dedicated to improving the customer experience. You may already have a basic loyalty program set up. If not, launching one is a good place to start. And, once you get the hang of it, you can start adding more to the program to make it more sophisticated.

Tip #1: Automation is a huge time-saver

Businesses should automate as much of their loyalty program as possible. In particular, emails. Loyalty emails have a high click-through rate due to them being highly personalised.

Use an email service provider (ESP) to create personal and exciting emails for your loyalty members. Then, automate them with the help of Shopify Flow.

These emails could tell these shoppers about your loyalty program post-purchase. Or, they could be monthly loyalty points statements and program updates.

Abbot Lyon email

Tip #2: Make it aspirational

Now that you have begun to successfully tackle customer retention, focus on getting the most from the customers who are returning.

An easy way to do this is by launching tiers in your loyalty program. Two or three is advisable. Your basic tier will be for all loyalty members. To move up to the next one, customers must reach a point or spend threshold. Higher tiers will offer more and better perks for members to aspire to. This feature is effective at increasing the average order value (AOV) and customer lifetime value (CLV) of your members.

Remember to be creative and inspiring with your tiers and rewards. Some attractive perks are early access to sales, first-look at new products or an exclusive Facebook community group.

Mirenesse
 

Key thing to monitor: Monitor the AOV of your conversions and look out for it increasing over time.

Marketing Manager for a business (7-8 hours a week)

In this case, the business is booming. As a Marketing Manager, your loyalty program is a key part of your marketing activities. It has been working for a while and proving effective at improving customer retention and increasing basket sizes. Now, it’s time to optimise it.

Tip #1: Have a strategy

Analyse the data from your loyalty program and decide loyalty program goals, like increasing account creations or redeemed points. Decide on a strategy and carry out tests and research. By now, you are used to reporting results from your loyalty program. Run A/B campaigns testing your ideas to find out what methods will have the most positive impact.

Tip #2: Build a community

Now, you have an established customer base and are rewarding them for their loyalty. Your most loyal customers account for almost half of your revenue.

Give these customers special attention that will surprise and delight them, turning them into brand advocates. Build a community that aligns with your brand and your customers’ values. This emotional connection will ensure your loyal customers give you continued business and refer you to others, even if a competitor attempts to steal their attention.

Key thing to monitor: This is a good time to watch the number of referrals your customers are making. Your most loyal customers are easily encouraged to spread the word about your brand. Focus on driving this to find new customers and report on its overall effectiveness.

Takeaways

A loyalty program is not only for huge, established brands. They are an effective tool for driving retention, increasing AOV and improve performance at all stages of business development. Start with the basic program features and build it up as your company grows, focusing on improving one important metric at a time.

If you’re looking for more guidance on how to start a loyalty program for your business, you can download our free ebook The stress-free guide to getting started in loyalty.

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