The benefits of a loyalty program

It’s never been more pivotal to retain customers in today’s saturated ecommerce market. With ecommerce growth rising 13% every year and easy-to-use ecommerce platforms only a click away, there are more competitors in the ecommerce landscape than ever. Rather than constantly struggling to reach new audiences, a loyalty program has many benefits are a way to retain the customers you already have, as well as building a core audience that will organically spread the word about your business.

A loyalty program gives your customers a tried and tested reason to return to shop with you. When you gift your customers points for purchases or interactions with your company, they become incentivised to return to spend those points with you.

Customers have been shown to spend more over a longer period of time if they are incentivised to keep coming back, whether through personalised offers or the opportunity to redeem points. According to the 2016 Bond Loyalty Report, loyalty members buy more often and spend more than non-loyalty members, resulting in a 5-10% revenue increase.

Customers using a loyalty program often feel more valued as individuals over an anonymous shopper experience – 76% of customers believe that a loyalty program can deepen their relationship with a brand. Communicating shared values between a business and customers helps to establish a mutual connection and increases the likelihood of customer retention.

This page will cover the following topics:


The seven loyalty program benefits

1. Avoid the race to the bottom

Does it come as a shock that online shopping is one of the most popular online activities worldwide? There’s no denying that the ecommerce market is growing quickly. In 2017, retail ecommerce sales worldwide amounted to 2.3 trillion US dollars and e-retail revenues are projected to grow to 4.88 trillion USD$ by 2021.

As might be expected, certain major players have grabbed a large share of the ecommerce pie – with Amazon at the forefront. It is already approaching the point where more people will spend money online with Amazon than with all other retailers combined.

When customers open up their browsers to search for products, it’s incredibly easy for them to compare prices and find the best deal in a matter of minutes. Instead of focusing on providing the cheapest possible price, instead, concentrate on differentiating your service through bespoke customer experiences.

Establishing a loyalty program gives your customers the opportunity to connect with your brand through shared values and rewards such as loyalty points to redeem on future purchases. Establishing an emotional connection with your customers will help shoppers to see you as more than just a corporate, faceless seller and instead as a brand with a clear identity and real-world values.

Pillar Page Definitions (1)

2. Retain existing customers

It’s easier to retain customers than it is to acquire new ones and using a loyalty program benefits your customer retention rates. According to one report, it costs five times less to retain an existing customer than it does to acquire a new one. Research conducted by Frederick Reichheld of Bain & Company also shows that increasing customer retention rates by just 5% increases profits by 25% to 95%. Essentially, it’s a no brainer to try and hold on to those who are already engaging with your brand.

Loyal customers also spend 67% more than new ones, demonstrating that retention is a more cost-effective way to increase your profit margins than consistently selling to new customers. The Chartered Institute of Marketing lists a variety of sources that cite customer retention costs as between 4 and 30 times less than new buyer acquisition.

Pillar Page Definitions

3. Increase your revenue

A loyalty program benefits your revenue in the long term because incentivised customers are inspired to return to you to redeem points, collect further points or check out new and exclusive offers.

These customers will also be keen to continue shopping and interacting with a brand that they feel emotionally connected to, especially when this is through shared values, such as sustainability or informative tutorials.

An increased customer lifetime value, in turn, increases overall revenue. Research from SumAll – a marketing analytics company – suggests there’s a 27% likelihood that, once a customer has made their first purchase, they will return to buy again. This figure jumps to 43% between a customer’s second and third purchase.

A loyalty program also benefits your average order value. Adding tiers to your loyalty program is one way to push customers up a spending ladder. When shoppers see that they can unlock rewards through further purchases, they become more likely to add more to their cart to access these rewards, bumping up their total spend as a result.

Beyond Retro Tiers

4. Build personal relationships

Every customer is different and all customers have different needs. Recognising and speaking to your customers based on their unique data will make them feel catered to and understood.

One of the key loyalty program benefits is that it gives you a way to surprise and delight your customers by providing specific data so you can tailor their experience. From analysing their order history, site activity and visits, you can show them products, pages and features that you know they will be likely to find interesting, rather than presenting a blanket offer that may or may not be relevant.

Using a loyalty program to engage your customers beyond the initial purchase is important too. You can do this through written content, birthday gifts and access to exclusive information such as tutorials or forums, as well as rewarding them for their on-site behaviour. One example might be to reward your customers with loyalty points for multiple types of engagement such as leaving a review, referring a friend or simply for the number of times they’ve visited your site.

Harney and sons loyalty program birthday pop up

5. Create brand advocates

Turn your loyal customers into your biggest brand advocates. A satisfied, loyal customer will tell others about your brand and, through this, will acquire new customers on your behalf. Easy!

People like to make personal recommendations so much that 73% of millennials feel it is their responsibility to help friends and family make smart purchase decisions, while word-of-mouth is now the primary factor for 20-50% of all purchasing decisions. (Branderati)

You can leverage your loyalty program to encourage brand advocacy through two key methods:

Rewarding Reviews

84% of customers trust online reviews as much as personal recommendations. Use your loyalty program to give your customers benefits for sharing their real-life experiences with your brand on social media to build trust. These reviews serve as a credible source of social proof for new shoppers and help inform potential customers ahead of making the first purchase with you.

Pulse Boutique Reviews

Referrals

It has been proven that referrals are more trusted than any other form of marketing. 70% of U.S. consumers say that they trust brand and product recommendations from friends and people are four times more likely to buy a product when it is recommended to them by a friend or family member.

Thechive Referrals

6. A perfect branding opportunity

Use your loyalty program in a way that benefits your brand identity and draws your customers further into your brand world.

Build a hub for your customer to explore in more depth by using your brand’s colour palette, fonts and engaging imagery to extend your core brand identity across your loyalty program page. This page needs to be accessible, easy to use and seamlessly reflect what your brand stands for.

Sustainable dungarees brand Lucy & Yak has used their loyalty page to highlight its customers’ user-generated content. They also use engaging lifestyle imagery to communicate how to earn points through their loyalty program. The page is fun, easy to navigate and uses language such as “yak points” which draws the shopper further into the Lucy & Yak world, increasing the chance that they will continue to engage.

Lucy And Yak

7. Personalise the customer experience

Customer experience is a top priority for businesses. Shoppers no longer give their loyalty based on product or price, but instead, choose to return to shop with brands that they have had a positive experience with. It’s important to keep up with their demands if you intend to keep their loyalty in the longer term.

86% of buyers are willing to pay more for great customer experiences and 65% find a positive experience with a brand to be more influential than great advertising.

Part of creating a positive brand experience for the customer is to leverage their data in order to create a bespoke and personalised shopping experience. Infosys research reveals that 31% of surveyed consumers say they wish their shopping experience was far more personalised than it currently is and only 22% of consumers are satisfied with the level of personalisation they are currently receiving.

Consumers are actively asking brands to use their data in a positive way and deliver a more personal shopping experience, so why not deliver what they want?

Ecommerce stores that are unable to provide any kind of personalisation risk losing their customers to those that have worked out how to use data for the benefit of their audience.

Your loyalty program can give you the added benefits of being able to tailor the experience to the individual and get ahead of the competition. There a few ways to do this:

  1. Analyse their purchase history and see what your customers have been buying
  2. Learn about your customers’ behaviour and collect relevant data that, once a customer has made a few purchases, will help you determine what other products they are likely to be interested in
  3. Use the data to personalise your program by letting your customers know you recognise their support – and make sure you reward them for it!

When personalising the shopping experience, use either segmentation or individual targeting. Segmented personalisation is targeting a group of people who all share similar characteristics, such as all having bought the same album. It would make sense to follow up with a recommendation for the artist’s second album with this group. Individual personalisation rewards one customer based on something you know they are interested in and goes above and beyond expectations to surprise and delight them.

Make sure to use the data you’ve collected to identify which of your customers are already demonstrating loyalty to your brand; you can encourage these customers to leave reviews.

Additionally, find out who might be “at-risk” of dropping away and engage with them in order to make them feel valued again. Finally, use your data to ascertain which customers have already churned so that you can target them with a re-engagement campaign.

Ultimately, it’s important to gather data from multiple customer touchpoints to create a contextualised analysis around customer behaviour, allowing you to make intelligent, informed product suggestions for them that are highly personalised.


Myths of customer loyalty

For all the loyalty program benefits out there, there are also several myths that arise. Let’s debunk some of them!

Myth #1: Loyalty programs are expensive

There’s an initial outlay involved in setting up a loyalty program, but program members who redeem points spend 2.5 times more than non-members, so it won’t take long to earn back your costs.

Myth #2: Loyalty programs are complex

Loyalty programs can be as simple or as complicated as you decide! There is no harm in starting small and simple, offering a basic points structure with rewards for on-site activities such as account creation, purchases and birthdays. You can add in complexity once your program has started to gain traction.

Myth #3: Customers are tired of loyalty programs

81% of consumers say that the chance to join a loyalty program makes them more likely to continue doing business with a brand. Huge corporations like Starbucks and Sephora are continuing to invest in customer loyalty programs – if the big guys see value in such schemes, you should consider it too!

Myth #4: You don’t have enough customers to start a program

You don’t need a huge customer base to launch a loyalty program. It’s true that the more customers you have, the more potential members you have. However, as soon as you’re getting sales, you have an audience that could be returning to purchase from you.

Myth #5: It’s hard to measure success

There are many metrics that can help you to measure the success of a loyalty program – from repeat purchase rates and average order values to net promoter scores.

Knowing When It's Time To Invest In Customer Loyalty


Now you know the loyalty program benefits and myths, it’s important to measure the effectiveness of your loyalty program with clearly defined KPIs

As with anything, in order to track and measure success, you need to layout a framework for what success looks like. When starting your loyalty program, define your key performance indicators (KPIs) so that you have something to track and come back to.

Your KPIs could be based around an increase in the following metrics:

  • Average order value
    Average order value (AOV) tracks the average amount spent each time a customer places an order with you.
  • Customer lifetime value
    Customer lifetime value (CLTV) indicates the total value of a customer to your business during the entirety of their relationship with you – from their very first purchase right up to their most recent sale.
  • Customer retention
    Customer retention is a company’s ability to increase its number of repeat customers and increase the profitability of each existing customer. High customer retention means customers tend to return to and continue to buy from the business.
  • Repeat purchase rate
    The repeat purchase rate measures the percentage of your customers who come back to purchase again.
  • Reward redemption rate
    Redemption rate measures how many points are being redeemed by your loyalty program members and is a good indication of how engaged your customers are.

Academy Cta 2

Let’s weigh all of this up against the costs of setting up a loyalty program. There are typically four main costs when creating a loyalty program: software, design, marketing and rewards.

The first consideration is software, which is used to create and manage your loyalty program. This can be either designed in-house or purchased through a subscription-based platform (these can range significantly in price depending on complexity).

Once the software has been set up, you’ll need to consider how it looks to the customer. There will be a cost to designing your loyalty program in line with your branding so that it appeals to the type of customers you’re looking to draw to you.

When the loyalty program is ready to go, you need to factor in marketing activity to make sure the right people know about it. As a loyalty program is a long term strategy, you should factor it into all your major communication channels from social media and website to newsletters. There is little financial cost here and is largely a change in the business process rather than a one-off campaign.

The final expense to consider is the rewards themselves. The cost of these will vary and can be anything from discounts on future purchases to small or even major prizes. Offering products as prizes is one way to get rid of old stock or increase sales on a high margin product so that there is a lower overall cost to your store.


Conclusion

Rather than struggling to reach new audiences, aim to retain the shoppers you already have by using the many loyalty program benefits.

Using a loyalty program and leveraging its key benefits will help you avoid the race to the bottom against corporations like Amazon who drive down prices. Instead, focus on building a brand that your shoppers can come to know and trust.

Use your loyalty program to retain existing customers through enticing rewards which will keep them shopping with you time and again and utilise a highly personalised, curated shopping experience to anticipate your customers’ wants. Use your loyalty program to reinforce your brand messaging, creating a whole new brand world for your customers to explore.

A loyalty program can also act as a valuable tool to create brand advocates who will tell their family and friends about your services or products. Ultimately, a loyalty program can help to increase your revenue long-term.

Book a loyalty consultation with one of our loyalty specialists to find out more.

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