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The benefits of loyalty programs are well established: better customer retention, low-cost acquisition and higher loyalty.
But each brand that implements a loyalty program will have their own goals and objectives, which should guide everything from the design of your loyalty program to your promotional strategies.
Here are some of the most common loyalty program aims.
– The objectives of LoyaltyLion customers
– 7 common loyalty program objectives
1. Retain customers and reduce churn rates
2. Increase order value
3. Increase purchase frequency
4. Improve customer lifetime value
5. Acquire new customers cost-effectively
6. Even out seasonal fluctuations in revenue
7. Reward existing customers and increase customer satisfaction
– Keep your objectives measurable, achievable and controllable
1. Measurable
2. Achievable
3. Controllable
– Setting benchmarks
– Gathering reliable data
1. Collecting the data
2. Analyzing and using the data
Back in 2021, we surveyed over 400 ecommerce brands that joined the LoyaltyLion platform to find out what they were trying to achieve by implementing a loyalty program.
A lot of the objectives were top-level. For some, a loyalty program may seem like another plate to spin, another tool in their kit to get a handle on to meet these challenges. But then we dug deeper and revealed the real pain points of our merchants.
Competition was top of the list – and it’s not a surprise either. With an estimated 12 million – 24 million ecommerce sites across the entire globe, with more and more being created every single day, cost per acquisition is skyrocketing. This affects the return on your investment not only because of cost and competition, but also data privacy changes that have led to lower conversion rates.
Overall, the top three were:
– Retaining customers and lowering churn rates
– Rewarding existing customers
– Improving customer lifetime value (CLV)
But they’re not the only things ecommerce owners are hoping to achieve, generally speaking. Here are 7 big ones.
Example objective: reduce customer churn rate by 15% year-on-year.
Why ecommerce owners care:
Acquiring a new customer can cost five times more than retaining an existing one. Bain & Company found that improving customer retention by 5% can increase profits by up to 95%.
Repeat customers tend to spend more and convert more often. So, by focusing on reducing churn, ecommerce businesses can maintain a more stable revenue stream and build a more predictable business model — without spending a fortune on acquisition.
How loyalty programs can help:
A well-structured loyalty program offers tangible rewards that increase in value as customers continue to engage with your brand. By offering incentives beyond price — such as faster shipping — customers are less likely to shop elsewhere.
Personalization plays a key role in this. By using data collected through the loyalty program, ecommerce owners can send targeted offers and recommendations. 70% of customers say they’re more likely to be loyal to a brand if they get personalized offers.
Loyalty programs can also help you find at-risk customers early by tracking changes in purchase behavior. So you can re-engage customers more proactively and strategically.
Example objective: Increase average order values by $30.
Why ecommerce owners care:
Typically, there are two ways to make more money out of your existing customers: get them to buy more often, or get them to spend more when they do. (Or, ideally, both.)
For many ecommerce owners, the big challenge is encouraging customers to spend more. How can you address it? By dishing out rewards based on spend, not number of purchases, and by doing a better job of communicating the full range of your products.
Average order value (AOV) tells you how much customers typically spend when they buy from you. Loyal customers tend to have a higher AOV.
The formula is [total revenue] / [number of purchases].
How loyalty programs can help:
Loyalty programs incentivize customers to spend more to receive more. They often provide tiered rewards, where the value of the reward increases with the amount spent.
This motivates customers to add more items to their cart or opt for more expensive items to reach the next tier of rewards. For example, a customer might be close to earning a reward and decide to add an additional item to their cart to qualify.
You can also throw in specific rewards for higher spending, such as exclusive products, services, or experiences that aren’t available to lower spending tiers.
One of the big — and often underutilized — benefits of loyalty programs is that signed-up members tend to be more receptive to communications. (Our own research found that loyalty program emails have, on average, a 20% higher click-through rate.) So it’s a powerful way to promote a wider range of products, which can naturally lead to higher average order values.
Example objective: Increase average annual purchase frequency by 3.
Why ecommerce owners care:
The repeat purchase rate is the percentage of buyers who have made a first purchase and then a second (or more) in a given time. It tells you what proportion of your customer base is coming back for more.
The formula is [return customers] / [total customers] x 100.
If your average order value is high, you might be struggling instead with purchase frequency — your customers just don’t buy frequently enough.
This is a common challenge for brands that sell high-ticket products, such as jewelry, which are purchased only occasionally as a gift or a treat.
By rewarding customers for the frequency of the purchases they make, rather than solely incentivizing higher order values, you can dramatically increase your revenue.
Why loyalty programs help:
Loyalty programs create a psychological commitment. Once customers are part of a program, they’re more likely to keep buying from the same store to make the most of their loyalty rewards.
On top of this, loyalty programs help you personalize your marketing. By analyzing purchase data, ecommerce stores can send tailored offers and product recommendations to individual customers, prompting them to make purchases they might not otherwise have considered.
Example objective: reach an average customer lifetime value (CLV) of $350.
Why ecommerce owners care:
Customer lifetime value (CLV) projects the total monetary value of a given customer.
To calculate CLV, you need to first multiply average purchase value — total customer spend divided by number of purchases in a given year — and multiply that by average purchase frequency — number of purchases divided by number of customers.
This is your average customer value. You can then multiply this by the average customer lifespan — the amount of time, on average, a customer purchases from you — and you have a CLV figure.
Improving customer lifetime value is essential for ecommerce owners because it directly correlates with long-term profitability and business growth. A higher CLV means customers are spending more over their entire relationship with your brand, which can significantly increase revenue and provide more capital for business expansion, marketing, and product development.
A focus on CLV also encourages a long-term view of customer relationships, moving beyond transactional interactions to building lasting loyalty and engagement.
How loyalty programs can help:
Loyalty programs are a powerful tool for improving CLV because they encourage repeat purchases, increase customer engagement, and enhance the overall customer experience. You can also use them to incentivize referrals, which is a very cost-effective way of acquiring new customers, making those customers more profitable.
Here’s how a well-crafted loyalty program can drive CLV:
1. Encourages repeat purchases: By offering points, discounts, or other rewards for each purchase, loyalty programs incentivize customers to choose your brand again and again. Over time, this can significantly increase the total amount they spend.
2. Increases average order value: As mentioned earlier, tiered rewards can motivate customers to spend more per transaction to reach higher reward tiers or qualify for more substantial discounts. This not only boosts immediate revenue but also raises the CLV as customers consistently make larger purchases.
3. Enhances customer satisfaction and engagement: Loyalty programs that offer personalized rewards, exclusive access, or special treatment make customers feel valued. A satisfied, engaged customer is more likely to be a repeat buyer and less likely to switch to a competitor, thus adding more to your CLV.
4. Customer data — and personalization: Through tracking purchases and customer interactions, loyalty programs gather data that can be used to personalize marketing efforts. Tailored recommendations and communications can lead to more conversions and higher spend.
5. Identifies and nurtures high-value customers: Loyalty programs help you identify your most valuable customers — the ones who deliver big profits to your brand.
Once you’ve figured out the highest-value customers, you can focus your efforts on providing them with exceptional experiences and personalized incentives, encouraging even higher spend and longer relationships.
Example objective: reach an average cost of acquiring a customer (CAC) of less than $40. Or, achieve an CLV:CAC ratio of 5:1.
Why ecommerce owners care:
Customer acquisition at scale is expensive and time-consuming.
If you can lower the cost of acquisition, you can use your marketing and sales budget more effectively, reaching more potential customers or reallocating funds to other areas like product development or customer service.
Here, loyal customers can help. Not only do they themselves spend more, they’re also more likely to refer other customers to you. And referrals are just about the most cost-effective way to bring in a new customer that exists.
How loyalty programs can help:
Loyalty programs can be an efficient strategy to acquire new customers cost-effectively. Here’s how they can contribute:
1. Referral incentives: Encourage your existing loyal customers to bring in new customers by offering them rewards for successful referrals. Since people tend to trust recommendations from friends and family, this can lead to higher conversion rates at a lower cost compared to other marketing tactics.
2. Social sharing rewards: Offer points or benefits to customers who share their purchases or experiences with your brand on social media. This not only acts as a form of free advertising but also leverages the trust and network of your existing customers to reach potential new ones.
3. First-time buyer rewards: Attract new customers by offering special rewards for their first purchase. Once they’ve made an initial buy and experienced the benefits of your loyalty program, they’re more likely to return, increasing their lifetime value.
4. Partnerships: Collaborate with complementary brands or platforms to offer joint loyalty rewards. This can expose your brand to a new audience at a lower cost than acquiring them independently.
5. Data-driven targeting: Use the data from your loyalty program to understand what attracts and retains customers. Apply these insights to target similar prospects more effectively, reducing wasted expenditure on low-intent audiences.
6. Increased word-of-mouth: A rewarding and engaging loyalty program can turn customers into brand advocates. The more they talk about and recommend your brand, the more new customers you’ll acquire without direct acquisition costs.
Example objective: Increase off-peak (summer) revenue by 25% within the next fiscal year. Alternatively, achieve a more balanced quarterly revenue distribution, with no single quarter accounting for more than 30% of the annual revenue.
Why ecommerce owners care:
Inconsistent revenue can be a nightmare for ecommerce brands. There are cash flow issues, inventory management problems, and even staffing difficulties. During the peaks, you’re overwhelmed, and during the troughs you start getting nervous.
Smoothing out these fluctuations helps maintain a more predictable and stable revenue stream, which is crucial for planning, investment, and growth. By balancing revenue throughout the year, ecommerce owners can better manage resources, plan for the future, and ensure steady growth.
How loyalty programs can help:
Loyalty programs can be strategically designed to encourage purchases during typically slower periods, helping to even out seasonal dips in revenue. Here’s how:
1. Seasonal rewards: Offer additional loyalty points or special promotions during off-peak times. For instance, double points for purchases made during the summer months can incentivize customers to buy when they otherwise might not.
2. Early access or exclusive deals: Provide loyalty program members with early access to new products or exclusive deals during off-peak seasons. Which makes your customers feel warm and fuzzy, as well as encouraging them to buy more.
3. Time-sensitive rewards: Create rewards that must be redeemed during the off-peak season. For example, offer points during the high season that can only be redeemed during the low season. This encourages customers to return and shop during slower periods.
4. Off-peak themed campaigns: Run marketing campaigns that focus on the needs and interests of customers during off-peak times. For instance, if summer is your slow season, you could put together a campaign focused on travel or outdoor products.
5. Engagement campaigns: Use slower periods to engage with your customers more deeply. Run competitions, surveys, or events that encourage interaction with your brand, keeping it top-of-mind so when they do decide to make a purchase, they choose you.
6. Analyze and adapt: Use the data from your loyalty program to understand customer buying patterns and preferences. Tailor your strategies to address the specific reasons behind the seasonal dips in your business.
Example objective: achieve an NPS score of 15. Or, increase customer referrals by 18%.
This objective kind of sums up all the others, and all the others ultimately lead back to this one: making your existing customers happy.
Merchants with or without a loyalty program are taking their customers’ loyalty for granted. Just because they’re repeat purchasers now doesn’t mean they’ll continue to be. Or, if you have an existing loyalty program it doesn’t mean they’ll come back to your store in the future. Especially with copycat competitors appearing every day and enticing customers over with aggressive discounts.
It sounds really simple: customers buy, they get awarded points and they come back to your store and redeem. But in fact, there are layers of complexity to secure success:
The right amount of points to award: offer too few, customers find it hard to achieve rewards, offer too many and it can hit your bottom line.
Levels of points to redeem a reward or move up a tier: targets too high will demotivate customers, but too low means the gamification experience isn’t good enough and hurts your margins.
How points are earned: it is quite typical to award points for purchases but your customers interact with you in multiple ways. For example, they follow you on social media, leave reviews, refer friends and family, and complete brand-related interactions. Your loyalty program should be the driving force behind keeping your customers consistently interacting with you.
Making sure your loyalty program improves customer experience rather than hindering it: we found that our merchants see a loyalty program as a must have to take the customer experience to the next level. Standard off the shelf loyalty programs don’t cut it anymore.
Whatever your specific objectives, it needs to be something you can measure, achieve and control. Otherwise it won’t be a very useful indicator of performance.
Objectives should be quantifiable. For instance, rather than “increase customer retention,” specify “increase customer retention by 15% within the next 12 months.”
By defining a numeric target and a timeframe, you create a clear benchmark against which you can measure success. This allows for periodic assessments to understand whether the program is on track or if you need to switch things up.
Stick to targets you can realistically reach. If, say, your historical annual growth has been around 5%, aiming for a 50% increase might be unrealistic without significant changes to your strategy or market conditions.
Focus on aspects that you can influence directly. For example, you could set a target to increase referrals by 10%, and then structure your loyalty program around rewarding those referrals.
On the other hand, “have 50% of existing customers refer a friend” is outside your control. Some of your customers might not know anyone who’d be interested in what you sell.
You might already know, broadly, what you want to achieve. But putting precise numbers against your objectives is tricky. What’s a reasonable target? How can you judge whether your loyalty program is working?
Benchmarking can help you here.
Understand industry standards: Research and understand what’s typical in your industry. Look at competitors and industry leaders to see what kind of loyalty program metrics they’re hitting. This could include average order value, customer retention rates, or the percentage of sales attributed to loyalty members. Knowing these standards gives you a realistic context for setting your benchmarks.
Review historical data: Analyze your past performance if you’ve run loyalty programs or similar marketing initiatives before. Identify what worked well and what didn’t. Understanding your historical data helps in setting realistic and relevant benchmarks for future performance.
Define key performance indicators (KPIs): Decide which metrics are most important to your business objectives. Common KPIs for loyalty programs include customer lifetime value (CLV), repeat purchase rate, redemption rate of rewards, and program enrollment growth.
Set specific targets: Based on your industry standards, historical data, and chosen KPIs, set specific targets for each metric. For instance, if your industry’s average repeat purchase rate is 20%, you might aim for a 25% rate to outperform the average.
Regularly review and adjust: Benchmarking isn’t a one-time task. Regularly review your program’s performance against the set benchmarks. If you’re consistently not meeting your targets, delve into the reasons why and mix up your strategy a bit.
A lot of this data will be hard to come by, and you’ll probably have to make some rough estimates. But if you can do some kind of benchmarking, your objectives will be much more meaningful.
Measurement, benchmarking, reporting — all of these things rely on solid data. Here’s what you should know about collecting, analyzing and using it.
E-commerce checkout systems and digital tracking: Your online checkout system is the frontline of data collection for ecommerce. It should be sophisticated enough to capture every transaction detail, including time of purchase, items bought, total amount spent, and customer information.
Integrating your loyalty program with your online checkout system allows you to track and attribute customer purchases and behaviors directly to their loyalty account.
You could also look into digital tracking tools such as cookies and tracking pixels to help you understand customer behavior on your site, from the products they view to their navigation path and even abandonment points during the checkout process.
Online tracking tools: Tools like Google Analytics, heatmaps, and session recorders can offer big insights into customer behavior on your site. Track everything from which products they view most to how they navigate through the purchase process.
Customer interaction data: Every interaction with a customer, whether it’s through customer service, social media, or email, is a data point. Collecting this data provides a comprehensive view of the customer’s journey and experience with your brand. It can reveal pain points, preferences, and opportunities for personalization within your loyalty program.
Data segmentation: Once you have your shiny datasets, the next step is to segment it. Look at your customers not as a monolithic group but as individuals with specific behaviors and preferences, and group those who are similar. Segmentation can be based on anything from demographics, purchasing behavior, or engagement levels with your program.
Trend analysis: Over time, your data will begin to reveal trends. You might notice seasonal fluctuations in purchasing, the rising popularity of certain products, or changes in customer behavior.
Predictive analytics: If you want to get really fancy, you can start to predict future behavior based on past data. This could involve forecasting which customers are at risk of churning or identifying which rewards are likely to be most popular. Predictive analytics can guide how you evolve your loyalty program to stay one step ahead of customer needs and preferences.
Customer lifetime value (CLV): Understanding CLV helps in customizing the loyalty program to maximize value for both the customer and the business. Which cohorts of customers tend to have the highest CLV? What can you learn from this? How can you better engage other segments?
Feedback integration: Data isn’t just about numbers; it’s also about the voice of your customers. Integrating feedback mechanisms into your program and analyzing the results gives you qualitative insights that numbers alone can’t provide. This could be in the form of surveys, reviews, or direct feedback channels.
Whatever your objectives, you need a well-implemented loyalty program to achieve them. Ready to get started? Why not book a demo?
