How To: E-commerce Loyalty Programs that Keep Customers Coming Back

How To: E-commerce Loyalty Programs that Keep Customers Coming Back

Sahlia Craig
. 03 Nov 2022 . 7 min read

Any marketer worth their salt knows it’s far more expensive to acquire a new customer than to keep and re-sell to an existing customer. Consider a typical ecommerce customer journey – there is so much energy and effort required through the early stages to attract and engage new customers, convince them that your product is absolutely the one they need, and build enough trust that your store is the one they choose. But, convincing a customer to buy from you again skips right past most of that. 

The probability of selling to an existing customer is 60-70%

Altfield

Loyal customers = more sales at a lower cost-per-conversion. Big win! But truly loyal, happy customers also fuel word-of-mouth and create user-generated content, advocating for your brand and contributing to driving more new customers to your store.

Think of your business as a bucket. That is to say, while it’s normal to lose customers, if you’re losing customers at a faster rate than you’re acquiring new ones, you essentially have a ‘leaky bucket’. So you either need to be exceptionally good at acquiring new customers, or you need to slow the leak (i.e. increase customer lifetime value and retention).

But if you’ve found yourself here, you likely already know why building customer loyalty is so important and what you really want to understand is how you can better achieve that for your e-commerce business. That’s great! We’ve got you.

What makes customers loyal to a brand?

Customer loyalty is driven by a number of factors, both functional and (primarily) emotional. Ultimately, to successfully build loyalty among your customers, understanding how your customers think is essential.

The product itself certainly has a part to play, after all you wouldn’t repurchase a product that failed to meet your needs on a practical level. However, in the world of ecommerce where there are likely countless options for very similar products, the product alone isn’t enough to build a loyal following. In addition to having a great product, you need to give your customers a tangible reason to keep coming back and tap into their emotions to create connection.

 

Build kinship with your customers

Many of the globally loved, big name brands, have managed to build a strong community of customer advocates by creating a sense of kinship with their customers. When we think about brands like Apple, or Nike, many don’t just buy their products purely based on performance or quality. A lot of the time, customers buy, and continue to buy, their products because of the way it makes them feel, and the sense of community they buy into.

According to Maslow’s hierarchy of needs, a sense of belonging is considered one of the most important needs of an individual, above safety and security. So, it’s no wonder why brands that make customers feel part of a community are so successful.

Loyalty and advocacy is built when customers feel like they are part of a community. A community grows and thrives when a brand is effective at uniting like-minded people together and making their customers feel personally valued.

56% of customers stay loyal to brands that “get them”

smallbizgenius

The Role of a Customer Loyalty Program

A loyalty program is a highly effective way to make your customers feel like they are part of a community. When executed well (and this is key), loyalty programs provide real and tangible reasons for customers to keep coming back, whether that’s for exclusive products, unique experiences, special offers, or simply for the sense of belonging to a community that makes them feel good.

Rewards and incentivisation are at the heart of any loyalty program. However, rewards alone are not what creates customer loyalty. A customer will only come back because they truly want to, not just because a brand pays them to do so. But with that said, when brands are smart with how they implement their loyalty programs, they can be a powerful tool to help build a sense of community and drive repeat business.

To get the most value out of a loyalty program, brands should focus on customer segmentation, analysis, and personalisation, to tailor the incentives and offerings based on customers’ key motivators and buying behaviors.

Types of Loyalty Programs

When it comes down to the inner workings of a loyalty program and how customers can earn and claim rewards, there are many different approaches that can be taken. 4 of the most common types of loyalty programs are point-based, tiered, paid, and value-based.

 

Point-Based Loyalty Programs

Points-based loyalty programs are one of the oldest and most common types, allowing customers to accumulate points that they can then redeem for rewards. 

Points are typically rewarded for actions such as making a purchase, creating an account, leaving a product review, or celebrating a birthday. By creating a points system that rewards engagement, referrals, and brand interaction, customers are further incentivised to participate in the brand community.

A benefit of a points-based loyalty program is that customers can then choose to redeem their points for the rewards that they are most interested in, giving them choice and increasing their sense of being personally valued. For example, they might be able to choose from options such as a free product or a discount on an order.

Shoppers engaged in points programs not only shop more frequently—they spend more, too.

Smile.io

Tiered (VIP) Loyalty Programs

Tiered loyalty programs offer different benefits or rewards to specific groups of customers, based on their spending levels. These programs can also be positioned as ‘VIP’ programs, providing a sense of status achievement for customers in addition to the tangible rewards. 

Tiered/VIP programs incentivise customers to spend more, by enticing them with new rewards or perks that can be unlocked when they reach a certain level of spending. When implemented well, it can help to increase customer engagement and establish an emotional connection between customers and the brand. This leads to better customer retention and higher lifetime value.

Tiered loyalty programs should be easy to understand and easy to earn. When customers can clearly understand what they will get at each tier and feel that these rewards are easy enough to achieve. Achievable, valuable benefits lead to a greater impact on customer behaviour.

With an emphasis on luxury and exclusivity, VIP programs create an experience that leaves customers wanting to spend more with your brand.

Smile.io

Paid Loyalty Programs

Paid loyalty programs are essentially a loyalty program that has a participation fee. This may be a one-time membership fee, or a recurring subscription fee.

Paid loyalty programs can require greater effort to acquire customers into the program. However, once customers are on board, these programs typically generate a higher customer value. A 2020 McKinsey survey on loyalty programs found that consumers who joined a paid loyalty program are 60% more likely to spend more on the brand after joining.

For a paid program to be successful, brands must focus on providing instant benefits with tangible value to the customer. From the customer’s perspective, the value must significantly outweigh the cost to join the program.

Brands must use the membership fees to invest in exclusive offerings with more emotional resonance, such as access to personalized experiences or members-only content.

McKinsey

Value-Based Loyalty Programs

Value-based loyalty programs differ from the other types of programs in that instead of offering tangible rewards to the customer, they emphasise the values of the company (and align those with the customers’ values).

In many cases, this looks like donating a portion of profits to one or more charities that closely align with the business’ values. For example, instead of giving a discount or reward to a customer, a business may donate 10% of their profits to a selected charity, incentivising customers to spend with them from a shared interest in a charitable cause.

Value-based loyalty programs require a clearly defined understanding of your business’ core values. This allows you to select a cause that makes sense and fits well with your brand.

When done well, value-based loyalty programs allow businesses to connect with customers on a deeper level and build a strong, lasting connection with them.

Choosing the right loyalty program for your customers and brand

Determining which type of loyalty program is the best fit for your customers and your brand, there are two key questions to ask:

  1. What is the primary goal of having a loyalty program for your business? For example, is it to get customers to shop with you more frequently? If so, a points-based program might be best. Or, is it to increase the average order value when they do shop? Perhaps a tiered VIP program is better suited? Or is it to build a sense of community and comradeship? In which case you may be best to implement a value-based program.
  2. Who are your customers and what motivates them? For example, are they more motivated by financial reward, or by values alignment? You need to balance customers’ motivations with your own business goals to find the best fit. 

 

Our favourite Shopify loyalty app

If you are running your business on Shopify, then hands down our favourite Shopify loyalty program tool is smile.io. Smile makes it super easy to implement points-based, VIP and/or referral programs.

 

If you have any follow up questions or would like to chat more about customer loyalty and retention strategies, get in touch with our team.

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