How to Create the Best Customer Loyalty Program for Your Ecommerce Business

Jul 23, 2018

Customer Loyalty

Finding new customers is tough, right?

Not only do your existing marketing processes need to be perfected to find new customers regularly, but you’ll have to actively search the market and stay up-to-date with new trends.

If you’re thinking, “it’s hard work”, you’re not the only one.

What if I told you that constantly feeling pressured to acquire new customers isn’t the only marketing model you’ll need to grow your eCommerce brand?

That’s right, you can supercharge growth (and still make a profit) by making one tiny tweak to your strategy: focusing on customer loyalty.

Instead of putting all of your energy into finding new customers, take a look at the opportunities right under your nose.

You see all of those previous customers who’ve purchased something from you already? They’re easier to convert -- and there’s a high chance you could see tonnes of return from nurturing your relationships with them.

Don’t believe me?

Consider this: 13% of all consumers are loyal, and don’t shop around before making another similar purchase. A further 29% do shop around, but end up repurchasing from the same brand.

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Wouldn’t it be incredible if you could snap-up these conversions, and create strong brand evangelists that ultimately drive new traffic to your eCommerce site?

"Referrals account for a large percentage of sales in most businesses, and we all know that a repeat buyer is cheaper than bringing in new customers, so figuring out loyalty and referral programs is key to increasing revenue while decreasing marketing spend." - Shannon Howard, Digital Marketing Strategist at Overit Media

In this guide, we’re sharing how to do exactly that.

What is Customer Loyalty, and Why is it Important?

Customer loyalty happens when people who’ve purchased from a brand continue to do so even though they have a choice of purchasing the same or similar product from a different brand.

Chances are, you’re a loyal customer to a specific brand, too. (Personally, I’m loyal to Apple. I’ve had an iPhone since the age of 15, and couldn’t imagine using another non-Apple product as my cell phone.)

But why is customer loyalty such a huge win for eCommerce brands to achieve?

Well, there’s the obvious benefit of extra cash. On average, repeat customers spend 67% more than new customers, meaning it’s a fantastic way to increase your average order value as well as the overall lifetime value of each customer.

Customer loyalty also decreases customer acquisition costs.

How?

Well, if it cost $5 to attract a customer through your Facebook ad, a one-off purchase means their CAC is $5. However, if they become loyal to your brand and make one repeat purchase, the CAC is instantly halved.

Plus, boosting the number of loyal customers your eCommerce business has helps to create brand evangelists. Acting as a major fan of your business, wouldn’t you love to cultivate a group of people who rave about your product or services to their family and friends?

(I would -- especially when 92% of consumers trust peer recommendations over advertisements.)

So how do you create a group of people who rave about your product or services? Well one way to do so is by rewarding customers by creating a customer loyalty program.

"Customer loyalty programs are all about changing the buying behavior of individuals within certain markets. The target individual for a customer loyalty program is the individual that has the need to buy and would otherwise consider they have a choice of brands, products, or companies from whom to buy from. The customer loyalty program’s purpose is to take such an individual and essentially remove their freedom of choice. They have to perceive that the benefit associated with buying from a certain brand outweighs the benefit of choice." - Martyn R Lewis, CEO and Founder of Market-Partners, Inc.

Four Things to Consider Before Creating a Customer Loyalty Program

Designing a customer loyalty program helps to drive the chances of repeat customers through the roof -- especially when you remember 68% of millennials wouldn’t be loyal to a brand if they didn’t offer some form of loyalty program.

Having said that, creating a customer loyalty program for your eCommerce business isn’t something to rush into.

Successful programs have an established approach to how they’re going to drive customer loyalty through the roof.

"It's important to put the emphasis on the customer and not on yourself. While it may be tempting to try and make a program as cost efficient for your business, that likely means it is not motivating for the customer at all. Put yourself in their shoes and remember that you are investing in a lifetime customer not a one time sale." - Alex McEachern, Head of Marketing at Smile.io

So how can you put an emphasis on your customer instead of your business?

By taking the time to fully understand your target audience beforehand, and clearly defining these four aspects before launching your program:

1. What Benefits Are You Offering?

The first thing you’ll need to iron-out is the benefits a customer will receive by joining your loyalty program.

This could be anything from:

  • Points to collect, and redeem on future purchases.
  • Earning extra rewards -- such as discounted prices -- when switching from a competitor.
  • Earning cash bonuses when referring a friend.

Any marketer will know that people, in general, are selfish -- they want to know what’s in it for them.

Heck, I’m the same. I don’t want to pour 15 minutes of my day into a blog post I won’t get any use from, and I definitely won’t go out of my way to purchase repeats of a product if I’m not incentivized to do so.

So, kick-off the planning stages of your customer loyalty program by defining what’s in it for them. That way, you’re building a mutually-beneficial program that’s a win for both your customers, and your eCommerce brand.

2. What’s the Customer’s Journey?

You’ll also need to understand the customer’s journey before diving feet-first into your customer loyalty program.

Why?

Well, the answer is simple: you need to know the thought process behind their purchasing patterns.

For example, if I were an eCommerce brand that sells beauty products, it’s important for me to know that customers only buy the same product again once it’s run-out. If that’s two months, on average, for a mascara, there’s not much point in me pushing for another purchase if they’ve still got half of the product left.

Knowing your customer’s journey can help to decide the benefits you should be offering in your customer loyalty program, too.

If repeat customers only purchase every two months, offering a cash bonus when referring their friends could be more suitable than a point-based discount system.

3. What Data to Use?

"You want to personalize content/marketing efforts for as many customers as possible, especially your loyal base." - Alana Basloe, Marketing Director at Original Herkimer Cheese

To create a customer loyalty program that customers want to actively take part in, it's important to provide differentiated experiences based on what customers desire, not what you think they want. 

The best way to create a program that exceeds customer expectations, you'll want to use your customer data to help create and deliver a personalized experience for your customers.

4. Is It Convenient?

Your customers shouldn’t have to go through tons of effort into joining your customer loyalty program; you should win them over on convenience.

So, when planning the implementation of your new scheme, ask yourself one simple question: Can customers join the program in less than 2 minutes?

If so, fantastic. That means they don’t have to dedicate a huge chunk of their day to joining your program, and minimize the chances of putting-off their sign-up.

Can we get four cheers for convenience?

How to Measure the Effectiveness of Your Customer Loyalty Program

Your customer loyalty program is in full swing.

But how do you know whether your scheme is working to its’ full potential, and actually increasing the number of loyal customers?

To measure the effectiveness of your new scheme, you’ll need to keep an eye on:

Redemption Rates

How many people are actually redeeming the rewards you’re offering? This is your redemption rate, and helps you to understand how many people are actively involving themselves in the program.

...But how can you find out whether your redemption rate is “good”?

On average, 13.67% of all points issued through reward programs are actually turned into a reward.

If you’re beating this, you’re doing an awesome job!

Active Engagement Rates

Calculated by dividing the number of people who engaged with your program by your total number of customers, analyzing the active engagement rate of your customer loyalty program is another great way to measure success.

This metric allows you to see how well your program is performing.

If tons of people are engaging (i.e. redeeming the points they’ve earned), you’re able to analyze whether the incentive you’re offering is working.

Participation Rates

Participation rates are calculated by dividing the number of people involved in your program by your total number of customers.

As an example, let’s say that I have 100 customers, with 20 signed-up to my customer loyalty program. That’d give a participation rate of 20%.

Whilst this isn’t the greatest of scores, it helps me to understand how the benefits are resonating with my audience.

A low rate could signal a poor reason for customers to sign-up (such as a low cash incentive), and help you tweak your program for increased customer loyalty.

Measuring Overall Customer Loyalty

You’ve analyzed the success of your new program, but how is the new scheme impacting customer loyalty, in general?

(Remember: people can become loyal customers without joining a program.)

You’re able to track this by keeping a close eye on:

Net Promoter Scores (NPS)

Are you using a 1-10 scale that asks customers how likely they are to recommend your eCommerce brand? If so, you’re able to calculate a Net Promoter Score (NPS).

NPS tell you how likely your brand is to be recommended. By subtracting the volume of people who wouldn’t recommend you by the volume of people would, you’ll get a pretty accurate picture of customer loyalty.

Putting that into practice: I might have 10 people who would recommend my brand, but 2 who wouldn’t. My NPS would be 8; a decent indication that I have loyal customers.

Repeat Purchase Rate

Sick of relying on your basic math skills to calculate customer loyalty? You’ll love this one.

Repeat purchase rates, as the name suggests, tells you how many customers purchase from you more than once. The majority of sales dashboards will give this figure, but you can opt for a DIY option by filtering your sales sheets and noting down how many times a person has repeatedly purchased.

A repeat purchase rate of 20%+ is fantastic, and proves you have a bunch of loyal customers. Go you!

A repeat purchase rate of 1%, on the other hand, could signal that your customer loyalty efforts need a bit more work.

Customer Lifetime Value (CLV)

CLV is calculated by adding the total revenue generated from a single customer. If one of my customers made the following purchases:

  • $100 in December
  • $28 in April
  • $250 in September

...their CLV would be $378.

(Take the average of each customers’ lifetime value to see an overall figure for your eCommerce business.)

Compared with the average cost of your product, this can tell you the loyalty level of your customers.

So, using the example above, an average CLV of $378 would be awesome if my product was $57 to purchase. That means each customer would repurchase 7 times.

However, if the average CLV was $378 and my product was $378 to purchase, it’s not great -- and indicates that customers aren’t likely to repeatedly purchase from me.

Why Measure Customer Loyalty, Anyway?

Why is it important to measure how many repeat purchasers are coming to your site?

The answer is simple: the data you receive about your most loyal customers can help your eCommerce business to better acquire -- and engage -- future customers, by helping to identify loyalty drivers.

Let’s put that into practice.

If I spotted a loyal customer repeatedly purchasing from my eCommerce brand, I might reach out to them to ask why.

Is it because:

  • The product we’re offering is cheaper than our competitors?
  • We’re awesome at Facebook retargeting ads?
  • Our brand has better customer experience?

For argument’s sake, let’s say the customer’s reason was the last one. That allows us to identify what we’re good at (customer experience), and focus on this as:

  • A USP to find new customers,
  • ...and a strategy to generate more loyal customers.

3 Examples of Awesome Customer Loyalty Programs

If you’re looking for customer loyalty program examples that could inspire your own strategy, here are three brands who’re currently killin’ it with their schemes:

1. Debenhams Point Scheme

First up is Debenhams’ point-based scheme: Beauty Club.

Acting as a mini membership where customers collect three points for every £1 spent in their store, Debenhams are doing an awesome job at fostering customer loyalty through these scheme.

We all want to collect points… And more importantly, turn those virtual points into cash, right?

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2. O2 Priority

Think about mobile phone providers. It’s rare that you’re loyal to a network, right? Especially if you can find a similar provider offering the same deal at a cheaper rate.

That’s why we’re including O2 Priority as a fantastic customer loyalty program reward in the mobile niche.

Here’s how the scheme works, in a nutshell: customers of O2 have access to discount codes (to other retailers they’ve paired with), and offer “priority tickets” to concerts -- meaning O2 customers have a better chance of grabbing tickets to their favorite artists.

That’s a fantastic reward, and reason to stick with O2, if you ask me!

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3. Barnes & Noble Membership

Who said pre-paid memberships weren’t a great way to encourage customer loyalty? Certainly not Barnes and Noble.

Offering customers member-exclusive discounts and $60 in bonus coupons for just a $25 annual fee, it’s a fantastic method to make additional cash through a loyalty program.

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These examples will hopefully get your creative juices flowing, however it's important to remember that the right customer loyalty program for your ecommerce business may be different than the right program for a different business.

"Look at your customers' current purchase behavior and shape your program based off of that while also considering what you *want *their purchase behavior to become (i.e. what is your current average order value &how do you increase it). " - Alana Basloe

5 Apps to Help with Customer Loyalty

Are you looking for an app to make managing your customer loyalty program a whole lot easier? Here are five of our recommendations:

  • Smile.ioBuild a rewards program complete with points, referrals, and VIP tiers. Start building your own brand community of loyal customers.
  • Stamp Me: Used by KFC and Subway, Stamp Me allows you to offer digital loyalty cards to the people buying from your eCommerce store.
  • LoyaltyLion: Reward customers for positive actions -- such as reviews, signups and purchases -- and view in-depth analytics to measure the success of your customer loyalty program.
  • Quivos: Build your own rewards app, and manage their loyalty program online.
  • Beautiful Loyalty Programs: Allow customers to collect points when making online purchases from your Spotify site.

Final Thoughts

As you can see, focusing on customer loyalty is a fantastic way to reduce your cost per customer acquisition. Not only can you improve the ROI of your existing sales strategy, but providing a customer loyalty scheme is a surefire way to generate more cash for your eCommerce business.

Once you’ve implemented a customer loyalty program of your own, remember that measurement is key. Keep a close eye on the metrics we’ve shared, and don’t be afraid to tweak your strategy to find the best results.

You’ll be on the path to raving fans, in no time!

Elise Dopson

Written by Elise Dopson

Well versed in the B2B, SaaS, and marketing realms, Elise helps merchants navigate the ever-changing world of online channel management.

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