There’s no doubt about it: Repeat customers are profitable.
And what’s even better than repeat customers? Loyal customers. Whereas repeat customers might shop with you out of convenience, familiarity, or price, loyal customers shop with you because they trust you and believe in your brand values. And they’ll likely stick with you even when a competitor joins the market.
But how can you build customer loyalty when you’re an eCommerce store competing with many other stores that offer the same things as you?
One way to do that is by creating a loyalty program. A loyalty program is designed to increase customer loyalty by providing rewards to customers for continual patronage. In other words, it gives your customers a reason to shop with you and not your competitors.
And as it turns out, loyalty programs can be incredibly effective, with 81% of customers saying that they are more likely to continue shopping somewhere that has a loyalty program.
The only problem is that not all loyalty programs are successful: 54% of loyalty memberships are inactive.
Suffice it to say that creating a successful customer loyalty program isn’t easy. But don’t worry. In this blog post, I’m going to tell you how to create a customer loyalty program that will turn your one-time shoppers into loyal customers.
Characteristics of a Successful Loyalty Program
In order to make sure that your loyalty program is one that your customers actually want to be a part of, there are a few things you’ll want to keep in mind.
Reward for Repeat Orders
For starters, there are a number of things that you can reward your customers for, such as referrals, social shares and repeat orders,. But the most successful loyalty programs reward customers for repeat orders.
Make it Easy to Understand and Use
Most importantly, your loyalty program should be easy to understand. It should also be super simple for your customers to redeem and use their rewards.
If you’ve ever tried to redeem miles through Spirit Airlines, then you’re probably aware of just how frustrating it can be when companies make this difficult. Spirit Airlines’ miles expire every three months and customers are charged $25 just to make a reservation through the call center. On top of that, if customers need to change or cancel a flight that was booked with miles, they’re charged $110.
Who would want to participate in a loyalty program like that?
Ask Customers What They Want
Not sure what your customers would like in a loyalty program? Ask them!
The shoe retailer, DSW, surveyed their customers and asked what they wanted in a loyalty program. They found out that many of their female customers had shoes that were over 12 years old. So they created a program in which members could donate their old shoes to DSW and in turn, get points that would go towards the purchase of a new pair.
It might not have been the most profitable strategy, but it got customers back in the store and gave them a motive to purchase from DSW.
Types of Loyalty Programs
A loyalty program can be very effective at attracting new customers to your business, but the main goal of your loyalty program should be to get your current customers to continue shopping with you.
After doing a bit of research to determine what your customers want and what they already like about your brand, it’s time to create your loyalty program. Here are a few different types of loyalty programs you could create:
A points system is probably the simplest and most common type of loyalty program. It works like this: Whenever your customers spend, they rack up points, which they can redeem for freebies, discounts or some other type of reward once enough points are accumulated.
The apparel store, GHOST, relies on a points system for their loyalty program; customers can redeem their points for any product on the website.
Easy peasy, right? That’s how easy to use yours should be too.
Most tier systems are made up of three tiers; the more a customer spends, the higher their tier. Tier systems work well because they make your higher-spenders feel special and rewarded; they know that they are getting more benefits than the average spender.
Take a look at how the beauty company, Elf, does it:
Notice how they use fun and girly names for each tier: Glow Getter, Rising Star and A-Lister. They are also very clear about the number of points that customers need to accumulate in order to reap the benefits of each tier. And they even tell shoppers how many points they’ll get from each dollar they spend within each tier.
Coalition or partnership programs are where you partner with another company to provide benefits to your customers. So if you sell athletic apparel, you might partner with a company that sells exercise supplements. Then when your customers shop with you, they can redeem their points with your partner—and vice versa.
The benefit of this is multifold: Your customers will be happier and you’ll have the potential to gain new customers (your partners’ customers).
American Express is an example of a brand that did this well. Their Plenti Program allowed customers to combine their rewards from a variety of retailers, like Macy’s, AT&T, Hulu, and more. So for example, customers could use points that they earned from shopping at Macy’s towards paying for a Hulu subscription.
VIP Membership Program
With a VIP membership program, your customers pay a fee to become a part of your “VIP program.” Once they’re members, they can take advantage of discounts, freebies, access to special events, and the like.
Amazon Prime is probably the most popular example of this. Amazon charges a monthly (or yearly) fee for Prime members, who then are privileged with free, two-day shipping and access to a wide range of movies, music and TV shows.
And Amazon’s strategy is certainly working: Prime members spend an average of $600 more per year than non-members.
Another good example of an effective membership program is REI. For a small fee of $20, REI customers become lifetime members and have access to: 10% back on the total amount that they spend at REI per year; special offers; massive garage sales; discounts on outdoor classes, events, services and trips.
Yup, all of that for life. For just $20.
On top of that, REI customers like spending there because of the company’s values, such as outdoor conservation (REI even closes on Black Friday to raise awareness for this cause). The brand also clearly appreciates their members, who they prominently display on their website:
Measuring Your Loyalty Program
Once you’ve created and implemented your loyalty program, you should monitor how it has performed. Otherwise, how do you know if it’s actually working?
Here are a few Key Performance Indicators (KPIs) that will help you measure the success of your program:
Customer Retention Rate
Customer Retention Rate measures how long your customers stay with you over a certain time period. If your loyalty program is successful, then this rate should be increasing over time. In order to find out if it is, you could run an A/B test comparing your program members and non-program members and see what your customer retention rate is for each. Even just a 5% increase in customer retention rate can result in a 25%-100% profit increase, so this is one metric that you want to take seriously.
Customer churn rate is the rate at which your customers cut ties with your companies. Negative churn rate is just the opposite; it’s the rate at which your customers upgrade or purchase additional services.
Net Promoter Score (NPS)
Net Promoter Score measures how satisfied your customers are with your brand on a scale of one to ten. You can calculate your NPS by subtracting the number of customers who wouldn’t recommend your store from the number that would. Not sure what this is? Send out a survey to find out.
Summing Up: How to Create a Customer Loyalty Program
Loyal customers aren’t easy to come by. The good news is that with the right loyalty program, it’s possible to increase customer loyalty, retention, and sales.
First, find out what your customers really want from your brand. And what draws them to you in the first place. Once you have a better idea of that, you can define your goals and work to create a loyalty program that will be hard for your customers to say no to.
Whether it’s a tier-based system, a points system, a VIP membership, partnership, or a combination of the above, determine the type of program that you think would best achieve your goals.
You can use a platform like Swell to implement your rewards program and integrate it with your website. Need a little help with this part? Or still not quite sure how to create a customer loyalty program? We got your back. We’re an eCommerce web design agency that also offers results-driven eCommerce marketing services. Get in touch to find out how we can help!
With all of that being said, you don’t have to create a loyalty program. If you sell unique, high-quality products and you don’t have many competitors, then you might not need to.
Loyalty program or not, the important thing is that you make your customers feel special. Share your values with them. Give them a reason to come back to you.
At the end of the day, that’s really all that matters.