Starting an E-Commerce Customer Loyalty Program for Your Business

by skyje · Nov 5, 2020

It costs companies five times more to acquire new customers than it does to retain existing ones. This is why e-commerce businesses invest in client retention and customer loyalty programs. Long-standing customers tend to purchase more over time from a brand that they are loyal to, which increases their customer lifetime value. Moreover, they become brand advocates who are able to bring new customers to the company.

With the pandemic changing people’s online shopping habits, consumers are now more keen on their options. It is also worth mentioning that people these days are already used to buying in bulk due to COVID-19. You’ll want to have these customers buying in higher quantities from your store, not from your competitors. Because competition in the e-commerce market is stiff, it helps to utilize technology geared towards driving customer satisfaction, customer loyalty, and revenue, such as an Amazon repricer, Customer Relationship Management systems, Inventory Management systems, and loyalty apps.

How Does A Customer Loyalty Program Work?

Serving as a customer retention tool, customer loyalty programs work by rewarding shoppers who buy higher volumes, shop more frequently, or interact with the company. There are different types of customer loyalty programs:

Point-based Programs

Customers are awarded points for purchasing products, subscribing to newsletters, completing profile forms, and referring more customers. The points gained can be traded for rewards. Because store owners are able to implement this with relative ease, point-based customer loyalty programs are very popular among online merchants.

Perk Programs

This is commonly rolled out by companies whose goal is to primarily achieve brand awareness. They offer exclusive members-only benefits. These are beneficial in that it helps build goodwill among customers and it also makes shopping more enjoyable.

Tier-based Programs

Incentives are tier-based in this model. The higher they ascend, the better the benefits. Customers who have earned the VIP rank will enjoy VIP-exclusive rewards. Because transferring to another brand’s loyalty program means letting go of your current progress, it deters your existing customers from doing business with your competitors.

Hybrid Programs

Hybrid programs employ a combination of various elements from the previous types of programs. They establish brand loyalty through gamification, challenges, and communities.

Subscription-based programs

These programs may be offered free of charge or may come with a fee when customers sign up for their annual membership. In return, members get benefits like discounts, gifts, vouchers, and exclusive services. They are able to enjoy the instant gratification that this model offers. Case in point, 100 million customers wanted in on the convenience offering and signed up for Amazon Prime membership. Members of premium loyalty programs tend to modify their spending in order to make the most of their subscription.

Loyalty Program Implementation

Having a thorough understanding of the different types of loyalty programs allows you to make an informed decision about which one to use for your business. There is no one-size-fits-all model. As such, you will need to answer some questions that will help you establish your terms and conditions as well as finalize your design:

What are your goals for this program?
Who are your target customers?
What interactions do you wish to reward?
What rewards are you willing to give?
How will your customers redeem their rewards?
What are the rules of the program?
Will your technology platform be able to support this?
How do you measure your success?

Focus on the design and technology that you will be using. There are loyalty apps that you can integrate into your website or store app. Once these details have been fine-tuned, test your program with a few selected customers. Check if there are any issues that arise and collect customer feedback. Once everything has been ironed out, launch the complete program and monitor progress.

Ensure that the reward redemption process is easy and seamless. Customers who leave after redeeming their rewards add to your churn rate. Avoid this by offering them incentives, such as discounts or membership upgrades for continuing to shop from your store.

Measure your success using KPI’s. Among the common metrics that you can use are customer lifetime value, customer retention rate, customer churn rate, repeat customer rate, and upselling ratio. At the start of the implementation, you’ll especially also want to check the redemption rate to see if your incentives are effective and enticing.

It is important to have a balance between both acquisition and retention efforts; they go hand in hand. It is good to have profitable first-time purchases coming from acquired customers, but we want these consumers to have repeat business with the company. The ideal Customer Lifetime Value to Customer Acquisition Cost ratio is 3:1. Design your customer retention strategies in a way that makes your customers feel valued and will make them want to continue doing business with you. Reward them for their loyalty, and this is going to reward your business in return.