What industry is best for starting a loyalty program? That is a question I am asked every time I talk about customer loyalty and retention. If everyone is asking a question it usually means it will make a great post. Here is what makes an industry a prime candidate for loyalty as well as some examples of industries that loyalty works well for.
The Best Industry for a Loyalty Program
Let me start by saying the industry I am about to describe does not necessarily exist, but is rather the ideal situation. A loyalty program is effective in almost any industry but any industry that looks like this is a no brainer. You can also take our free assessment to see if a loyalty program is right for your store.
1. Products with Repeat Purchasability
If your store operates in an industry where your items are purchased regularly or semi-regularly you are well set to take advantage of a loyalty program. I would define products with repeat purchasability as:
For example, clothing would be a good example of items that a customer sees benefit in buying multiple times a year. As seasons change shoppers want different looks and trends. On the flip side an item that has required repeat purchase would be electronic cigarettes. These need e-juice to be used which needs to be purchased regularly to continue to use the original purchase.
When your products have repeat purchasability it becomes much easier to influence a purchase with the use of points. You can use a loyalty program to encourage customer to shop more often than usual and increase your purchase frequency. The added benefit of increasing your purchase frequency is that it also increases your customer lifetime value!
An increase in your stores lifetime value is the ultimate goal of any loyalty program. It can be accomplished by using points to encourage customers to buy more (average order value), buy more often (purchase frequency), and buy for longer (customer life-span).
2. Products with Margin above 10%
Loyalty programs work by giving your customers something back in return for their loyalty. This is usually in the form of points which also hold a financial value. The amount these points are worth are a percentage of your margin (usually 1% – 3%), but don’t worry you will recoup that margin through an uptick in CLV.
Industries that have high margins (non-commodity) are best suited to give a percentage of their margin to the customer in the form of points. If you have 10% or higher you are in fantastic position to give 1% of your margin for a 20% increase in customer lifetime value.
3. Lots of Competition
This might go without saying but loyalty programs are most effective in industries that have a lot of competitors. I mean an increase in retail competition was what caused loyalty programs to be invented in the first place.
While ecommerce might not be the same as retail in terms of competition quite yet; it will quickly reach that point. There is a reason that over 50% of the top 100 retailers in the United States currently use some form of loyalty program.
Points give your shoppers a switching cost (forgone points) if they decide to choose a competitor for their next purchase. It is in our nature to maximize our value and leaving points behind is counter-intuitive to us.
This makes a loyalty program a great defense to customers jumping over to a competitor and even makes your customer less price sensitive.
The Best Industries for a Loyalty Program
Keeping the above three characteristics in mind we can look at a few industries that are well positioned to use a loyalty program. These industries are not the only ones that loyalty will work for, but they are ones that have seen huge success with Smile.io loyalty programs.
This might possibly be “the best” industry for a loyalty program! Supplements and vitamins are purchased very frequently. I know that I make a purchase from these types of sites at least once every 2 months.
They also have high enough margins to justify a program especially when they have their own house brand or private label. Many programs in the supplement industry actually reward more points for purchasing their own brand.
They also need to be aware of all the competition that exists out there. Just do a google search for protein powder and you will see what I mean. You can see some more tips and examples in our supplement industry examples post.
Cosmetics and the beauty industry in general work great for customer loyalty. Just look at how successful Sephora’s program has become. The beauty industry passes the repeat purchasability check, my girlfriend buys makeup probably once a month.
The beauty industry definitely has the margins to justify the investment in a loyalty program. The industry has some of the highest margins in existence. A 1% to 3% investment is no problem here!
With those high margins comes tons of competition. Online beauty retailers are in a constant jockey for position online and a loyalty program can really help.
This is an industry that falls into the “required” section of repeat purchasability. Once an e-cigarette is purchased you must continue to buy ejuice to continue use. There is a lot of money to be made if you can make sure that customer buys the juice from you for the rest of their days!
Once again margins are not a problem in this industry and with Forbes projecting the industry to eclipse traditional tobacco by 2047 there has been a huge influx in competition. The industry has started to look a little like the wild west.
The huge influx of competition has made loyalty programs a huge benefit in the ecig and vape industry!
Everyone needs a wardrobe update every so often, and some more often than others. The fashion industry is always changing styles, and the changing season bring on new items quarterly. The fashion industry has tons of repeat purchasability.
Just like the beauty industry the fashion industry has no problem with margins. The men’s fashion industry alone is a $423 billion dollar industry.
The sheer size of the industry alone can account for the mass amount of online competition. The changing seasons, high margins, and crazy amounts of competition make the fashion industry a prime candidate for customer loyalty programs.
Industries that Work Well for Loyalty Programs
There are tons of other great industries for loyalty programs including: pet supplies, food/beverage, and even digital products. The ones above are the industries that in my mind are no doubters for a loyalty program.
If you are unsure if your store can benefit from a loyalty program you can take our free loyalty program assessment. You can also give Smile.io a try if you are looking for a loyalty program on Magento, Shopify, or Bigcommerce.