“Is a loyalty program really going to help my business?”
Growth (and bottom-line) minded brand owners and operators often ask that question. They’ve seen the obvious benefits from brands that do loyalty well, but they’ve also heard horror stories. They know about brands that launch reward programs that get little to no engagement or when customers earn bucket loads of points but still won't return for repeat purchases.
For the ones that fail, the problem isn't with reward programs as a concept—it's with how those programs are carried out.
More than a few bad apples
If you're looking at only poorly configured and poorly designed programs, you'll have a hard time seeing how rewards can help a business. Only 2% back on purchases? A lackluster referral offer? No customization or personalization? A user experience that feels stuck in the early 2000s? None of these will take your bottom line anywhere—even if your aesthetic is retro-brutalism.
“90% of shoppers want brands to offer them personalized experiences” ― Epsilon Research
Your business is important to you, and rewards can be a driving part of your success. But while you can launch successful rewards programs in a matter of minutes, you will have to look under the hood of your business so that your rewards program can be optimized for your brand, your customers, and their specific needs.
Defining "good" loyalty programs
If not all reward programs are created equal, then what actually constitutes a good one? Lucky for you, I can look at the anonymized data from over 100,000 active loyalty programs and tell you what the highest-performing ones have in common. And by "high-performing" ones, I mean the loyalty programs that:
- Bring customers back
- Have loyal customers that spend more money
- Motivate those returning customers to spend more often
The triple threat of repeat purchases 🎉 And in case you didn't know, that is why it is beneficial for you to focus on retention and acquisition. The more loyal your customers are, the better it is for your bottom line (in more ways than one!)
But now for the actual characteristics of those good programs…
Designing a program so that everybody is an earner sounds like a no-brainer, but you'd be surprised how many brands leave most of their customers behind. With the correct program set up, gone are the days of needing customers to create accounts to start earning points.
What does that mean? Customers can place orders as a guest, but since they have to provide an email address to place the order, you can still keep track of the points they are earning. Then they've got a points balance you can use to motivate them to come back and either create an account to access the points (and get more with other earning actions) or—better yet—cash them in on another order.
If you're forcing customers to create an account to even start earning points, you're going to scare off potential loyal customers. Loyalty is earned, and you can't build that long-term loyalty if you never give them the chance to come along for the ride.
A meaningful earning experience
The problem with so many loyalty programs is they just don't make sense. How many points can I earn today? What can I get with that? It's a mess of multiplication and complication.
On top of less-than-simple math, they also suffer from the effects of trivialization—their points are worth so little they aren't valuable, and so they aren't worth the time or effort for customers to earn them. If you're making customers spend hundreds of dollars or place dozens of orders to get a measly 5$ off their next order, you're behind the times.
Looking at the bulk of those high-performing loyalty programs, they make engaging with the program simple and valuable. 5% back in points at a minimum, with the top performers going as high as 10%. What does 10% back look like, though?
Every 500 points gets a $5 off reward.
$50 spent, $5 to spend next time.
The trick isn't leaving your customer with hundreds of points festering in their account forever. They should be able to earn their first (small) reward after their first purchase—with the addition of some non-purchase earning actions. There are so many ways to make it easy for them to get their first reward while also having to earn it: social follows, newsletter signups, and recycling packaging are just a few examples. You can make those extra actions valuable for your brand's growth while benefiting your customers with points.
A well-configured percentage back combined with integrations to the other apps in your tech stack will unlock some extra earning actions, while also unlocking the ability to include loyalty info in emails, texts, push notifications, support conversations, and more.
Don't just be a run-of-the-mill brand. Provide an exceptional reward-earning experience that gets your customers excited.
Give the people what they want (transactional vs. experiential)
The gripe that many have with loyalty programs is that customers earn points but don't do anything with them. Typically—while not many would want to admit it—that is the "fault" of the brand. Not only do they need to get enough points from the things they do to make it worth their while, but the rewards they can get with what they've earned have to be worthwhile as well.
That's what makes VIP programs such powerful extensions of points systems. The dopamine hits your customers' brains get as they earn better rewards and perks make them more likely to keep coming back. That doesn't happen as often or powerfully if you only offer free shipping and discounts off their next purchases.
What do you offer in addition to those, though? Well, what do your customers actually want? If you don't know, here's an idea: ask them. Whether you set up a fancy post-purchase survey or manually send emails to your best customers, nobody will know better what will make them... smile... than your customers themselves.
Regularly earning experiences (big or small) they find valuable in combination with the monetary benefits of a loyalty program makes their relationship with your brand more tangible. And it helps when it's something they've earned, not bought. While the Costco/Amazon prime model works for some, as consumers, the psychological impact of having earned a reward is better than just buying it.
Mix the value of transactional rewards that benefit your bottom line with the experiential rewards that make your customers feel like they're a part of your brand story to maximize long-term loyalty.
Following the leaders—to your customers
Some of the biggest brands in the world use reward programs to increase repeat purchases and customer loyalty. Why? Because they do work. Are all of their programs successful? Absolutely not. Many enormous brands have launched terrible programs because they haven't actually asked the all-important question: what do customers actually want?
• Starbucks knows their customers want free food and free drinks
• Sephora knows their customers want to feel like the ultimate beauty VIPs
• The Body Shop knows their customers want to make a difference and donate to charities
• Nike and DICK's joined forces because they know their customers want exclusive products and training from celeb-status athletes.
No matter how big or small your brand is, you have access to the same "special sauce" that makes these household name programs work: your customers. The up-and-coming ecommerce brands that figure this out will outpace their competition because they aren't wasting their resources where they aren't going to make a difference.
- scale back ad spend because they know it is less expensive to market to their existing customers
- decrease the size and frequency of sales, so they are only attracting high-value customers
- focus on creating customer experiences that make customers love engaging with the brand
The TL;DR on loyalty led growth
There's no easy way to say that there are lots of lousy loyalty programs out there, but it's true. Without any thought into what their customers are looking for from the brand, how their percentage back should work, or a way to reward every shopper, too many brands are setting themselves up for disappointment.
Can loyalty programs help ecommerce brands increase retention and repeat shoppers? Absolutely.
But you must make the customer experience rewarding, or your offering—and your bottom line—will fall flat.