Companies continue to join the club, adding loyalty programs in an effort to improve customer retention. There’s good reason for that. The average number of loyalty programs a consumer is enrolled in has grown tomore than 14. That’s up from 11 memberships in 2014.
Hoping to benefit from that consumer desire, brands are pushing big into loyalty.56% of brands automatically enroll consumers into loyalty programs the moment they sign up for a customer account.
eCommerce brands recognize the benefits of rewarding customers to improve the lifetime value (LTV) of customers; however, the data shows plenty of brands struggle with creating and maintaining programs that keep customers engaged.
56% of shoppers have abandoned or altered a purchase when they realized their reward points had expired.
79% of consumers admit that brands need to demonstrate that they actually understand and care about the customer before they’ll continue with a purchase.
That last one is the most interesting. More than 2/3 of customers want to know that your brand cares. They want a personalized experience that builds an actual relationship with your brand. With consumer enrollment in loyalty programs soaring, they have more reason than ever to connect with a competitor.
But it’s going to take more than handing out points to keep them. You need to meet their expectations through the entire customer journey and build a loyalty program that’s about more than the freebie.
When Loyalty Programs Are Done Successfully
It’s not uncommon for growth-focused startups to focus on acquiring new customers. If you grow your audience and get more traffic to your online store, your conversion rate will hold and equate to more sales—right?
In theory, that’s true, but your new customers aren’t spending as much, and they cost more to acquire. In fact, it costs 10x more to acquire new customers than sell to existing customers. Not to mention, on average, your existing customers spend 67% more than a new customer.
Actively listening to customers is the backbone of marketing. It’s an essential part of product and marketing research, and for building buyer personas. In order to create (and improve on) a loyalty program, you need to listen to customers and adjust course to show them you care.
This research can help you understand customer expectations to craft a program built on what they value most. Also, proactively engage with your customers to solicit feedback. Don’t rely on loyalty program metrics and transaction reports to gauge the effectiveness of your program.
Use feedback to offer unique rewards.
Free items have long been used for rewards, but some research suggests that just giving freebies may not be the best idea for rewarding your customers.
In his book Influence: Science and Practice, Robert Cialdini of Arizona State Universitypublished that people have a tendency to place greater value on items when they are more expensive or costlier to procure.
Rather than trying to move customers to action with “free stuff,” find other ways to reward customers and enhance loyalty.
Pad out your loyalty program to include exclusive access to things like:
Unique and exclusive experiences
Limited digital content
Knowing what to offer will be easy when you lean on the feedback from your audience. While items may very well be free as a result of a loyalty reward, you’re creating a structure with rewards that are seen as more valuable than just getting a free product.
Tailor the rewards to customer segments.
Any brand can give away free products to reward loyalty. You want to avoid the mistake of giving away rewards just for the sake of giving rewards. Not only should you have a goal in mind with your rewards, the rewards should have intrinsic value.
Tailor your rewards to your specific type of customer.
Don’t lump all your customers together. The most attractive rewards will be tailored not only to your audience but to individual audience segments.
Sony Rewards is a perfect example of this. The brand has customers from all walks of life purchasing various Sony products. Their rewards catalog is expansive, providing not only tiered rewards, but a great deal of variety to appeal to their customers.
Cinephiles can get their movie fix with their rewards.
Or music, electronics, and even video games.
Give your customers the freedom to select their rewards, but offer something tailored to different buyer personas or audience segments.
Use points, but keep it simple.
Reward points are the most common approach to building a loyalty program. The concept is simple enough. Your customers earn reward points, and those translate into some type of reward. In many cases, the points have monetary value and can be used like cash in eCommerce stores.
Effective in theory, but where companies sabotage their own program is by making the program far more complex than it needs to be, or by using confusing language.
For example, “A $10 purchase gets you 350 points. 750 points are equal to $20% off your next purchase in the month of April, or use it now to get 50% off select items, which you should do because 200 of your points expire in 8 days …”
Or they have multi-step processes in place just to get a reward.
A loyalty ladder or tiered reward system is a great way to offer immediate rewards to new customers while enticing them to purchase more with greater rewards. These types of rewards are typically seen in the travel and hospitality industry, such as this rewards tier for IHG Rewards Club.
They can still work just as well for eCommerce, depending on the frequency of customer purchases and the average order value of a sale. At the same time, a program like this can encourage them to spend more, or spend more often.
The main difference between a simple points-based program and a tiered program is that your customers are able to gain value immediately, offering an immediate boost to loyalty. From there, you can build your tiered rewards to improve relationships and improve retention.
Decide what actions trigger rewards.
The primary goal of any loyalty program is to get the customer to make additional purchases in your eCommerce store. That shouldn’t be your only goal, though.
You want to sincerely reward the customer for engaging with you and growing your relationship. Part of creating a successful loyalty program is deciding how you’ll reward your customers.
UGG rewards customers a number of ways for activities they’re likely already doing.
Look to non-transactional engagements and how you can reward them:
Set up partner offers as part of your loyalty program.
Your customers have more needs beyond the solutions provided by your products. People lead complex, busy lives, with all kinds of daily worries and headaches.
A smart way to ramp up the value in your loyalty program, and greatly improve customer retention, is to set up partner offers among your rewards.
By working with other brands, you can expand the value of your rewards to better meet their needs. Customers are far more likely to return to your online store and spend money when there is a greater benefit among any other brands they favor. It’s a spectacular way to delight your customers.
Create simple rules that favor the customer.
Rules are a necessary part of any loyalty program. They’re designed to protect your brand from those who would abuse the system.
Don’t make the mistake of assuming every customer is out to take from you, though. If your rules are too restrictive, such as with frequently expiring points, you’ll have a hard time winning the loyalty of your audience.
Focus on creating a few sensible rules that are enough to cover you. You may not need the extensive rules that a brand like Best Buy uses.
Support your acquisition needs with a referral program.
A good loyalty program can dramatically improve customer retention, and it can also reduce the cost of new customer acquisition. Offer a reward to your loyal customers for referring friends and family.
Harry’s uses a tiered referral program to build loyalty and repeat business.
Not only will this encourage repeat transactions, but it will bring you new business as well.
If the idea of giving away a portion of your revenue makes you cringe, then look to the things most valuable to your customer and find other ways to reward them.
Dropbox has used this model successfully for years. With very little spent on advertising, Dropbox has grown tremendously because of its referral program. The company knew what its customers wanted most (storage space) so it gave away extra storage space for referral sign-ups. It was effective, too.
Granted, they’re not an eCommerce brand, but the same type of program can be tailored and applied to your business to acquire new customers—like unlocking free or expedited shipping for an allotted amount of time after a referral makes a purchase.
Once you establish your reward program, the work has just begun. You must continue to monitor, analyze, and revise that program as you listen to feedback from your audience.
Most importantly, a loyalty program is just a tool. To improve customer retention and the success of loyalty programs, your eCommerce brand must strive to make better connections and build stronger relationships.
Satisfaction and loyalty mean nothing when there is a relationship disconnect. That disconnect is why up to 80% of satisfied customers still don’t return to make another purchase.
Use the tips above to build a blueprint for an effective loyalty program, and be sure to include ways to maximize the engagement experience with your audience to reinforce those relationships.
Does your eCommerce store use a loyalty program for improving customer retention? What kind of success do you see from it?
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Ronald Dod is the Chief Marketing Officer and Co-founder of Visiture, an end-to-end eCommerce marketing agency focused on helping online merchants acquire more customers through the use of search engines, social media platforms, marketplaces, and their online storefronts. His passion is helping leading brands use data to make more effective decisions in order to drive new traffic and conversions.
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