Do Ecommerce Companies Need a Loyalty Program?

Whether you’re shopping in-store or online, there’s a question that’s almost ubiquitous during the checkout experience: “Would you like to sign up for our rewards program?” Nearly every retailer is offering rewards these days, and you might find yourself wondering about the benefits of loyalty programs for your business—and whether they outweigh the cost of giving customers an endless stream of discounts and special offers.

We’re here to argue in favor of customer rewards. A thoughtfully-designed loyalty program can help you gain long term customers in an increasingly transactional ecommerce space, build stronger relationships with your customer base, and learn more about your core customers so you can make smarter marketing decisions.

The Challenge of Customer Retention

Before we dive deeper into the details of ecommerce loyalty programs, let’s talk about why it’s so hard to attract loyal customers in the first place—and why they’re so important to the success of your business. Recently, we took a look at the current state of ecommerce [link to part one loyalty article] with two key takeaways: online sales are skyrocketing year over year, and customers are less loyal to specific brands than ever. Most customers simply search for a product, find the lowest price, and purchase without much thought for the brand behind the sale; this tendency can lead to skyrocketing acquisition costs and astronomical churn rates for online retailers.

The problems above are a top concern for ecommerce businesses because of a crucial but often-overlooked metric: Customer Lifetime Value. CLV is a measurement of the net profit that can be attributed to one customer over the entire span of their relationship with your business; loyal customers who make repeat purchases have a much higher CLV than the price-driven customers we described above. It costs five times more to acquire a new customer than it does to retain an existing one, and just a 5% increase in customer retention rates can increase profitability by up to 75%. All of these statistics clearly indicate that successful and creative retention strategies are critical to continued growth in ecommerce. So, how can you cultivate long term customers with a higher CLV when you’re operating in a price-driven market?

Building a Loyal Customer Base

There are lots of ways you can boost your CLV; high-quality product offerings, a consistent experience in every platform or touchpoint, and competitive prices are all essential to keeping your customers satisfied. Research has proven that loyalty programs are another essential component of long term customer retention. In fact, a study conducted by Nielsen revealed that 84% of consumers prefer to shop with retailers who offer a loyalty program.

Some benefits of loyalty programs are obvious. First and foremost, they help you retain existing customers by adding value and a sense of appreciation to your overall brand experience. After your rewards program gains some traction, it can also attract new customers to your brand. Once customers enroll, loyalty programs drive higher conversion rates; there’s extra motivation for customers to complete a purchase when they can gain rewards points or make it into the next loyalty tier.

Finally, and most importantly, a loyalty program offers new ways for your business to engage with your customers—more often and via more platforms. As customers shop within the loyalty program, you’ll be able to collect valuable data about their browsing and purchasing habits. With this new data, you can make your marketing efforts more targeted, informative, and personalized than ever, which further boosts your CLV. Over time, you’ll build a relationship that goes beyond individual transactions to create lifelong customers who understand and value your brand.

Rewards Beyond the Discount

If you’re a smaller business or new to ecommerce, the traditional model of a discount-based loyalty program might feel out of reach financially. But rewards don’t come solely in the form of lower prices—they can also be about making your customers feel recognized and appreciated. As you learn more about your customers, you’ll discover innovative ways to offer high-quality rewards without cutting into your bottom line. You might even consider offering a tiered program, like the super-successful ones at Sephora and Starbucks, so you can offer a wider range of rewards. Here are a few creative ways to recognize your top customers and build brand loyalty:

•     Gift with Purchase: Drive additional sales during peak seasons by offering a small gift with purchase for VIP customers. Get some additional bang for your buck by using that gift to advertise. (Think a branded canvas tote or something similar.)
•     Early Sale Access & Sneak Peeks: Special shopping experiences are a great way to engage with your top customers and make them feel valued while simultaneously encouraging them to shop more often. Grant loyalty members early access to your biggest sales, or let them shop new arrivals before anyone else. You’ll get an early read on new promotions and collections, and your customers will get VIP treatment.
•     Free Shipping: In a recent Bizrate survey, 70% of customers reported that free shipping was the perk they considered most valuable in a loyalty program. This popular reward is particularly important for competing with ecommerce giants like Amazon. Because free shipping is more costly than some other perks, it can be a great option to offer at higher levels of tiered rewards programs.
•     Concierge Shopping Services: While some customers value bargains like free shipping, others are what industry experts call “service-seeking;” they prefer brands that go the extra mile with personalized rewards like concierge shopping or a dedicated customer service number. These perks may take a bit more manpower to manage, but can also provide opportunities to interact with your best customers one-on-one.
•     Customized Offers: As your loyalty program helps you get to know your long term customers better, you can offer rewards tailored to their interests. You’ll be able to segment your most loyal customers and send targeted emails that offer them the perks they care about—from personalized services to free shipping—so they’ll shop with your brand more often.

Are You Ready to Take the Next Step in Brand Loyalty?

If a loyalty program sounds like a great fit for your business, you might need some support when getting started. We’ve helped a wide range of ecommerce businesses get their rewards programs off the ground. Take a peek at the programs we’ve developed for Peter Thomas Roth, Artbeads and Kuiu, and then talk to us about how a loyalty program could help your business grow.

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