An E-commerce Science Lesson
Welcome to your E-commerce Science lesson on Customer Loyalty. Simply put, customer loyalty is that conditioned behavior of “human want thing, company has thing”.
- I want shoes, Nike has shoes.
- I want coffee, Starbucks has coffee.
- I want the meats, Arby’s has the meats.
You get the picture. In fact, a 2021 Customer Experience Trends Report just proved that we’re creatures of habit, with 3 in 4 shoppers making purchasing decisions based on their past experience. So how do you get your company into that equation? With a generous and truly engaging customer loyalty program, of course!
What is a Customer Loyalty Program? It’s a customer-facing program that aims to increase customer retention and motivate repeat purchases… which is a high-falootin’, fancy business school way of saying:
Going the extra mile to really engage with your customers will keep them coming back for more than just your products (like when the waitress calls you “sweetie”.)
In this article, we’ll describe the benefits and best practices for each type of customer loyalty program so that you can start building a customer loyalty program of your very own.
Customer loyalty programs have been proven to inspire customer retention, drive customer referrals, and save your sales team some budget.
Inspire customer retention. While it’s always nice to see a familiar face, members of customer loyalty programs typically spend nearly 20% more than typical customers. Not to mention, existing customers are 50% more likely to buy a new product of yours.
Drive customer referrals. With loyalty programs that create community or competition, beyond traditional word-of-mouth, people will organically share your loyalty program efforts, contribute positive reviews, and even generate content of their own by way of UGC or ambassadorships.
Save costs: Companies must spend 500% more to convert a new customer compared to an existing one. For example, if you spend $100 flagging down an Average Jane from the street, giving her the business, and closing the sale; you’ll only need to spend $20 to close the sale with them next time.
There are six distinct types of customer loyalty programs used by major brands today.
- Paid Membership
- Tier Rewards
- Progress and Competition
Let’s dive into a description and best practices for each type. Keep in mind, every type can be used in combination with the other to create hybrid loyalty programs.
The points program allows customers to accrue points through various actions, and spend those points on rewards. It is a brilliant way to gamify the shopping experience, and is used by retailers with high volumes and inexpensive items, such as grocery stores, fashion outlets, or fast food chains (hi McDonald’s Monopoly).
You can start by creating a simple points systems, which has two components:
- What actions will customers complete to accrue points? Many retailers equate a $1 spent to 1 point, and increase points if it is a product you need to push.
- How will customers use their points? You can offer discounts, free gifts, samples, and just about anything.
Offer relevant and personal rewards. Beyond product discounts, rewards should be something that truly resonates with your target audience, such as free tickets to a relevant event or cool swag.
Consider using points program software like Smile.io, which allows you to build customized point systems for your online and physical stores.
The paid membership program invites customers to pay a “joining fee” for members-only club access and VIP benefits, where the perceived benefits of joining the program far outweigh the cost.
You can start by offering exclusive benefits, discounts and product releases to your paid members, and unless you’re already a recognizable brand with strong social proof, this program is best-suited when targeting existing customers.
Be sure to incorporate your business values into the program to build stronger relationships. If your business revolves around certain cause, like Toms for example, you could engage your membership base to feel closer to the contribution
Once your paid membership program is operational, ask your members for feedback and reviews, and widely advertise those perks to convert your non-members into paid members.
The tier rewards program offers another way to gamify engagement, and incentivizes customers to ascend tiers that reward with increasingly desirable perks e.g., Silver, Gold, Platinum, Uranium Status on airlines. This provides a satisfying experience, and even a little bragging rights, for your regular customers.
To get started, decide how many tiers you’ll offer based on your available perks. Keep the levels to a minimum or else customers will tire out climbing the seemingly never-ending tiers. Not to mention, customers at your top tier will have the greatest levels of customer retention, so don’t make it too challenging to get there. Aim for a solid distribution of customers at each tier.
Next, you’ll want to decide all the different conditions that a customer can climb tiers, whether it’s dollar amount spent, frequency/volume of orders, or some other form of engagement.
From there, map out available perks based on their value and assign them to each tier. You want to keep it simple and easily understood. Be sure to offer truly valuable and exclusive benefits for the higher tiers.
Progress and Competition
The Progress and Competition loyalty programs publicly issue engagement-related goals or competition, with rewards granted to the top performers. Common examples include Pelaton’s leaderboard, Trivia HQ, Nike Run Club’s public progress tracker, and more
When you publicly set a goal or issue a competition, there will be people that strive to win… it’s just human nature. What’s more, customers who believe they are close to achieving a goal or performing well in a competition become more committed to their efforts — this is known as the endowed progress effect.
To get started, create fun and attainable goals or a challenging game that peaks people’s interest and beckons to their competitive instincts. The goals or game need not focus entirely on buying a product or even engaging in your company at all; rather, the best way to capitalize on this loyalty program is to position your product as the competitive edge you need to reach these goals and win the game.
Be sure to visually encourage progress and comparison with progress bars, leaderboard, and various nudge tactics.
The Community program strives to create a platform where your members can interact with other like-minded individuals to connect and share content, get access to exclusive benefits and events, and stay-in-the-know about your company (causing excruciating FOMO for those not-in-the-know).
To get started, find your target audience by leveraging existing social media platforms to develop a sense of community. Play around with concepts that create bonds not only between your company and customers, but among customers themselves.
Many companies have branded their base by calling them a cute pet-name (hi Barbs), or rallying behind a common cause. In fact, about 66% of customers are more willing to trust brands that take stances on social and political issues that resonate with them.
As long as you encourage discussion that is relevant to your brand, there is no wrong way to create a community-focused loyalty program.
The Subscription loyalty program, commonly known as “Subscribe & Save”, allows customers to subscribe to weekly, monthly or seasonal purchases and receive discounts upwards of 15% off. Notable examples are GNC, Trunk Club, Butcher Box, and any brand that ships offers recurring purchases or subscription boxes. (We cover the subscription model extensively in our blog.)
To get started, develop a pricing and bundle strategy that incentivizes customers to sign-up for repeat purchases. Examples include freemium options, early bird offers, free trials, bundles and more. From there, provide an easy way for customers to manage and even customize their subscriptions.
Subscription models have shown to yield better customer relationships, improved aggregate data, and more diversity in product offerings. Not to mention, it gives brands the creative freedom to understand how their customers would prefer to engage with their products and services.
By using one or all of the customer loyalty programs above, your company will offer exciting and fun ways to engage with your company, and incentivize repeat customers in the meantime.
While just about any e-commerce company can promise a lucrative subscription model or rewards program, the reality is that these are extremely complicated strategies to pull off without the right inventory management and order fulfillment processes to back them up.
In fact, most 3PLs and fulfillment providers simply don’t offer the customization options that e-commerce companies need to pull off loyalty programs. That’s why you need to make sure you are giving your loyalty to the right fulfillment provider.
That’s why more and more e-commerce companies rely on ShipHero’s advanced bundling and customization capabilities to power their loyalty programs with reliable 2-day shipping across the contiguous U.S.