Considering the numerous potential benefits of loyalty and rewards programs, it’s almost an obvious decision for an e-commerce business to implement one. If facts and figures were needed, consider that of the 20,000 US consumers surveyed in the 2024 Bond Loyalty Report, about 80% said they were “more likely to recommend brands with good loyalty programs.” The clear implication is that a successful business needs to have a good loyalty program in place.
Customer loyalty, stronger brand-customer relationships, customer receptiveness to communications, and consumer loyalty programs are intertwined in a kind of vicious cycle such that everyone is happy. Multiple studies—including the Bond report, mentioned above, and one by Ebbo in 2023—have found that for more than 80% of consumers, their membership of a company’s loyalty program makes them more likely to buy from that company. The Ebbo study found that for 78% of them, this was true even if shopping with a competitor was more convenient.
Loyalty programs help your company understand your customers better, which helps for reasons unrelated to loyalty: Being able to refine your marketing strategies, for instance, or identify trends in purchasing behaviour, or improve customer service. Those insights can also inform decisions about new market opportunities or product development.
Let’s take a look at what a good consumer loyalty program should do for an e-commerce business, what it needs to do for customers, and why you should consider investing in loyalty management.
A good loyalty program should be good for the customer and for you
If you’re on your way to implementing a loyalty and rewards program, the first thing to think about is probably what you—not just your customers—should gain from it.
We’re referring to the fact that businesses often launch loyalty programs without first establishing clear objectives—out of pressure to keep up with competitors, perhaps, or because they view such programs as a “standard feature” rather than as a strategic initiative.
Such lack of clarity can lead to ineffective program design, and the program might not attract or retain the right customers. Consider that a program designed to increase purchase frequency would be rather different from one designed to boost customer lifetime value.
You need to establish clear and measurable objectives for a proposed loyalty program, along with mechanisms to track ROI.
Further, absence of clarity in terms of objectives can result in spending on customer benefits that doesn’t generate meaningful returns. Equally importantly, the business might be unable to determine whether the program is working for them, and whether its implementation aligns with their overall goals.
So, we can’t stress enough that…
Loyalty isn’t (just) about reward points
The “ability to earn and redeem financial rewards” is one of the two most important things about a loyalty program, according to a 2023 Deloitte report.
That probably doesn’t come as news. But reward points alone don’t make for loyalty; “loyalty” implies a psychological aspect. Rewards are a tool to incentivise certain behaviours; loyalty goes beyond the transactional exchange of points for rewards.
A customer who engages with a loyalty program only for the rewards is, ultimately, loyal to the rewards and not necessarily to the brand. Such loyalty can vanish if a competitor offers something slightly better.
To foster “psychological loyalty,” companies need to create a personal relationship with the customer—one that generates emotional resonance. This entails making customers feel understood, appreciated, and supported.
Notice we said “personal relationship”; there is a strong link between true loyalty and personalisation. Customers are increasingly saying: “If the brand is special to me, I should be special to the brand.” This is echoed by the fact—reported in a Forbes article—that a majority of customers are more likely to purchase from a brand that recognises them by name. A different article, also on Forbes, goes so far as to say that loyalty and personalisation “are two sides of the same coin.”
In the context of loyalty programs, personalisation demands that a business understand its customers. This can translate to being able to offer personalised rewards based on purchase history, for instance—or more targeted communications—to program members. About half of all members of loyalty programs would like to be shown products or benefits they are interested in rather than what the general customer sees.
Businesses can also foster psychological loyalty by offering exclusivity through a loyalty program. Conversely, members of the program who feel an emotional connection with the brand often want access to exclusive, members-only experiences—25% of them, in fact, in the Ebbo study we mentioned.
As a final word on the importance of psychological loyalty, here’s a refutation of the idea that loyalty and rewards programs are all about earning and redeeming points: Participants in the ebbo study were asked what they would “love to see” from their favourite loyalty programs. Fully 40% responded “being rewarded more for engaging with the brand beyond just purchase”—writing product reviews, filling out personality profiles, sharing their experiences with the brand on social media, and such.
Having emphasised that, we can list…
The basics of a loyalty program
Broadly speaking, designing and implementing a loyalty program involves the following.
Objective Setting
As we mentioned, you would first need to define clear, measurable objectives for the program. These could be any or all of the following: Increasing customer retention, increasing average order value, driving repeat purchases, or perhaps just collecting customer data for insights following analysis. The objectives should align with your broader business strategies.
Customer Segmentation
The importance of understanding your customers is such a core issue that it affects everything from being able to create an appealing reward structure to determining whether a program is financially viable. In the context of designing a loyalty program, you would need to use data about customers to segment them based on shopping-related parameters such as spending patterns, browsing and purchase history, average order value, and order frequency—and on personal parameters such as demographics and age.
Segmentation enables you to identify your most important customer groups so you can create a program focused on them—or, if you’ve drawn up a reward structure based on other criteria, segmentation enables you to identify which customers will be the focus of your program, and what behaviours you want to encourage. Segmentation also allows for personalisation in your program, the importance of which we’ll soon speak about.
Reward Structure Design
Your reward system should be attractive to your customers—and make rewards seem attainable, as we’ll soon see. You’d need to define how customers earn points (purchases, referrals) and what rewards they get (discounts, free products), while ensuring the system is financially viable.
Importantly, you’d ideally consider a tiered reward structure for your program. This is almost commonsensical from a psychological viewpoint: “I spend more with your brand, so I should be rewarded more”—and as it turns out, the 2023 ebbo report found that about 75% of all consumers were more likely to do business with brands that offered programs with tiers based on annual spending.
Promotion
Next comes the development of a strategy to inform customers about the program and emphasise its value—through email and social media campaigns, and point-of-sale promotions if you have an offline presence.
Tracking Performance
Metrics such as participation rates, point redemption rates, and customer retention help you gauge the performance of your program. This in turn will enable you to refine the program on an ongoing basis, perhaps test new features, and ensure that the program stays relevant. Tracking program performance is closely linked to…
Analytics on Customer Data
You’ve probably heard the phrase “analytics helps derive actionable insights” more than once. In the context of loyalty programs, this entails independent but intertwined aspects. You can analyse
- data about customers’ preferences, spending patterns and so forth—and
- data around how customers are using your program: Points redemption rates, overall customer retention, conversion rates, and rates of increased engagement.
These analyses lead to insights into:
- customer behaviour in general so you can refine your program in terms of the benefits it offers customers, and
- the performance of your program so you can modify it on an ongoing basis to maximise ROI.
While those are the basic aspects of loyalty program design, we mustn’t forget what the program needs to be, as numerous studies have found: A loyalty program needs to incentivise customers to perform certain actions, towards which it needs to be easy to understand, easy to use, and personalised.
A loyalty program should be…
Easy to understand: This means the rules of the program should be simple—but it also implies the need for clear communication around tier structures, how to earn and redeem points, and point expiration policies. In fact, of all the loyalty-program attributes customers prioritise, “easy-to-understand and also easy-to-use” ranks among the top.
You could have a dedicated section on your web storefront or app that shows an overview of the point system, reward tiers, and the redemption process; each reward displayed could carry a detailed description and a transparently declared value. Consider push notifications for point milestones or to remind consumers about expiring points.
Negative examples include a complex sign-up process, hard-to-understand point system, and lack of clarity on how to determine whether a certain reward can be used online or in-store.
Easy to use: This is actually part of providing great customer experiences in general: Loyal customers should find that obtaining rewards is a quick and smooth process that requires low-effort actions. Underscoring ease of use is a Salesforce report, which found that the #1 reason, globally, for which customers would use loyalty programs more often is automatically applied rewards.
But the importance of “ease of use” extends to the program’s structure. A 2023 study—based on responses from 1,300 consumers in the US—on how to increase loyalty program engagement found that for 74% of consumers, rewards often felt “unattainable”: That they entailed making too many purchases and took too long to earn. Fully 90% of those consumers said they engaged less with loyalty programs if rewards seemed unattainable.
The perception of unattainability of rewards is one of the strongest reasons for which customers might engage less with a loyalty program.
Personalised: The program should offer personalised benefits and rewards. Members want the brand to understand them as individuals. Personalisation makes rewards and benefits more relevant and attractive. The data that drives personalisation includes stated preferences, browsing patterns, purchase histories, and other customer data gathered through the program.
Diverse statistics emphasise the importance of personalisation in the current context. About half of all members of loyalty programs would like to be shown more personalised products, benefits, and features; 55% of all consumers would engage with loyalty programs more often if they were to feature personalised rewards. Perhaps most tellingly, 90% of all consumers believe most loyalty programs are lacking in terms of personalisation for individual preferences.
To summarise, designing your loyalty program entails:
- establishing clear objectives;
- staying focused on psychological loyalty alongside the tangible aspects of loyalty and rewards programs;
- understanding your audience and segmenting customers;
- devising a compelling and attainable reward structure; and
- incentivising customers to use your program by making it easy to understand, easy to use, and personalised.
Talk to us for your loyalty program
Focalworks provides loyalty management solutions that can help with each of the aspects of design and implementation of your program. We can conceptualise and design a program for you, effectively turning your ideas and your understanding of your customers into a loyalty platform—a structured framework for the program. Or, if you’ve defined a financially viable program with clear objectives and success metrics, we can help with the technical aspects of implementation—for instance, developing a dedicated, full-featured app for your program.
Further, with our expertise in marketing automation, we can help you use the data from your program to personalise marketing campaigns, or drive better customer segmentation—which in turn enables better personalisation in your marketing efforts. Our marketing automation solutions provide analytics and reporting functionalities, using which you can modify or fine-tune your program.
In conclusion
Designing and implementing a successful loyalty program requires balancing business goals with appeal to customers. While the prospect of financial rewards is the most important reason for which customers sign up for loyalty programs, it’s not the only reason; the key to “real” loyalty is a deeper connection with customers—through, most importantly, personalisation.
Understanding and segmenting your customer base, setting clear objectives for the program, and ensuring the program is easy to understand and easy to use are essential to its success.
The design of a loyalty program is always a work in progress. It’s a cyclical process where your understanding of your customers enables you to get started—and in turn, data from the program helps you understand them better. You’d use those insights to continually reorient and fine-tune your program for more customer engagement and to create true brand loyalty.
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