How to Create a Loyalty Program That Works: Designing a System to Retain Customers

15 min read

Whether you’re launching a brand new business or you’ve been running a successful online shop for years, retaining customers is part of the gig.

Without loyal customers, brands will fail to thrive and survive online. Fortunately, there are quite a few ways to entice customers into becoming loyal brand ambassadors, one of them is fairly straightforward — loyalty programs.

Learn how to design a loyalty program that works for your business and keeps customers coming back for more.

Importance of Loyalty Programs

Curious about the benefits of loyalty and rewards programs? You’re in the right place! But first, let’s break down exactly what a loyalty program is.

At its core, a loyalty program is implemented by a business to entice customers to continue shopping with them. Simply put, it’s a program that rewards customers for their loyalty.

Loyalty programs offer customers special discounts, coupon codes, freebies, and other perks that encourage them to keep purchasing.

Increase Customer Lifetime Value

Customer lifetime value (CLV) is defined as the amount of revenue a customer brings to a brand over time. When brands set up a solid loyalty program, they boost CLV by getting customers to keep coming back and forming lasting relationships with them.

When customers feel appreciated and valued through exclusive discounts and rewards, they are more likely to continue purchasing from that brand instead of seeking out competitors.

Stand Out from the Competition

So, how does a loyalty program make a brand stand out against the competition? We’re glad you asked.

When a shopper makes a purchase and has a positive experience, they’re more likely to return to buy again. However, if they purchase and receive a discount code or a special offer, they’re even more likely to make another purchase!

That’s how loyalty programs improve a brand’s retention rate and set them apart from the competition.

Meet Customer Expectations

Another critical factor is that consumers expect brands to offer a loyalty program. Loyalty cards, point systems, and other rewards have become the norm in many industries.

According to this survey, loyalty programs influenced purchasing decisions for an average of almost 8 out of 10 US consumers.

Shoppers have certain expectations from loyalty programs, too. Six in 10 US consumers sought discounts for joining loyalty programs. This feature ranked as the top feature, with earning points and rewards following closely at 58%. About a third of US consumers valued exclusive product access.

Leading features seen as desirable in loyalty programs according to consumers

Understanding the Fundamentals of Designing an Effective Loyalty Program

Before you begin creating a customer loyalty program, there are a few things you must prioritize as you strategize what’s important.

Take a Customer-Centric Approach

Without understanding the true wants and needs of your customer base, you can’t create an effective loyalty program. You may think offering standard discounts or coupon codes will be enough, but there’s much more opportunity for personalization.

By offering unique discounts and freebies based on their shopping behaviors, you can hone in on the specifics of what your customers want to prove your value as a business and show how well you understand their needs.

For example, if a customer frequently purchases skincare products, you can offer them a free sample of a new product or exclusive access to a limited edition line.

Farfetch’s Private Client loyalty tier provides exclusive benefits like a fashion concierge and personal stylist to high-value customers

Set Clear Objectives

To launch and maintain an effective loyalty program, having clear objectives is critical. Some common objectives or goals of a loyalty program may include increased revenue, increased repeat purchases, higher average order value, customer satisfaction, and customer lifetime value.

By setting clear goals early on, you can properly measure the effectiveness of your program and make any necessary adjustments.

For example, if your goal is to increase repeat purchases, you can track the number of times a customer returns to make a purchase and see if it has increased since implementing the loyalty program.

Establish a Strong Value Proposition

Why should customers choose your loyalty program and your business over a competitor’s?

The value proposition sets the stage for attracting customers and keeping them for the long haul. This message should clearly explain why shoppers should stick with your brand, what the program offers, and how you’re different from the other fish in the sea.

For example, you could set up a tiered loyalty program that offers more benefits as customers move up the ranks. Say, for every $1 spent, they earn one point and can redeem those points for rewards or discounts. As they reach higher tiers, they may gain access to exclusive perks such as free shipping, early access to sales, or personalized offers.

The Lululemon membership’s value proposition lies in its emphasis on experiential advantages, such as events and receipt-free returns, rather than monetary savings

Common Types of Customer Loyalty Programs

Customer loyalty programs aren’t a one-size-fits-all solution. An enterprise loyalty program, for instance, may not be suitable for a small local business.

That’s why it makes sense to examine some common loyalty program examples and types before deciding which one best suits your business.

Businesses use a few different types of customer loyalty plans to attract, engage, and retain shoppers. Let’s discuss some of the best rewards programs here.

Points-Based Programs

One of the famous loyalty program examples is Starbucks Rewards, a points-based program. The more money Starbucks customers spend, the more Stars (or points) they collect, which can be applied towards future orders, discounts, and free products and merchandise.

Starbucks Rewards is easy to understand and versatile in its offerings, making it a popular choice for coffee lovers around the world. The program is straightforward to use via the Starbucks mobile app for additional consumer buy-in and engagement.

Starbucks customers can unlock additional rewards by using specific payment methods

Tiered Programs

Tiered programs are another way that brands can give rewards to loyal shoppers and keep them engaged for longer.

An example of a tiered program is Sephora Beauty Insider, where customers continue to move up the tiers based on how much money they spend. The more they spend, the closer they get to unlocking exclusive benefits and freebies based on their shopping behavior.

Sephora Beauty Insider is a genius customer retention strategy because it encourages more spending and long-term engagement so shoppers can continue to earn loyalty points and access more products and incentives.

Sephora’s Beauty Insider loyalty program consists of three tiers

Paid Loyalty Programs

When a brand has enough customer loyalty in its customer base, paid loyalty programs are an effective way to keep their shoppers interested and loyal.

Amazon Prime is the perfect example of paid loyalty, where customers pay a membership fee for exclusive perks like free 2-day shipping, unlimited media streaming, free games and photo storage, and much more.

From a business perspective, paid loyalty programs offer instant revenue for a business and keep highly engaged customers interested in what you have to offer.

Fast, free, and convenient shipping options are one of the main perks of Amazon Prime

Of course, this loyalty program list is not exhaustive. You can use other loyalty programs depending on your business type and goal. Check out the detailed list of effective loyalty programs in this article:

Creating a Loyalty Program That Suits Your Business Needs

Now that you understand the various customer loyalty programs you can use, you may have an idea of what type you’d like to leverage with your brand. When deciding on a customer loyalty program, be sure to consider the following.

Program Goals

What do you want to achieve with a loyalty program? Are you hoping to increase repeat purchases or improve engagement? While a tiered program may improve repeat purchases, a points-based program will be more compelling to improve engagement and attract new customers.

Budget & Resources

Consider the cost of the program and how much time and energy it will take to get off the ground. For example, offering customers loyalty points for each purchase may be easier if you’re just getting started as a brand and have minimal resources to launch a fully fleshed-out loyalty program.

Customer Base

By understanding what your customers want, you can determine the type of loyalty program that will best resonate with them. If they’re looking for instant gratification, a points-based system is ideal. If they’re after the quality of products, tiered programs are likely to be stickier and promote long-term engagement.

Walmart’s loyalty program resonates with its customers’ core value of saving money and aligns with its brand positioning as a low-price retailer

Considering all those aspects, you can create the best loyalty programs tailored to fit your business needs.

Strategies for Sustaining Customer Engagement

Once you know what program you’ll be pursuing, it’s time to start hammering out the details! Keep the following in mind as you strategize an effective customer loyalty program for your business.

Engagement Tactics

Keep customers excited about your loyalty program by engaging with them in simple ways. Post on social media, send monthly newsletters and promote the program in your ecommerce shop. Entice customers to sign up and gain access to the rewards you’re offering.

Personalization

There isn’t a more important strategy in marketing than personalization in this digital world. Consumers expect shopping experiences that leverage their behaviors to offer products and services that will benefit them in meaningful ways.

That applies to loyalty programs, too. 43% of consumers found loyalty programs with flexible rewards important for a personalized experience from a company or brand.

Adidas offers free shoe personalization options to its Level 3 loyalty program members

Ensure your customers feel like part of your brand by providing tailored rewards, regardless of where they are in the buyer’s journey.

For example, you can provide specific product recommendations to particular customers based on their buying habits.

Say a customer bought a specific blend of coffee beans from you four times. You might consider providing them with a discount on their next purchase of that specific blend or recommending a discount on new blends that align with their preferences.

Tailoring your loyalty program to each customer may seem impossible, but with AI-driven algorithms, it becomes achievable. One such program is Marsello, and if you run an Ecwid store, you can easily set it up with the Marsello app.

Listen to our podcast to delve deeper into using AI-powered personalized loyalty programs:

Regular Communication

Keep your loyalty program top of mind with customers by providing consistent communication. Send emails reminding them of their point status, new rewards opportunities, or special promotions that are launching.

Gamification

Encourage customers to participate in your loyalty program through gamification strategies to make it a fun, game-like experience.

For example, you can create social media contests within the program where customers can collect additional loyalty points by completing certain tasks, like posting on social media or engaging with your brand.

If you sell online with Ecwid and are looking for customer loyalty software, the Gratisfaction app can help you gamify your loyalty program.

The Gratisfaction app helps gamify your loyalty program

Another option for Ecwid stores is the Kangaroo Loyalty Rewards. Beyond offering gamification features, this app enables you to set up ambassador and tier programs.

Exclusive Access

Offer exclusive deals and access to VIP customers and program members to build brand loyalty and entice others to join.

With early access to new products or attending members-only shopping events, your brand can foster demand fueled by FOMO (fear of missing out) from customers who have not yet joined the program.

IKEA Family loyalty program doesn’t reward customers based on spending; instead, it offers exclusive experiences like free furnishing workshops along with other perks

Wrap Up

When done right, a loyalty program can foster brand loyalty, improve engagement, increase revenue, and build a loyal, long-term customer base. With increased engagement, you’ll collect valuable customer data, improve referrals, and successfully stand out against the competition.

Ready to launch a loyalty program on your website? Ecwid’s ecommerce platform integrates with various online loyalty programs to empower your business to attract new customers and provide valuable experiences to your existing ones. Learn more about retaining customers with Ecwid here.

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Marketing and Promotion

Jul 12, 2024

About the author

Anastasia Prokofieva is a content writer at Ecwid. She writes about online marketing and promotion to make entrepreneurs’ daily routine easier and more rewarding. She also has a soft spot for cats, chocolate, and making kombucha at home.