The Definitive Guide to Creating a Successful Loyalty Program
Have you thought of running a loyalty program for your online store? Do you struggle to convince your colleagues or yourself?
Well, I can tell you that loyalty programs just work. Starbucks, Amazon Prime and Google also created their amazing programs. I bet you’ve also participated in at least one of them.
But why would these giants – even McDonald’s, who jumped on the loyalty program train this year – need a customer loyalty program? And how can you, an online retail marketer, benefit from the same thing by creating your own program?
You may have answered the first question to yourself by now: because they want to make more money.
And you know what? YOU’RE RIGHT.
That’s exactly what loyalty programs are designed for.
Why are loyalty programs worth it?
To be precise, a loyalty program is a cost-effective way to retain your existing customers. Why? Because keeping one customer costs you 3-10 times less than acquiring a new one – depending on the industry you’re in.
And the list of benefits doesn’t end there. A loyalty program can help you increase revenue in the following ways:
- More repeat purchases: A loyalty program creates incentives for your best customers to visit and buy from you more often. These are the top 20% of your customers, who contribute up to 70% of total sales, because they spend more over a longer period of time.
- More customer referrals: A loyalty program is the perfect tool for rewarding customers who invite new shoppers. A study from McKinsey revealed that referrals generate more than twice the sales of paid advertising. Also, referred customers have a 37% higher retention rate overall, according to Deloitte’s research.
- Better social proof: With a loyalty program you can remind customers to leave product reviews for the products they purchased in return for extra points. It’s worth using this loyalty program feature, as 88% of customers trust online reviews more than what brands say about their products!
See? This is how a loyalty program can help you keep your bottom line healthy. You just need to mobilize customers to reach certain business goals.
The values of a loyalty program that can help increase revenue in your eCommerce store.
How to set up a customer loyalty program in 5 easy steps
Now that you’ve learned so much about how a loyalty program can positively affect your revenue, let’s see how you can create one in just five steps.
#1 Brand your loyalty program with a hint of charm
The success of every customer loyalty program lies in how seductive it appears to the customer. Typically, rewards (eg. discounts and special perks) are what initially motivate people to enroll in a loyalty program. But! You should also begin building an exclusive feeling around your program from the get-go, to get customers to realize, “Wow, this is so much more than just a discount!”
Here are the ingredients that can ensure this wow-factor:
- An enticing loyalty program name: You can simply label your loyalty program “Rewards Program.” But you can also come up with something more original to raise curiosity and click-through rates. Take Amazon, for example, with its Amazon Prime program, or Gilt with Insider, or the big Las Vegas chains with their coalition loyalty program, titled M Life Rewards.
- A fun points name: When naming your loyalty program, you should name the points that customers can collect. For example, at Starbucks people can collect stars, at Sephora customers get Beauty Insider Points, and at American Airlines you collect miles. Find something that is somehow connected to your business profile.
- A deeper meaning: Come up with a core message for your loyalty program that focuses on something more human than just monetary benefits. This step is important, because 77% of transactional based loyalty programs fail in 2 years. You can aim to build a special community or mobilize people to support a charity, like what Swedish fashion shop Uniforms for the Dedicated did with its “Rag Bag” campaign. The point is to offer a deeper value and aim to secure an emotional connection with your customers.
So go ahead, unleash your inner creative beast, and come up with a fun and engaging loyalty program concept! Offering something above and beyond discounts will also help differentiate you from your competitors.
Here’s a creative video from Lancome’s team which explains how customers can collect points and shares the benefits of joining their rewards program. See how dazzling this program can be in the eye of their customers?
#2 Align your goals with customer actions, and gamify!
Allow me to illustrate with an example from Starbucks. At the beginning of 2016, Starbucks revamped their rewards program. Business Insider summarized “With the new program, […] customers earn two stars per dollar spent, receiving a reward after earning 125 stars.That’s more complicated math than that of the previous program, which required just 12 stars, the equivalent of 12 visits, to get a free drink or food.”
Joseph Michelli, Ph.D – who wrote two books about Starbucks – said the new goal of the program is not just to increase the frequency of purchases, but also to increase customer spend. The problem with the previous program was that by purchasing lower priced items, customers could get higher priced products for free in a relatively short timeframe. Now, customers are incentivized to open their wallet more, and visit more often to earn a reward. In the long run this can make more profits for Starbucks, but it also makes it harder for customers to get their hands on rewards.
Okay, but there’s one little problem with Starbucks’ new program.
There’s no fun in it!
It doesn’t include gamification. If you’re only rewarding customers after they make a purchase, you’re basically shouting “Hey, I love it when you give me money!” This is why rewarding soft activities can help you. Try rewarding the following actions:
- Writing product reviews
- Following your social channels
- Sharing your pages
- Completing quizzes attached to your content
- Watching your product videos
- Downloading your apps
By letting customers collect a smaller amount of points with these kinds of activities, you allow them to have more fun and stay engaged. You can learn more about what customer actions to reward in this ebook.
Let customers collect a smaller amount of points by, for example, watching videos or visiting certain pages. It allows them to have more fun and stay engaged.
#3 Offer enticing rewards, save customers’ money and capture their hearts
Despite the fact that discounts, free shipping and special perks can’t generate long-term loyalty engagement, they still play an important role in getting customers to sign up for your loyalty program. But once they’ve enrolled, you have the perfect opportunity to offer the following rewards, which go far beyond monetary benefits:
- Experiential rewards: VIP events, personal shoppers, branded and limited editions can create real excitement, and also show how much you care about your customers. These rewards are the perfect way to raise advocacy, engagement and word-of-mouth for your brand.
- Charity type rewards: Let your human side shine by letting customers donate clothes, food or anything else in order to help others. Show your values. Your customers will love it.
- Contests: Giving people a chance to win something creates buzz surrounding your loyalty program. Not only that, it motivates customers to spend their points, while you only need to give away a few high-valued products in the end.
So don’t stop at your typical perks! Offer rewards that your customers will really go crazy for, and go for their emotions!
PetSmart has a very strong mission: they help abandoned pets find new owners and make it possible for their customers to donate money to communities who are working in this field.
#4 Attach a price to your points
I’ve already emphasized many times that, besides monetary benefits, a successful loyalty program should also focus on emotional incentives. However, if you want to measure your program’s performance, and also show customers that your points truly hold value, you need to attach a price to them.
The most common practice here is to say that 1 loyalty point is worth $1.
BUT! This math doesn’t work for all type of businesses. (See my Starbucks example above, where the brand gave 1 star for $2 spending). This calculation can be influenced by the following factors:
- The price of your products.
- The purchase frequency of your products.
- The money you give back after a certain customer’s spend.
Zsuzsa Kecsmar, CMO of Antavo, recommends the 10% rule for point values. With this rule, if your customer spends $1 in your store, then you should reward them in the form of points valued at $0.10. So after $100 of spend, your loyalty member receives 10 loyalty points equal to $10. This is the easiest way to ensure customers understand what points are and how they are calculated.
The famous beauty brand, Lancome, communicates how many points customers can collect, for example, with writing a product review.
#5 Create eye-catching touchpoints for customer enrollment
The success of a loyalty program also depends on how you communicate its benefits to your customers, which – best case scenario – leads to enrollment. Let me list a few ways you can invite customers to your loyalty program:
- Product page: The most straightforward way to tell customers you have a loyalty program is to show how many points shoppers can collect by purchasing a certain product, right next to the price.
- On-site notifications: When a non-loyalty member completes a rewardable activity on your site – sharing one of your pages, for example – you can let them know that if they enroll in your loyalty program they will get points for it.
- A dedicated link in your webstore’s menu: This is the best way to promote your loyalty program. It’s easy to reach and customers can access it from anywhere on your site.
Besides showcasing your loyalty program at every possible place in your store, it’s important to run ads, send newsletters, and do everything to raise awareness about your program.
West Elm promotes its loyalty program by placing a standout banner on their product list pages. It’s also a great idea for highlighting the fact that you have a loyalty program.
How to measure your loyalty program’s results
After setting up a loyalty program, you need to track how it affects your bottom line. There are many metrics that you should pay attention to, and here I’ve highlighted the 3 most crucial:
- Google Analytics: This tells you a lot about the conversion of your website visitors into loyalty members. It also helps you detect which touchpoints, ads or newsletters are most effective at getting customers to enroll. Compare the results, investigate the weak points and optimize your loyalty strategy accordingly.
- Enrolled loyalty members’ engagement level: Once you have active members in your loyalty program, you’ll want to know how many actions they take in your program. How many points have they earned? How many times did they return? How many rewards have they redeemed? Compare the results at regular intervals, investigate churn, and optimize where necessary.
- Loyalty driven revenue: This is the metric that shows exactly how your loyalty program drives real profit. If customers are able to redeem points at checkout for discounts, you can calculate how much revenue was generated thanks to the loyalty program.
Of course, depending on your goals, there could be other metrics worth following. Examples include how your social activities improve, how much revenue is generated through customer referrals, how much user-generated content is created, and so on. Everything depends on the goals you‘ve set for your business!
Third-party loyalty program providers – like Antavo – usually send you digest emails detailing the most important metrics and your progress.
Inspirational loyalty programs
Phew! So much information already – I almost feel dizzy! But don’t worry, here comes the inspiring part! Let’s check out the most amazing features from the best loyalty programs on the World Wide Web!
The king of appealing customer benefits: Amazon Prime
This post wouldn’t be complete without detailing how awesome and customer-centric Amazon’s loyalty program is. What I love the most about it is that for a reasonable $99 fee per year, members can take advantage of really exclusive offers like 2-day free shipping (whenever the customer wants it), online video streaming, free songs, photo storage, ebooks and early access. This is what I call a well-targeted loyal-customer-delighting strategy!
Prime members spend $1,500 a year compared to the $625 spend of non-members. That means Prime members spend 2.4x more than average customers. This is a brilliant demonstration of how much more loyal customers spend.
The power of Amazon Prime is that it offers its members high-value rewards.
The smartest market research tool: Google Opinion Rewards
I haven’t mentioned it yet, but a loyalty program can also provide incentive for customers to fill out forms – so you can get to know more about them! And if you can imagine, surprisingly, Google stands out as a great example of how to do it right.
Around 2013 Google released the Google Opinion Rewards app, in which mobile users could earn Google Play Credits by filling out surveys anonymously. Mobile users currently spend 90% of their time on mobile apps, according to Smart Insights, so it’s quite reasonable to reward customers who use mobile apps, and that’s also an incredibly smart way to collect information about them while doing so. The benefit for customers is also appealing: they can spend their credits on purchasing apps and games in Google’s store. The very same tactic can work if you have a dedicated mobile app for your ecommerce store.
In the hands of marketers and scholars, Google Opinion Rewards is the perfect market research tool, while in the hands of mobile users it’s a fun way to earn credits, which they can spend on their favorite apps in the store.
The most straightforward friend referral solution: American Giant
At the beginning of the post I emphasized how financially beneficial it can be to reward customer referrals in your loyalty program. Now let’s see how the fashion brand American Giant does it.
The most alluring parts of their referral program are the following:
- Incentivizing call-to-action: The referral program is placed at the top of the site’s main menu bar with the title “Get $15”.
- Clear rules: If you invite a new customer, you get $15 to spend, while your friend receives a 15% off his first purchase.
- Seamless experience: Customers can invite their friends by sharing on Facebook or by sending an email from the site with a personalized message. This way, they don’t have to bother with remembering and sharing complicated codes.
The best part of their solution is that the referrer can personalize his invite AND the email address will be sent from his email address (instead of a faceless no-reply address). No need to say more – it’s clear how powerful this solution can be for conversions.
American Giant rewards customers who invite their friends. The referrers get $15 for each of new customer they invite, and referred friends get 15%-off their first purchase.
How to start developing your own loyalty program
By now I assume that you are curious about how to launch an amazing loyalty program like those I’ve listed. Don’t worry, it’s not as complicated as you think – depending on which option you go with:
- Doing it yourself: In the case of a loyalty program, the DIY route not only takes a lot of money and human resources, but also forces your team to invest an enormous amount of time into investigating how-to’s, customer behaviours and UX trends. You can come up with the most unique loyalty program idea but it could take months – even years – to realize it on your own. Unless you have a whole department of developers at hand who can focus solely on your loyalty program, it’s going to be quite an investment.
- Hiring an agency: If an agency has experience working in the loyalty field, then you’re already off to a good start. Agencies can help you create an alluring and customized loyalty program, they’ll help you develop it from start to finish, and they can even manage all the marketing communication around it. There’s one caveat: this solution will cost you a lot of money.
- Using a loyalty software: The benefit of using such tools, besides cost-effectiveness, is that the development companies who created them have the knowledge and technology to set up and run your loyalty program faster than either of the previous solutions. And this expertise is what we offer at Antavo, too.
My best advice is to do some quick research on which solutions would be the best fit for your needs before you start an in-depth planning session for your loyalty program. We would also love to help – sign up for a VIP Demo to learn how we can add value.
Antavo is a software platform that runs reward programs. We offer modules that help you quickly create a program that fits your needs and runs on its own.
In order to create a successful loyalty program, you only need to focus on one main principle: making your customers happy.
If you create a loyalty program that satisfies this goal, then loyalty members will drive more revenue, word-of-mouth and social proof for your store. Additionally, your current customers can help you turn valuable prospects into loyal members.
If you choose a loyalty program as a customer retention strategy, I wish you the best of luck with it! And never forget: everything should be about making your customers happy.
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