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.
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?
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.
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:
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.