The Basics of Customer Loyalty
What is a loyalty program?
A loyalty program is a strategy to reward your customers with structured discounts and exclusive offers for behaviors that posivitely impact your brand, such as purchases, reviews, or engagement. As the e-commerce industry grows, acquiring and retaining customers is more expensive and challenging than ever. Knowing that it costs 5x more to acquire a new customer than to retain existing customers, brands who focus on customer retention have higher improved revenue. Loyalty programs are increasingly popular and many customers prefer to shop with brands who reward them for their purchases.
Core Components of Loyalty Programs
Loyalty programs look different for each brand based on the types of products you sell and your customers’ buying behaviors. Despite those differences, successful loyalty programs have these key elements in common:
Branded Loyalty Page & Widgets
A branded loyalty page and widget ensures that your customers are aware of your program and can find self-serve resources for their questions. The easier your loyalty program is to find, register for, and participate in, the more likely your customers are to actually use the program. If you have a complex signup flow or customers have to reach out for support often, it’s likely that they will not participate in the program. With this in mind, your loyalty page & widget should contain the following information:
- How to register
- How to earn & redeem points
- VIP tiers
- Referral program information
Stamped recommends having both a loyalty page, which is a branded landing page embedded in your online store, and a widget, a branded pop-up customers can engage with from any page on your online store. Again, finding ways to make your loyalty program easily accessible will increase your participation rate.
Your branded landing page and widget are easy to design with Stamped and can be customized to match your store's visual aesthetic to ensure a continuous experience for your customers.
Baltic Børn, a women's fashion brand, is a great example of a well branded rewards page and widget. Their program offering is clearly outlined and the fonts, colors, and design match the rest of their online store.
Points are the rewards earned by your customers for purchasing or engaging with your brand. Customers use these points for discounts towards future purchases. Customers earn points for actions such as:
- Account sign-up
- Birthdays or events
- Social engagement
- Writing reviews
- Submitting user generated content
Brands should keep in mind the cashback percentage of their points program, or the points to dollar redemption value. There is no hard and fast rule for your cashback percentage, but knowing your profit margin and how much you want to allot to rewards will inform the percentage you ultimately choose.
A starting point for many brands is a point earning rule of 1 point earned for every $1 spent, and a point redemption rule of 10 points spent to earn back $1. This means that the cashback amount is 10% of the original amount.
You will also use your average order value (AOV) to design your cashback percentage. If your AOV is higher, you can allot more points or cashback. With smaller AOVs, you will want to be cautious with allowing significant cashback to maintain profits.
Here is an example from Georgiemane, a haircare brand whose loyalty program had thousands of registrants in the first two months as a result of their design and launch. One piece of that design is the clarity of their points program.
Looking for help designing your loyalty program cashback percentage? Our Pro Plans and above include a dedicated Customer Success Manager to support the optimization of your loyalty program.
VIP programs incentivize multiple purchases and help turn repeat customers into brand champions. They can increase your Customer Lifetime Value (CLV) by increasing the amount of orders and dollars spent by the customer over time.
VIP tiers increase the rewards as customers move into different categories based on spend. These rewards commonly look like:
- Accelerated Points Earnings
- Free Shipping
- Percentage Discounts
- Fixed Amount Discounts
Brands can also customize their VIP program and add additional rewards:
- Exclusive Event or Services Invitations
- Free Express Shipping
- Early Access to Sales
- New Collection Launch Preview
- Annual Birthday Gifts
Check out Tony Ray Tattoos' example of VIP Tiers with accelerated points earning, shopping, and early access.
💡 Watch our recorded webinar with Jeremy Rios from Tony Ray Tattoos to hear that their loyalty customers spend 2x more than non-loyalty customers.
Much like your points program, you will want to consider your overall margins when designing your VIP tiers. Two other metrics to consider are your Customer Repurchase Rate (how often are your customers making more than 1 purchase), and your Average Order Value for repeat customers (are customers who make more than 1 purchase spending more per order). This will help you determine if offering accelerated points and cashbacks is a lucrative way to incentivize future purchases from customers while remaining profitable.
Some brands choose to have points expire after a period of time to reduce the risk of customers accumulating points and not using them. This depends largely on the type of product your brand sells and how often your customers purchase your products. For example, a perishable good such as food items or supplements will be need to be replaced by consumers in a shorter period of time than household items or technology. Knowing your customer’s purchasing behaviors and the frequency at which your products are replaced helps you decide on points expirations.
Short term points are 3-6 months on average and work well for perishable goods. Longer term points expirations are 1-2 years on average for fashion/skincare/home goods. Too short of a points expiration period would become discouraging for your loyalty program customers over time.
Reward for Reviews
Integrating your reviews and loyalty programs creates an effective flywheel for your brand advocates. Customers who make their first purchase can join the loyalty program, and be rewarded for leaving product reviews. Product reviews make it easier to acquire new customers, who can ultimately join your loyalty program and become advocates.
Designing and implementing your own loyalty program is straightforward with Stamped. We integrate with all of the leading e-commerce platforms and installation is a breeze. Knowing that each brand is unique, we offer various pricing options to help grow your brand at any scale. We would love to connect with you for a demo and encourage you to start with a free 7-day trial.