5 Best Loyalty Programs for Ecommerce (with Real Examples)
Every successful ecommerce business knows that it costs five times more to attract a customer than to retain one. That means, ecommerce store owners need to put as much energy into retaining their customers as attracting them.
From the countless options you have at your disposal, loyalty programs represent one of the most effective ones to increase your customer lifetime value. But how do they work? And which ones work best?
In this article, you’ll learn about the different types of loyalty programs for ecommerce that exist and how you can choose the best one for your ecommerce store.
What is an ecommerce loyalty program?
An ecommerce loyalty program is a customer retention tactic that online retailers use to reward their customers for their purchases. Doing so helps customers develop a preference for ecommerce’s brand, increase their satisfaction, and purchase frequency.
Loyalty programs for ecommerce use reward systems where the customer benefits from their purchases. After they accumulate enough benefits—which can be measured by using tokens, points, or some type of dollar-to-reward ratio—they can exchange them for a reward.
The most famous example of an ecommerce loyalty program is Amazon’s Prime membership. As you know, their membership requires an upfront annual commitment—which, as of 2020, costs $119—that gives their members unlimited two-day free shipping, plus access to Amazon Video and Amazon Music services.
According to a 2014 analysis, Amazon makes 60% more in revenue of its Prime members than their non-Prime ones. By committing to Amazon, Prime members are more likely to buy from Amazon to take advantage of their membership than non-members. This fact makes the entire Prime membership worth to Amazon much more than the costs of the free shipping service.
While all loyalty programs aim to increase customer loyalty, doing so will depend greatly on how you define “customer loyalty” and how you measure it.
Three options you can use include:
- Customer satisfaction: That is the pleasure customers get from shopping with an online retailer. To measure it, you can send an NPS survey to your program’s members versus those that aren’t and compare the results.
- Repurchase ratio: That is the number of customers who repeatedly purchase, divided by one-time purchasers. You can measure it with the help of Google Analytics.
- Customer lifetime value: This metric calculates the net profit you will earn per customer for the remaining time they stay as customers. You can measure it with Google Analytics.
Best types of ecommerce loyalty programs
There are different ways you can create and implement a loyalty program for your ecommerce store, all of which vary depending on the way the program reimburses customers for their loyalty. Next, we’ll take a look at five loyalty program types that you can use.
Point-Based Loyalty Programs
In a point-based loyalty program, customers earn points from the money they spend, the actions they take, or the number of purchases they make. This type of loyalty program’s popularity stems from the simplicity of its idea—the more you spend, the more points you earn.
Most often, ecommerce stores define a ratio of points to dollars spent or purchases made. For example, you can spend $100 and earn 10 points—a 10:1 dollar-to-points ratio. Later, you can spend 1,000 points to buy another $100 product.
In a way, such an arrangement would mean that you are giving away money for your customers, only that they need to make a large number of purchases to get enough points to buy a product.
Since point-based loyalty programs are simple to create, they are among the most popular types to use.
Expedia offers $2 in rewards for every dollar spent in “hotels, cars, packages, things to do and cruises,” a whooping 2:1 points-to-dollars ratio. They also offer 1 point for $5 in flights—a 5:1 dollars-to-points ratio, closer to our previous example.
While the points they give away sound incredible, Expedia’s program exchanges 140 points for $1, so the rewards you earn are much smaller than the points you earn may make it seem.
In either case, Expedia’s loyalty program, a staple marketing tactic among travel companies, offers high-quality rewards to its customers.
Tier-Based Loyalty Programs
Tier-based loyalty programs take the same idea as the point-based ones, but instead of giving points equally to all customers, the tiers provide higher rewards and point ratios to their members.
For example, a two-tier loyalty program would offer a 2:1 points-to-dollars ratio (i.e., 2 points per dollar spent) to its low-tier members and a 1:1 ratio for high-tier members. This arrangement motivates customers to buy more to “qualify” for the higher tier. What’s more, higher tiers often give extra benefits to its customers, like free shipping, better customer support, and more.
For this reason, higher tiers give VIP treatment to its members, a social status that many customers work hard to achieve and keep. In fact, some tier-based loyalty programs require a certain amount of money spent per year to keep their tier, a requisite that motivates further purchases.
In contrast to point-based loyalty programs, spending points in tier-based programs don’t make customers lose their status, while in point-based programs, it does. Since achieving premium status requires large investments, high-tier customers will be inclined to spend more.
Example: Uber Rewards
Uber uses a tier-based loyalty program to its customers for every ride they take. Low-price rides, like pool rides and UberEats orders, give one point, Uber X and XL give two points, and SUV trips earn three points for every ride.
Each tier guarantees on benefit, from earning points in the lowest tier to receiving the highest-rated drivers. Through their web copy, the company makes the benefits clear and enticing.
Uber also allows its members to redeem their points for money—which they call “Uber Cash.” For every 500 points, users receive $5 to spend in rides and orders. Plus, they can earn up to 5% off in funds, depending on the tier.
Perk Loyalty Program
Customers like loyalty programs because they can exchange their points for products. In a perk-based loyalty program, customers’ rewards are explicitly tied to a perk.
The fact perk-based loyalty programs tie rewards to a specific product or benefit makes it incredibly easy to understand. Companies that have products their customers love and buy regularly know that offering it as the main reward will increase their loyalty.
Starbucks gives its customers the possibility of earning points, which they can redeem for specific perks, from free customizations (e.g., dairy-free milk, syrups) to specific foods and more.
The more points a customer earns, the more exclusive and expensive the perk. The points also give the customer the chance to pick up their drinks faster, get special treats, and more.
Subscription-Based Loyalty Programs
Most ecommerce loyalty programs are successful because they are free and want to be rewarded for purchasing. However, subscription-based loyalty programs flip this idea around and ask the customers to buy a membership—often annual—to get special discounts and perks.
Ecommerce companies that successfully sell this type of membership already have strong customer loyalty and brand appeal. The case of Amazon is the most popular, but many other companies, like Costco, already offered that decades before Amazon launched Prime.
Example: Restoration Hardware
Restoration Hardware sells a $100 annual subscription that gives its members special discounts, complimentary services, and preferred financing options.
Hybrid Loyalty Programs
Most ecommerce loyalty programs use a mix of points, perks, and tiers; some even add subscriptions to the mix. The reality is that all of the program types shared above share similarities and benefits that can be used at the same time.
For example, a loyalty program can offer perks to different tiers, which customers can reach after earning a certain number of points. As long as the program adapts to the retailer and their customers’ needs, any loyalty program works.
Nike loyalty program offers special perks with a free subscription. These perks give their customers a feeling of exclusivity, plus they nudge them to work out. While they don’t require their program users to have Nike’s products, their loyalty program works as a branding tool—the more people use Nike’s program, the more inclined to buy their products will be.
Which loyalty program is best for me?
All loyalty programs are equally useful as they entice customers to become fans and evangelists for your ecommerce store. The small differences between each program are small but noticeable, so to help you decide which type of loyalty program you want to use, here are a set of rule of thumbs to follow:
- Point-based loyalty programs are the simplest to use and easiest to create, so if you want to start one quickly, start with this one.
- Tier-based loyalty programs work best when exclusivity and status play an important part in your customer’s shopping experience. If you sell high-ticket products or are in the fashion, cosmetics, and travel industries, consider using this type of program.
- Perk-based loyalty programs are ideal when you know there’s one specific benefit or product your customers want. This perk could be free shipping, an upsell (think of Starbucks customizations), or a popular product.
At the end of the day, the best loyalty programs are those that best satisfy the customers. You can mix these three types of programs and offer something unique that adapts to your needs.
Final tips for implementing an ecommerce loyalty program
Before finishing, let’s look at some tips to implement any of the eCommerce loyalty programs mentioned above.
Promote your ecommerce loyalty program
Regardless of the benefits your loyalty program may offer, it won’t promote itself unless you do it. Your clients need to be aware of it and feel motivated to participate in it. Think of your loyalty program as another product.
To show your loyalty program to your customers, create a promotion strategy that includes:
- Promoting it to your email subscribers, segmenting the message by customers and non-customers
- Making it prominent on your website, especially your product pages
- Creating a paid ads campaign through retargeting or Facebook ads
Complement it with an affiliate program
Loyalty programs reward customers to increase their retention. But what if you could do the same to attract customers? That’s what affiliate programs are for.
An affiliate program rewards marketers (also known as “affiliates”) who promote your products in exchange for a commission after generating a sale. These affiliates work like traditional salespeople, but instead of hiring them as employees, they work as freelancers.
Developing an affiliate marketing program is different than a loyalty one because:
- You pay only a commission after a sale is generated.
- You reward marketers, not customers.
Think of an affiliate program as an inverted loyalty program, where the perks are awarded to the affiliate and not the customer.
Serve your customers
Your ecommerce loyalty program may entice your customers to buy repeatedly, but as you saw earlier, customer loyalty is more than purchasing repeatedly. Your customer satisfaction is influenced and defined by your customer service. The better you serve them, the happier they will be. And the more satisfied a customer is before and after making a purchase, the higher the chances they will repeat a purchase.
To improve your customer satisfaction, make sure to be available at all times. Track your customer’s behavior as this allows you to see what your target audience wants during their visit. Take notes of their behavior and implement changes to your website that best adapts to their needs.
Customer loyalty is all about satisfying the customer; the more they like shopping with your company, the more loyal they will be. A loyalty program only takes this existing—or potential—loyalty and puts it in a way that makes it easier for your customers to keep buying back.
Don’t overlook your customer service, your product’s quality, and the overall shopping experience as they all play a crucial role in increasing your customer’s loyalty. Once you decide to start a loyalty program, you can easily start one as all ecommerce platforms have apps that allow for their creation, like ReferralCandy and Loyalty Lion.
Which loyalty program do you like the most? And which one will you implement in your ecommerce store?