Merchant Guide to Loyalty Programs - Meaning, Types, Statistics

January 17, 2023
7
minutes
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Most people probably recognize loyalty programs from your local grocery store, where the checkout person offers you a bonus card and you politely say “no thank you” and continue on your merry way.

If this is true, then you're 100% right, that’s a loyalty program! Unlike your local grocery store, loyalty programs in eCommerce are a whole new ball game. Many would consider them one of the most important marketing tools, with clear industry statistics pointing to the same conclusion.

Over the past few years these programs have proliferated eCommerce markets driven by the conclusion that:

"It costs more to acquire new customers, and that money is better spent elsewhere."

What exactly are Loyalty Programs?

In context, loyalty programs are marketing tools that bridge a relationship between shoppers and merchants. Loyalty Programs are best defined by their functional components from a merchants perspective. At the most basic level, loyalty programs are three things:

  1. Database: a loyalty program is best defined as a Database, where you can track your store's history and identify customers that have demonstrated a consistent purchasing pattern.
  2. Rewards: can come in a variety of forms, and are typically used to create incentive or gratify customers that have interacted with your store previously.
  3. Tiers: are structured levels which promise exclusive status and progressively advantageous rewards for continued shopper support.

*Modern Loyalty Programs come as ready made Apps that are easily installed and managed.

Types of Loyalty Programs:

Modern loyalty programs generally use “in-store” points that are earned and redeemed for a variety of reward options by the customer. Once a shopper accumulates enough points they are eligible for promotion to higher tiers, which also come with their own perks like point multipliers, bonus points or special status.

  1. Point Based Program: When you design a point program for your eCommerce business, you are given the ability to register customers to your program and monitor their history. This can be a source of quality information on customer purchase habits. Point systems are very versatile, allowing points to be used to encourage a variety of action besides purchases like registrations or reviews.
  2. Tier Based Program: These are a big hit amongst loyal costumes because it gives them exclusive status and the ability to earn progressively advantageous rewards. For each time a customer reaches a spending threshold they are upgraded to a new tier. These tiers can include points, multipliers or bonus discounts. Merchants can take full control of how to structure their tiers.
  3. Punch Card System: Have you ever seen a card that tracks the number of purchases a person makes? We see a lot of punch cards that award a free coffee or ice cream once they are filled. In eCommerce this is very useful in encouraging continued purchases.
  4. Cash Back/ Discount System: We see a lot of these sorts of programs in grocery stores where loyalty members will accumulate a discount or are granted a small amount of cash back after each purchase. This helps shoppers to return knowing that there is a discount available on each purchase.
  5. Subscription Program: These programs are given with content and quick consumption goods like supplements. Subscriptions are a very popular business model because of the quality of cash flow. Subscription programs can help secure your store as a preferred choice.
  6. Gamification Program: Are a clever way to make the shopping experience more engaging. They generally offer some sort of reward for an accomplishment or a random gift after completing a particular function.
  7. Combination Programs: Also known as hybrid programs, are multilayered loyalty programs that leverage different types of programs as part of an overall strategy.

Important*

It is important to understand that these programs are considered liabilities because the rewards you offer have a financial implication. Such as x amount of points for a 10% discount has a direct effect on your margin. It is believed that they provide an overall net positive benefit; with improved customer lifetime value, average order value and customer acquisition costs. Structuring a loyalty program includes understanding this nuance.

eCommerce Statistics vs. Loyalty Programs

The best way to interpret the value of a loyalty program is through statistics. They give us a baseline and establish goals for us to strive for. Do I need a loyalty program? There is evidence to show that they benefit merchants.:

  1. “Repeat customers generate 300% more revenue than first-time shoppers”
  2. “While repeat shoppers only make up 21% of most brands’ total customer base, they make up 44% of overall revenue.”
  3. “Top online stores lead in customer experience (CX) 80% of the time"
  4. “The cost of acquiring a customer is 60% higher than 5 years ago”
  5. “In the spring of 2022, the average Shopify customer’s revenue per shopper was $90”

How to Set Up a Loyalty Program

Loyalty Programs have advanced beyond the typical grocery store bonus card. There are complete solutions now that take a big question and make it simple for everyone. No more programming, no more complicated installations.

All that's required nowadays is one simple installation, some financial math and an easy activation. This is how big brands like Crocs, Reebok, and Aldo implement loyalty programs on their websites.

It takes some quick learning to figure out how they function, but a bulk of the work is completed once you decide what sort of program you want to implement into your eCommerce store. Branding your loyalty program is another important aspect that relates to the success of your program. Having a clear objective and a strong brand image will improve your launch.

Choosing a Loyalty Program

Since these programs can vary significantly, selecting the best option for you can also be tricky. Depending on your needs, you may want to opt for a broader marketing platform that offers secondary features like reviews or automated emails. Otherwise you might opt for a specialized loyalty program without the extras. The price difference between these options is very small. Most will opt for the more complete version; using a few relevant features and ignoring the others. Similar to how SEO can affect your site's performance, the wrong platform can present unforeseeable and recurring issues.

Choosing the Right Loyalty Program:
  • Set-Up Process: Reasonable Cost, Easy Set-Up, Clear Steps
  • Design: Provides Customization Options, Great User Interface and Allows Branding Assets
  • Performance: Multiple Strategic Options, Organized Database, Fast On-Page SEO
  • Functionality: Versatile, Reliable, Flawless Operation
Additional Features:
  • Segmented pricing for different business sizes
  • Active customer support and success departments
  • Free trails to test performance and reliability
  • Download/upload feature to preserve shop data
*When are Loyalty Programs a Great Choice?

Brands with buzz, subscription models, high perceived value, large catalogs, or quick consumption cycles tend to benefit most from Loyalty Programs.

Non-Financial Benefits of Loyalty Programs

Communication

They keep our business relevant, when otherwise we would be easily forgotten. Communication is generally poor in eCommerce with no way to motivate re-engagement. Loyalty Programs are a proactive way of embracing the customer and fostering a sustainable relationship.

Familiarizing your Business

When we operate an eCommerce business, we are generally in the dark. There is little information about the customers preferences and habits. Unlike in person shopping, there is no face to the customer. Loyalty Programs can help fill the gap and reciprocate your gratitude.

Loyalty Programs are Strategic

There are countless different strategies you could try to attract customers, but what we lack most of all is a way of acting on those strategies. Rewards are an impactful way of creating engagement with your site by promoting a variety of actions that build on your strategic goals.

*Insider Perspective

Growave Customers Believe that Versatility and Additional Features are Defining Factors.

Recommended Uses:

  1. Offer Points on First Purchase
  2. Use Points to Collect Reviews
  3. Scale your Social Media with Rewards
  4. Offer Double Rewards for Referrals
  5. Run a Flash Sale with Extra Points
  6. Make Loyalty Tiers Super Rewarding
  7. Give Out Birthday Surprises

Conclusion

If you're a merchant looking to optimize your eCommerce store then you might consider Growave x Shopify. There is so much to loyalty programs; exploring the many features is worthwhile. Growave is one of the biggest names for loyalty programs on Shopify and you can explore the more then 1,000+ reviews on the offical App Store.

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Frequently asked questions

How hard are Loyalty Programs to manage?

Modern Loyalty Programs are built with users in mind. They Require some basic math, a good program will have clear instructions and an easy-to-use administrative panel. You should look for a program with a modern admin panel and organized settings.

Are Loyalty Programs profitable?

While there is no definitive answer, industry figures suggest a clear improvement in engagement rates and customer lifetime value. Keep in mind that points have a financial value that affects your bottom line. There is a balance between point value and their cost.

How much do they cost to build?

Not all loyalty programs are the same. They offer varying plans according to customer needs. Its important to check out the pricing plans before making a decision because features could be limited by plan. Small or large, you can find an app that makes it easy to implement a loyalty program.

What are Loyalty Programs?

Loyalty programs are apps that easily integrate into your ecommerce store. They offer reward systems that grant shoppers points for their purchases. As these customers continue to shop, they unlock progressively redeeming perks segmented into tiers. Loyalty programs are considered effective customer retention tools.

What are the benefits of Loyalty Programs?

They are linked to lower customer acquisition costs, increased average order value, and lifetime value of customers. They are considered robust ecommerce marketing tools. Loyalty programs are also databases of all your members that can be used in combination with emails to re-market shoppers.

What should I expect with Loyalty Programs?

Loyalty Programs can take time to take effect, but they increase in utility as your member list grows. You can change up your strategy to gather members quicker or slower, depending on your needs. Loyalty programs are best used in combination with emails and rewards. Rewards can be used to motivate alternative actions like reviews or social media follows.

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