Do Ecommerce Brands Need a Loyalty Program?

In the world of ecommerce, customer loyalty is the ultimate goal. After all, loyal customers are more likely to make repeat purchases, recommend your brand to others, and provide valuable feedback to help you improve your products and services. But with so many different tactics and strategies for building customer loyalty, it can be difficult to know where to start.

One popular approach iDo Ecommerce Brands Need a Loyalty Program?s to create a loyalty program, which rewards customers for their repeat business and incentivizes them to keep coming back for more. But is a loyalty program really necessary for ecommerce brands? 

In this article, we'll explore the pros and cons of loyalty programs, and provide tips for creating a successful program that drives both customer loyalty and revenue.

What is a loyalty program?

A loyalty program is a marketing strategy that rewards customers for their repeat business. This can take many forms, from simple point-based systems to more complex tiered programs that offer increasingly valuable perks as customers spend more. Rewards can include things like discounts, free products, exclusive access, and more.

If you’ve shopped at Walmart and Target, you’re no stranger to loyalty programs. Some brands also call it a way to thank their customers for being an active part of their community. 

The goal of a loyalty program is to incentivize customers to keep shopping with you, which in turn can increase customer lifetime value and drive revenue for your business.

Why do ecommerce brands need a loyalty program?

There are several potential benefits to implementing a loyalty program for your ecommerce brand, including:

1. Encouraging repeat business

By offering rewards and incentives for repeat purchases, you're giving your customers a reason to keep shopping with you. This can help increase customer lifetime value, which is a key metric for ecommerce businesses.

According to a study, loyal customers are 5x more likely to repurchase and 4x more likely to refer friends to your brand. That's a big deal when you consider that acquiring new customers can cost up to five times more than retaining existing ones.

2. Boosting sales

When customers know that they're working towards a reward or discount, they're more likely to make additional purchases to reach that goal. This can help boost your sales and revenue. Some loyalty programs offer rewards for reaching certain spending thresholds, which can incentivize customers to add more items to their cart in order to qualify for the reward. This can lead to larger average order values and higher revenue per customer.

"Loyalty programs are like a game to consumers. They’re incentivized to shop more and spend more to reach the next tier or level. This can lead to increased sales and revenue for your business."

3. Collecting valuable customer data

Loyalty programs are an important part of the customer data strategy. Many brands use it to collect data on what their customers are buying, how often they're buying, and what rewards they're redeeming. This helps them make informed decisions about future marketing strategies and product development.

What are the potential downsides to implementing a loyalty program?

While there are certainly benefits to implementing a loyalty program, there are also some potential downsides to consider, including:

1. Cost

Developing and implementing a loyalty program can be expensive, particularly for smaller businesses. You'll need to factor in the cost of rewards, software, and marketing to promote the program. This is especially if you're offering high-value rewards. You need to constantly make sure and evaluate that the costs of running the program don't outweigh the benefits of increased customer lifetime value.

2. Complexity

Depending on the type of loyalty program you choose, it can be difficult to manage and track. This can lead to confusion and frustration for both you and your customers.

Loyalty programs can be challenging to manage, especially if you're using a tiered or points-based system. You need to make sure that you have the right software and processes in place to track rewards and redemptions and also potential issues like fraudulent transactions and redemptions—you’d be surprised at how many people take advantage of these reward systems. 

3. Ineffectiveness

A poorly designed loyalty program can actually do more harm than good. If customers don't see the value in the rewards or find the program too difficult to use, it may not incentivize them to continue shopping with you.

"Your loyalty program needs to offer real value to customers. If your loyalty program is too complicated or the rewards aren't meaningful to your target audience, it won't be effective in driving loyalty."

Tips for creating a successful loyalty program

If you've decided that a loyalty program is right for your ecommerce brand, here are some tips for creating a successful one:

1. Keep it simple

The more complex your loyalty program is, the more difficult it will be to manage and track. Keep things simple by offering straightforward rewards that are easy to understand and redeem.

Ecommerce platform, Shopify puts it, "Simplicity is key when it comes to loyalty programs. Focus on offering rewards that are easy to understand and redeem, and you'll see better engagement from your customers."

2. Make it valuable

Your loyalty program should offer real value to your customers. This could include discounts, free products, exclusive access, or other perks they can't get elsewhere. As simple as it sounds, your loyalty program needs to offer something that customers can't get elsewhere. Something that’s valuable enough to incentivize them to keep shopping with you.

3. Personalize the experience

Personalization is another key to creating a loyalty program that resonates with your customers. You can do this by using data you receive from their purchases and understanding their shopping behavior and preferences to tailor rewards and promotions to their individual needs and interests.

4. Promote it effectively

Even the best loyalty program won't be effective if customers don't know that it exists. Make sure you're promoting your program effectively through email marketing, social media, and other channels. Promotions are pivotal to the success of your loyalty program. Make sure you're getting the word out through multiple channels, and offer incentives for customers to sign up and refer friends. 

There are times when loyalty programs do not work well…

Under certain circumstances, loyalty programs are an ever-reducing marketing strategy. Why? Because they are targeted at bringing back loyal customers but not really acquiring new ones. 

Especially for ecommerce brands that focus on big-ticket items or luxury goods, it’s less likely that people are going to buy it every 3 months. And therefore, a loyalty program might not sustain the growth you need if you’re not already acquiring new customers actively. That is why employing referral programs by incentivizing existing customers to refer their friends and family to your brand, you can tap into new networks and potentially acquire new customers. 

You can think of it as a win-win situation, it works similarly to a loyalty program but offers much more to the table. Bullseye on the customer acquisition side and you reward your existing customers for doing so! 

Conclusion

So, do ecommerce brands need a loyalty program? The answer is...it depends. While there are certainly benefits to implementing a loyalty program, there are also potential downsides to consider. Ultimately, creating a loyalty program will depend on your long-term business goals and resources. It’s definitely not a one-hit-wonder because you need your customers to constantly be happy enough with your brand and products to want to come back to you.

A loyalty program can be a powerful tool for ecommerce brands, but it's also not a one-size-fits-all solution. You need to carefully consider the costs, complexity, and effectiveness of the program before implementing it.

By keeping things simple, offering real value, personalizing the experience, and promoting the program effectively, you can create a loyalty program that drives customer loyalty and revenue for your ecommerce brand.

But of course, a referral program might just be the best loyalty program you can have.