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Ecommerce Loyalty Programs: What You Should Know

Innovative loyalty programs are something your shoppers have come to expect. Learn what you can do to increase the lifetime value of your shoppers.

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Looking for a way to make your ecommerce business more profitable? Consider implementing an <a href="https://www.bolt.com/thinkshop/how-to-build-a-robust-customer-loyalty-program/">ecommerce loyalty program</a>.&nbsp;Read on to learn why and how businesses are leveraging ecommerce loyalty programs and the four types of loyalty programs merchants use today.<h2>What are ecommerce loyalty programs?</h2>An <a href="https://www.bolt.com/blog/loyalty-programs-for-online-shoppers/">ecommerce loyalty program</a> is a marketing strategy developed by ecommerce stores to nurture and reward their best customers. Membership may be paid or free. And when customers join, they’re given special deals, discounts, and rewards for engaging with the brand and buying products.Loyalty programs are a tried-and-true marketing strategy used to:<ul><li>Increase customer lifetime value and repeat purchases</li><li>Boost revenue</li><li>Encourage word of mouth advertising</li><li>Differentiate a brand from its competitors</li><li>Build customer loyalty</li><li>Show customer appreciation</li><li>Improve customer retention</li></ul>A good rewards program both encourages and rewards repeat business. It offers points, discounts, free shipping, special shopping days, member-only perks, and more to keep customers excited about the brand and its products.&nbsp;The top rewards? According to a 2021 YouGov study commission by Bolt, members see these as the <a href="https://www.bolt.com/landing/consumer-loyalty-program-report/">top three benefits</a> of loyalty and rewards programs:<ul><li>Reward points and cash back (66%)</li><li>Discounts (64%)</li><li>Free shipping (55%)</li></ul><h2>Why should you implement an ecommerce loyalty program?</h2>Loyalty programs are a powerful marketing strategy that drive spending and brand allegiance. According to our research, <a href="https://www.bolt.com/landing/consumer-loyalty-program-report/">83% of online shoppers</a> are a part of at least one loyalty or rewards program.&nbsp;Ecommerce loyalty programs can benefit merchants in three ways:<ol><li>Easier customer acquisition</li><li>Stronger brand allegiance</li><li>Higher profits</li></ol><h3>Easier customer acquisition</h3>Most merchants offer an incentive for joining their loyalty program. For example, the customer may get a discount on their current purchase or a cash reward for spending “X” amount of money within a specific timeframe.When a customer has a hard time committing to a purchase, the offer of a discount and member discounts can often push them off the fence. Then, it becomes a no-brainer for customers to complete their purchases and join.&nbsp;<h3>Stronger brand allegiance</h3>A rewards program brings reciprocity into your customer relationships. You reward your customers for buying from you, and they reward you with their loyalty.&nbsp;This is the gold standard for ecommerce brands: The customer is so loyal they never consider another merchant. They immediately come to your store when they need something to buy your products.&nbsp;But this is a habit that you must cultivate. And the best way to do that is through a rewards program.&nbsp;<h3>Higher profits</h3>Loyal customers buy more frequently and spend more per purchase than average customers. Consider these statistics:<ul><li><a href="https://www.forbes.com/sites/forbesagencycouncil/2020/01/29/the-value-of-investing-in-loyal-customers/?sh=144e0a4221f6">Increasing customer retention rates</a> by just 5% can increase profits by 25% to 95%.</li><li>Attracting new customers is <a href="https://www.huntclub.com/blog/average-customer-acquisition-cost">five times more costly than retaining existing ones</a>.</li><li>Customer Acquisition Costs (CAC) for ecommerce stores range from about $20 for a small business running pay-per-click ads to $160 for Amazon.</li></ul>By keeping your customers long-term, boosting the frequency of their purchases, and raising the value of each purchase, your loyalty program can directly impact your bottom line.&nbsp;&nbsp;As you’ve seen, customer loyalty is essential to company longevity and profits. But what is the economic value of loyal customers?<h2>The economic value of loyal customers</h2>Three primary levers drive a business’s growth:<ul><li>Attracting more customers</li><li>Raising the average transaction value</li><li>Boosting the frequency of purchase</li></ul>And as we’ve seen, loyal customers buy more frequently, spending more on each transaction. But how do you calculate the value of a loyal customer? First, we need to look at the customer lifetime value (LTV).&nbsp;LTV calculates how much revenue a customer generates over the length of their time as a customer. Here’s the formula:LTV = AOV x Transactions x Time<ul><li>AOV = average order value</li><li>Transactions = the average number of transactions per period (month or quarter)</li><li>Time = The average number of periods (month or quarter) a customer actively buys from you</li></ul>By calculating LTV before and after a loyalty program, you can measure the economic impact of loyal customers on your business.<h2>Metrics to determine the value of loyal customers</h2>To measure the economic impact of loyal customers in your own business, you need to look at:<ul><li>Retention rates</li><li>Price sensitivity</li><li>Annual spend</li><li>Lower marketing costs</li><li>Referrals</li></ul>Retention ratesThe longer a customer remains active, the more valuable they are. By comparing your most loyal customers to your average customers, you can find this.Price sensitivityLoyal customers can be less price sensitive. Because they care about your brand and products, they often stay loyal even as you raise your prices.&nbsp;Look at the purchase history of your loyal customers. Then, compare the profit margin on those goods with the profit margin of the average customer.Annual spendLoyal customers buy more in a year than most customers. As a result, they tend to buy more frequently and increase their order size over time.&nbsp;Pull data on your loyal customers’ purchase habits, and compare that to your average customers’ annual spend.&nbsp;Lower marketing costsLoyal customers require less nurturing than average customers. They also request fewer chargebacks, make fewer returns, and need far less hand-holding than average customers.&nbsp;To see this, look at your email campaigns’ clickthrough and conversion rates. Loyal customers will engage with your marketing and convert at a higher rate.&nbsp;ReferralsLoyal customers also contribute the bulk of your store’s referral traffic. Ask new customers how they heard about you, and you’ll likely uncover a few customer evangelists who send you customers for free.<h2>What types of ecommerce loyalty programs are there?</h2>There are four types of programs that work well for ecommerce brands.<ol><li>Points programs</li><li>Paid programs</li><li>Tiered loyalty programs</li><li>Universal loyalty programs</li></ol><h3>Points programs</h3>Look no further than airline and hotel points programs for this type of program. But <a href="https://www.starbucks.com/rewards">Starbucks</a> has perfected it—rewarding customers with stars each time they order using the app.As soon as stars accrue, customers reach different tiers and redeem more valuable items. For example, the first tier allows you to cash in your stars for a regular drip coffee. The next will get you a venti vanilla latte with almond milk.&nbsp;So what makes the Starbucks Rewards Program the best in the industry? First and foremost, Starbucks lets members make payments and redeem their rewards on their app. <a href="https://loyaltylion.com/uk/blog/36-ecommerce-loyalty-facts-and-figures-part-3-the-importance-of-customer-engagement">Fifty seven percent of consumers</a> want to interact with loyalty programs on their mobile devices.In addition, <a href="https://cdn2.hubspot.net/hubfs/4855278/Feb_20_consumer%20research/Loyalty-up%20close%20and%20personal.pdf">78% of customers</a> become loyal to a brand if they’re both rewarded and recognized for their loyalty. In a step to make the relationship more personalized, Starbucks offers free drinks to members on their birthdays.A newer twist on points programs is to give points for sharing on social media, completing an account profile, or subscribing to a newsletter. This type of program is a form of gamification. It encourages customers to repeat behaviors that earn points.&nbsp;Consumers can gain access to swag, products, or prestige at different levels. And they’re rewarded when they share their success on social media. Each social media post becomes a referral that builds brand awareness and trust with potential customers.<h3>Paid programs</h3>Paid programs require customers to pay for membership. Generally, customers pay a yearly fee to gain exclusive access to member privileges. Think of the buyers’ clubs of the 1970s and 1980s, such as Sam’s Club and Costco.With the massive shock to consumer loyalty during the COVID-19 pandemic, McKinsey &amp; Company argues that <a href="https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/coping-with-the-big-switch-how-paid-loyalty-programs-can-help-bring-consumers-back-to-your-brand">paid loyalty programs will bring consumers back to your brand</a>. The article states that capitalizing on this emerging loyalty model will satisfy increasingly connected and experience-driven consumers.<a href="https://www.amazon.com/amazonprime">Amazon Prime</a> is the most prominent ecommerce example of a paid loyalty program. For $139 per year, members gain access to free next-day shipping, a streaming platform, and other benefits.<h3>Tiered loyalty programs</h3>Tiered programs give your customers the ability to reach progressively higher levels, each with more prestige, better benefits, and more privileges. For example, many loyalty programs combine points programs with tiered programs, as Starbucks does.The <a href="https://www.sephora.com/profile/BeautyInsider">Sephora Beauty Insider</a> loyalty program is the most talked about tiered program in retail. With over 17 million members in the US, this <a href="https://loyaltylion.com/blog/scale-success-story-sephoras-beauty-insider#:~:text=The%20Sephora%20loyalty%20program%20boasts,when%20they%20aren't%20shopping.">loyalty program</a> is responsible for 80% of the company’s sales.Sephora’s customer-centric approach encourages engagement and breeds loyalty. By having different levels of membership, with unique perks attached to each, members have something to aspire to. After all, <a href="https://loyaltylion.com/loyalty-tiers">74% of customers</a> are motivated to be loyal by the feeling that they’re working toward a reward.&nbsp;In addition to free gifts, Sephora Beauty Insiders have access to a member-only event, where they can save across the site a few times per year. This also incentivizes shoppers to spend more throughout the year to attain a higher tier and get a larger discount for their beauty haul.Tiered loyalty programs includes a social proof element. As customers achieve higher levels of membership, they experience more prestige.&nbsp;&nbsp;Think of the pride an American Airlines Executive Platinum member feels when she is the first to be allowed to board a plane. You can duplicate this feeling with a tiered program for your ecommerce store. For example, you could offer your elite tier of customers early access to new products before selling them to the general public.<h3>Universal loyalty programs</h3>Universal loyalty programs are a new take on the standard loyalty program. They offer the traditional perks of loyalty programs such as:<ul><li>Free shipping</li><li>Member-only discounts</li><li>Discounts applied to every order</li></ul>But with a universal loyalty program, members can use these benefits with multiple vendors. Since Amazon Prime hit the scene with free two-day shipping and discounts across purchases, shoppers have an appetite for the benefits and perks of loyalty programs everywhere they shop.&nbsp;A strong example of a universal loyalty program is <a href="https://www.footlocker.com/flx.html">FLX Rewards</a>, which brings Foot Locker, Kids Foot Locker, Footaction, Champs Sports and Eastbay together in a delightfully beneficial ecosystem.FLX Rewards offers a slew of benefits across all brands including, free shipping, birthday gifts, member-only savings and events, and more. FLX Rewards recognizes that there is a lot of value in bringing together disparate loyalty programs into a unified view for shoppers.&nbsp;Are people interested in universal loyalty programs that bring together their favorite brands? The YouGov commissioned survey revealed that 87% of online shoppers are interested in joining a universal loyalty program.&nbsp;Why universal is better: Most loyalty programs are very limited, which discourages customer engagement. Customers can usually only redeem points with the same retailer they earned them from. Placing limitations on how and where to spend points decreases the loyalty program’s overall value.<h2>The bottom line&nbsp;</h2>Whether you're revamping your loyalty program or just dreaming it up, Bolt supports your efforts to turn shoppers into paying customers. For example, <a href="https://www.bolt.com/checkout/">Bolt One-Click Checkout</a> lets you take advantage of the traffic your loyal program drives to your site by making purchasing a seamless experience.&nbsp;While merchants can benefit from any loyalty program, the universal loyalty program is a powerful option for merchants today. It lets your customers leverage rewards across multiple categories and vendors. And it associates you with other well-known merchants.Take your ecommerce store to the next level with a universal loyalty program, and leave a trail of happy customers in your wake.