Are Loyalty Rewards worth it for eCommerce websites?

Loyalty in eCommerce is hard to come by. Because your customers are driven primarily by considerations like price and free delivery, they go where the deals are.

The fickle nature of online customers often prompts eCommerce companies to focus on winning new customers over retaining the old ones.

While new customers are essential for growth, repeat business is more profitable. Increasing customer retention by just 5% can boost profits by a minimum of 25%.

So if you can attract new customers and turn them into returning customers then you’re in great shape for the long term.

Turning new customers and repeat customers into loyal customers takes some doing. Not least because – aside from selling them products they wanted – you’ve not done anything to earn it.

And here lies the biggest challenge for eCommerce businesses. The ability to connect with an audience that is only interested in what you sell and how much you sell it for.

There are, of course, ways to create a rewarding shopping experience. A great looking and intuitive website. A smooth and simple checkout process with no nasty hidden costs.

But all this does is facilitate (and accelerate) the shopping experience. It doesn’t necessarily breed loyalty. It might get you some more customers though because happy customers do share their experiences.

With cost prices creeping up, retail prices are following suit, weakening the already tenuous relationship you have with your customers. Implementing a loyalty programme could be an effective way to offset this challenge and engage with your customers in a new and effective way.

How do Loyalty Rewards work?

There is no one size fits all loyalty rewards programme. It depends largely on what you sell and the kind of profit margin you work to.

Implementing a loyalty rewards programme that destroys your profits is pointless. So whatever approach you adopt needs to be rewarding to customers but ultimately help you generate revenue. Not burn capital.

Generally speaking, loyalty rewards work along the lines of rewarding customers for spending money. The more they spend the greater the rewards.

There are two main approaches:

Pounds/Euros/Dollars for points. Every 1 unit of currency spent equals 1 point.

It’s then up to you what that point is worth.

Some loyalty programmes allow customers to redeem points in direct exchange for products. Others equate points to a monetary value – 1000 points equates to £/€/$10 can be applied to a purchase.

The advantage to your business is obvious. Your customer has spent a grand to get £/€/$10 back, which they then spend with you.

However, you need to find the sweet spot that works for your business and engages with your customers. If the reward system doesn’t appear fair enough your customers won’t buy into it. And thanks to social media, they’ll make sure others don’t too,

If your product is unique to your business discounts or free items work well as an alternative to a points-based system. Your customers are invested in both your brand and products so this will hold the most value to them.

Plus if you produce your own products it’s easier to control from a cost perspective.

The Sign of a Successful Loyalty Rewards Programme

There are two main indicators to determine if your loyalty rewards programme is working.

1. Repeat business

You should be seeing repeat business from a growing number of your customers.

1. You’re more profitable

Despite giving away products, vouchers or discounts, you should be making more profit than you were without the loyalty programme.

This is because you’re not having to work as hard to sell to these customers because they’re already invested in you. And because they’re spending more frequently, it absorbs any costs associated with loyalty benefits.

Providing both of these areas are ticking upwards then your loyalty rewards programme is working well.

The challenge is keeping them engaged long term as discounts quickly lose their charm. Especially if competitors are aggressively cutting prices. This makes any discount a customer has to work for considerably less valuable. 

So to sustain your success you need to be aware of what your competitors are up to. But more importantly, you need to know what your customers care about and what matters most to them. 

By adding sustained value in areas other than the price you make those discounts all the sweeter when they happen. But, fundamentally, you’re changing your customers’ behaviour to think and care less about price and more about the experience. 

You need to back this up with valuable content and an aggressive programme of exclusives, rewards, competitions and other incentives. And all earmarked for the most loyal of your customers.

Other benefits like early access to sale items or expedited shipping on orders over a certain value all help. 

How to Implement a Loyalty Rewards Programme

This is the tricky part.

Any loyalty programme you put in place needs to be easy to administrate, cost-effective and, ultimately worth it. For both you and your customers.

But the three main considerations are:

1. You can afford it
2. You can sustain it
3. Your customers love it

If you launch your loyalty rewards programme uncertain about any of those three things then it is doomed to failure.

Determining the viability of a loyalty programme from a business perspective is relatively easy. The third point however requires a little more insight.

You need to properly understand your customers to create a loyalty programme they’ll respond to.

That means data. And lots of it.

The more customer data you have at your disposal the better you can delight them with your loyalty programme.

You should be leveraging everything from product and purchase data to core demographics. This will build a picture of what your customers like, their average spend and frequency of purchase. 

This will help to determine the kind of loyalty programme you should deploy.

You can also put this data to good use in your reward communications too. The programme itself won’t be enough to keep them engaged so rolling out a personalised communication strategy is essential.

Use SMS and emails to make your loyal customers aware of incoming limited time offers. Or give them real-time updates of their reward points balance.

Multiple soft touches that add value, enhance the customer experience. They also make it easier for your customer to click as you’re giving them lots of highly personalised reasons too.

Of course, they won’t purchase every time you give them a nudge but you’ll keep your brand at the front of their mind. This is where you beat your competitor.

When price matters less than the feeling your brand gives your customers through the experience you provide.

The Devil is in the Data

Loyalty Rewards are an excellent way to retain existing customers, attract new ones and increase spend.

However, it hinges on your ability to consolidate and understand your customer data. And then utilise that data to build a loyalty reward programme that your customers will respond to.

Moreover, you need to be able to communicate effectively with those valued customers to keep them engaged. Communicating offers, deals, free gifts, bonus reward points, limited edition items in real-time keeps interest high.

The ability to sustain that buzz and excitement around your products helps to shorten the sales cycle and boost conversions. 

If you get your loyalty programme right, and it’s supported by a robust communication strategy, you should have no problem hitting that 5% retention target.

To learn more about how you can use your data to drive engagement with your customers, get in touch and request a demo.