It is no secret that loyalty programs work for brick-and-mortar businesses, but with eCommerce businesses bringing in over 26.7 trillion dollars globally during the last few years, it makes sense to question if loyalty programs should be offered to online shoppers. However, it is also important to question whether it will be beneficial or harmful for your online businesses. Every business is different, but below breaks down a few different loyalty programs you can offer as an eCommerce business and how they have been helpful and or harmful to other businesses.
First Things First: What Exactly is a Loyalty Program?
A loyalty program is a program that businesses create in order to reward their customers for continuing to shop with them over their competitors. there are loyalty programs for retail stores, restaurants, breweries, and so much more. It has been proven that loyal customers cost around 5 times less than new customers, so it makes sense that you would want to increase your customer’s loyalty.
5 Different Loyalty Program Structures
A recent poll read that 37% of consumers shop from more than one brand today, so increasing brand loyalty can be difficult. However, in another poll of 2,000 consumers, 68% said that they would join loyalty programs for brands they enjoyed shopping with. In short, now is the time to create your own loyalty program.
Below are 5 of the most common types of loyalty programs where eCommerce businesses can find success.
Points System Loyalty Programs
A points-based loyalty program allows consumers to redeem points that they can use for discounts or free products/services. Lots of hair salons and breweries use a point-based rewards program that looks a little something like this: For every purchase you make, you get a set number of points that you can turn in for a free haircut or a free t-shirt.
Ace Hardware has a point-based system where every $1 spent gives you 10 points, and after you accumulate 2,500 points, you receive $5 off. As a member of their rewards program, you also get special offers when they are available.
Subscription-Based Loyalty Programs
A subscription program is a program where consumers pay a fee to subscribe/join and they are given access to valuable rewards that can often be redeemed right away. This type of loyalty program is becoming increasingly popular because consumers like the instant gratification that comes from a subscription-based loyalty program.
A great example of a subscription-based loyalty program is Grove Collaborative. To join Grove’s VIP program you pay $19.99 a year and you are instantly eligible for a free gift with your next purchase. On top of that members are rewarded with free full-size products, early access for new products, free shipping, and exclusive sales only available to members.
Tier based Loyalty Programs
A tier-based loyalty program rewards consumers with special perks based on which tier/level they are in. Consumers like tier-based programs because they do not lose their rank over time – if they stop purchasing, then they no longer move up in the tier, so it makes them engage with the businesses.
Marvel has one of the most well-known tiered loyalty programs. Members are rewarded for many things including reading articles on Marvel.com, taking surveys, checking in at Marvel shows/events, and even listening to Marvel podcasts. The type of rewards that you can receive get better as you move up through the four tiers.
Free Perks Loyalty Programs
Free Perks loyalty programs are just that, you are given free perks when certain actions are taken. Perks-based loyalty programs are most common with beauty and fast fashion brands. Some benefits of a perks-based system include:
- They are often easy to manage
- They are cheaper than other programs
- They help create and build a brand
The perks can be a surprise or they are given to return customers on a weekly or monthly basis – the idea is to reward your loyal consumers for being just that, loyal.
Grubhub has a perk-based rewards system. The first time you visit their website, you are offered a $10 off perk for signing up with your email. After that, rewards include free delivery from certain restaurants, free food and delivery, special offers, and you are even rewarded for referring friends to the app. Grubhub also updates its perks every day which allows for their partners to grow, but also offers something new to their own consumers.
Cashback Loyalty Programs
Cashback loyalty programs reward consumers with cashback for their purchases. This type of loyalty program is often used by banks for credit cards. Every time you use your card, you get a certain percentage of that back in cash rewards, with which you can withdraw or use to purchase certain products or pay towards your bills.
Some arguments say that cashback programs, while they sound nice, can be undesirable to consumers. For one thing, with most cash-back programs, once you spend your rewards, you have to start all over again, which is a common complaint among consumers and loyalty programs. Another issue with cashback is that the consumer might not spend that cash with your brand, hence defeating the purpose entirely. Consider this when determining the right program for your eCommerce company.
In short, loyalty programs can be extremely beneficial for eCommerce businesses. A study done by Accenture showed that 90% of companies have loyalty programs and a study by HBR showed that of those 90%, the ones that have strong loyalty marketing grow their revenue 2.5 times faster than those without.
However, it is important to make sure that you are choosing the right program for your business and your audience. Have goals and metrics in mind so that you can measure your growth and make the right choice for your industry and type of business. Ask the following questions below before you dive into a loyalty program:
- What is the main goal we are hoping to achieve from starting a loyalty program?
- What type of benefits can we offer to our members without losing money?
- What type of consumers are we looking to bring in and what programs have been successful with bringing them in? (for example, who is your target market?)
- What type of reward program has worked for our competitors?
- How can we make ours stand out from their program?
If you are just starting up, consider sending out a survey asking your consumers what they would want out of your loyalty program, or you can run a small trial group with your top consumers and get their feedback on the program. It takes some time to set the foundation, but once you do, the benefits will follow.