May 23, 2014

Best Practices for Starting an E-Commerce Loyalty Program

Posted by Janeesa Hollingshead Category IconConversions & UX Category IconMarketing

Did you know there are over 2 billion loyalty program memberships in the United States alone? That means on average each household belongs to and participates in approximately 18 different loyalty programs! Companies across the world have been using rewards since the 1980s to both attract and retain customers — and with the rise of global selling, it’s become easier than ever to get started.

Rules of the Game

Though loyalty programs seem to be springing up in every industry, it’s important to take a few factors into consideration before creating your own:

  • Do you offer goods or services that consumers willingly purchase on at least a semi-regular basis? If your business focuses on copywriting, clothing, food, or one of many other goods or services for which consumers return regularly, a loyalty program could serve you well.
  • Are your offerings similar to those of your competitors? If so, you have an incentive to differentiate using a loyalty program.
  • Understanding your customers and competitors can help build a successful loyalty programs

    What’s Your Motivator?

    There are four benefits to creating a loyalty program: gaining new customers, increasing your current customers’ spending, retaining more of your customers, and guiding customers toward higher margin products. Your loyalty program could focus on one or several of these benefits, but be sure to identify your motivator and goals prior to designing and launching your initiative.

    Not Every Customer is Created Equally

    Ready to start strategizing? Take a look at your current customer base and perform a quick analysis — excellent loyalty programs segment customers in order to provide the correct services and rewards to the correct people.There are typically four segments your customers will fit into. This is the 80/20 rule at work: 20% of your customer base will generate 80% of your revenue.

    Categorized your customers to better serve them depending on which group they are in.
    • Lead: These customers occupy the bottom of the pyramid; they are plentiful, but they are also likely to cost your business more money than they are worth. It’s best to focus your attention on the other customer segments.
    • Iron: The Iron segment consists of customers who are infrequent, cost-conscious buyers. They don’t cost your business money, and they may make up a regular part of your revenue; additionally, they have the potential to transition into the next segment.
    • Gold: These customers tend to generate the most revenue for companies, simply because they are frequent purchasers, and they tend to be less sensitive to pricing. These customers deserve much of your attention and focus to retain and nurture their relationships with your company.
    • Platinum: While these customers spend an exorbitant amount of money and are completely inelastic in regards to pricing, there are so few of them that they do not make up the main portion of your revenue. Both platinum and gold segment members tend to be motivated by lifestyle and status perks, rather than discount-based incentives.

    Pick Your Strategy

    So you’ve picked your goals and separated your customer base into four distinct segments — now it’s time to pick the components of your loyalty program. There are many options, but the most popular models are a flat discount offered to all customers, buy x get y free offers, tiered rewards, and personalized offers based on customer shopping habits. Truly excellent loyalty programs match methodologies to their customer segments. For instance, a company could identify the Iron segment’s sensitivity to pricing and susceptibility to discount-spurred purchases — in that case, a discount on bulk purchases or a buy x get y free offer could increase spending and loyalty.

    The same company could offer Gold segment members an equally appealing but different perk: lifestyle benefits like skipping lines, a personal consultation or stylist, or even the ability to redeem points with merchant partners. In both scenarios, the segments have received perks based on previous interactions with the company.

    Give promotions to different group of customers, for example high tiered customers will get personalized offers

    Get with the Program

    After completing the above steps, there are just a few more planning aspects to address before launching your program:

    • How does your program compare to your competitors’ programs? Be sure to differentiate to dissuade consumers from defecting to other companies!
    • How will your program support the customer experience? Many times, companies try to structure their customer experience around loyalty programs; be different and demonstrate true dedication to your consumers by structuring your program around consumer needs and wants.
    • How will you market your loyalty program? Emails, direct marketing, social media, and banner ads are all possibilities depending on your customers’ preferences. Conduct research and deliver the message to them in the way they’d most like to receive it.
    • How will your customers earn and keep track of rewards, and will they expire? Lay out the terms of your program clearly and simply to avoid confusion later. Your customers will appreciate the clarity.

    3… 2… 1… Launch!

    Congratulations, you’re on your way to building a meaningful, measurable loyalty program! Have suggestions or lessons you’ve learned while going through this process? We’d love to hear them — share your thoughts in the comments below for a chance to be featured on our blog!

    Additional Resources

    Loyalty Program/Sample Planning Worksheet