The 5 Components of an Effective Loyalty Program

The 5 Components of an Effective Loyalty Program

This is a guest blog by Alex McEachern of Sweet Tooth.

Customer retention has become a hot topic in ecommerce! As acquisition channels become more crowded and expensive a retention strategy is vital to keep more of those hard earned customers.

There are tons of great customer retention tools out there that can help you craft an amazing retention strategy, but one of the most effective is a loyalty program. An effective loyalty program can boost your retention metrics like: customer lifetime value, repeat purchase rate, and time between purchases. Unfortunately not all loyalty programs are effective.

But what makes a loyalty program effective?

I could go on for hours about what makes an online loyalty program effective, but to save you from reading a novel I will keep it to what I view as the 5 most important. So without further ado let’s get into it!

1. Do not set and forget

This is the number one reason a loyalty program becomes ineffective. A loyalty program is not a tool you just launch and expect to generate amazing results all on its own.

Your program can generate amazing results but you need to know what you want to accomplish and adjust your program accordingly. If an Adwords campaign was not generating your results you would not leave it and hope it gets better. The same holds true with a loyalty program.

How to implement:

Outline exactly what you want to accomplish before you launch a program. This way you can set goals and benchmark your progress. When you are able to benchmark you can evaluate a loyalty program every month and make the needed tweaks.

2. Establish points as valuable early

Loyalty programs are effective when your customer sees value in the points you are offering. Customers associate value with points when they redeem them for their first reward. A this moment your customer now knows the value points hold, and associates the positive emotion with your store. These strong associations are the backbone of a loyalty program.

How to implement:

The most effective loyalty programs accelerate this feeling by giving points to customers early and encouraging them to redeem them right away. You can accomplish this by rewarding points for an account sign up that equal the value of your smallest reward.

3. Create a branded experience

Another must for any loyalty program is to create an experience that aligns with your brand image. Customers are likely to ignore your loyalty program if they see it as a separate experience. Be sure that you connect your program with the rest of your store and brand experience.

How to implement:

An easy way to connect your program and store is by naming your program and points something that ties to your brand. We have seen some pretty creative names for programs and points. Some of my favorites are below.

4. Promote promote, and promote

If you were going to run a special promotion or sale would you just launch it without letting anyone know? I am guessing you wouldn’t, and a loyalty program is no different. Just like any marketing effort you need to promote your program. The most effective loyalty programs promote their loyalty program extensively at launch.

How to implement:

A great way to start your program with a bang is to let your customers know about a program via email marketing. Explain that you have launched a new program and offer them points if they sign up for it.

I would also recommend showing your program on your homepage and having a loyalty program explainer page.

5. Keep it simple to start

I am sure you have seen a common theme in my recommendations, most are things that are done when initially launching a loyalty program. This is because a strong foundation is what creates effectiveness.

To create an effective loyalty program you want to keep it simple to start. There are a ton of things you can do with a loyalty program, but with increased complexity comes increased confusion. When a customer does not completely understand a program they become disinterested. The trick is to start simple and ad functionality over time.

How to implement:

Start off by giving points for account creations and dollars spent. This is easy for customers to understand and interact with. Once you get customer adoption start to introduce other elements like points for referrals. This reduces confusion and also allows you to re-market to your customers every time you introduce functionality.

Is a well constructed loyalty program always effective?

The tips above are a great start to creating an effective loyalty program, but even the best loyalty programs can be ineffective.

Some stores are just not a good fit for a loyalty program. Variables like what you sell, your company goals, and customer demographics will impact the effectiveness of a loyalty program.

For example, repeat purchasability is one indicator of whether a loyalty program will be effective. You can plot your products on the matrix below to discover if your products are right for a retention strategy like a loyalty program.

This is one of a few considerations you should make before deciding if a loyalty program is right for you. If you are unsure if a loyalty program is a good fit for your unique needs you can take our loyalty program assessment.

There you have it, the basics you need to create an effective loyalty program!

About the author: Alex McEachern is a Customer Loyalty Specialist and the primary author on the Sweet Tooth Blog. He blogs frequently on the ecommerce industry, customer retention, and customer loyalty. Add him on Twitter-@alexmcea