When should you invest in a Loyalty Program for your eCommerce store?

When should you invest in a Loyalty Program for your eCommerce store?
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Two things on my mind this week I want to rant about: loyalty programs and quizzes.

In my opinion, two of the most grossly abused pieces of software in eCommerce that need far more serious thought put into them by brand owners and marketers before implementation.

Let’s deal with 2 questions for each topic:

  1. When you shouldn’t invest in the software
  2. When you should

I’ll start with loyalty programs first.

Loyalty Programs for eCommerce Stores

Loyalty programs work - there’s no doubting that.

Starbucks, Sephora and the Marriott Hotel are just three examples off the top of my head of highly successful loyalty programs from world-famous brands.

Want to know the root cause of success for all of these loyalty programs?

The brands that run them are highly invested in their success.

They don’t just install a crappy points-based system on-site and expect to magically improve retention. These are well-thought, creative and strategic loyalty programs that leverage switching barriers to condition you not to shop elsewhere.

These companies have also built up a tremendous amount of brand equity, physical availability and mental availability that is already embedded in the customers psyche.

But here’s the kicker: they’re mainly successful because the aforementioned companies are dominant players in their market.

They are often the default go-to in their category for buyers anyway, irrespective of the programs attached to them.

That they also offer loyalty benefits to consumers is a small bonus, but not a huge sway in determining customer loyalty.

And as Byron Sharp discussed extensively in How Brands Grow, expecting to gain a magical cohort of customers unequivocally loyal to your brand is unrealistic and can actually stunt growth.

This is because consumers, whilst naturally gravitating towards loyal behaviour, care first and foremost about the quality of the product, the deal attached to it, and the convenience factor in purchasing. Only after these factors have been considered, will a loyalty program have influence (hence the strength of switching barriers).

And given the considerable investment a loyalty program entails, my advice would be to first focus on:

  1. Investing in the quality of your product and customer service
  2. Being competitive within your category on price (crucial further thoughts on this below)
  3. Conveniently available to the consumer

Only once these 3 pillars are invested in and a strategy is in place should a loyalty program be considered as a serious investment for a brand.

There’s also one crucial factor that arguably trumps all other considerations: whether your brand is a consumable or repeatedly purchased product.

Selling supplements and FMCG lends itself better to conditioning customers to loyalty than, say, mattresses or furniture for obvious reasons.

For the latter, ensuring a profitable sale on the first purchase will play a pivotal role in whether that store can be successful over the long run, whereas a consumable-based brand or a brand in a category such as fashion has more opportunities to leverage the benefits a loyalty program can provide.

If you’ve made it this far, let’s discuss when you should consider investing in a loyalty program.

The Fundamentals of a Successful Loyalty Program

Let’s assume that you met the aforementioned criteria and that you’re seriously sold on the idea of building out a loyalty program. In my experience, these are the core tenants that actually move the needle on customer loyalty and provide a strong consumer experience.

1: Well designed

A strong loyalty program should be designed in a manner that makes it prevalent and applicable to the whole business.

Too many brands install a default points-based system and expect it to magically expedite their retention rate. This usually fails due to poor design.

A well designed loyalty program is easy for the customer to understand and have benefits that extend beyond points-based discounts.

At their worst, loyalty programs can erode margin from your best customers who would have purchased anyway without them, so it’s crucial you get buy-in from light buyers across your brand and encourage participation from them.

Charitable donations for purpose-driven brands can work well, but also gifts added to purchases and exclusive products and offers for loyalty members will drive participation of the program up.

2: Easily consumed

Don’t frazzle the brains of your customers with innumerable tiers and complex points-based mechanisms.

A strong loyalty program must be easy to consume and instantly redeemable, meaning that the barrier to participation is low.

Making your program overly clunky and hard to understand will lower the effectiveness of it and only serve to frustrate your customers and even adversely affect conversion rate on your site.

If you do create a program, make sure members can leverage referrals and claim rewards seamlessly, otherwise, they won’t - it’s that simple.

3: Marketed consistently

This is a massive factor in a loyalty program's success.

It’s not enough to just have the program visible on your website; it needs to be visible in every area of your marketing and consistently build mental availability in your customers minds.

Email and SMS has a massive role to play here (as do other channels), and some of the strategies you can use include:

  • Exclusive promotions and offers for loyalty members (obvious)
  • Automation set up to remind customers of their rewards available or when they’re closing in on a reward
  • Invitations to exclusive events and communities for members
  • Beta-testing on new products and flavours or variants (if applicable)
  • Making the program visible across all email templates so that it becomes embedded in the mind of the customer

Other marketing channels play a crucial role in the success of your loyalty program as well, so don’t neglect to market it heavily here to encourage participation.

When to Avoid Loyalty Programs

There are definitely industries and businesses that should avoid loyalty programs altogether for some of the following reasons.

1: Tight margins

If you’re operating on slim margins already then a loyalty program may further erode your profitability by giving away discounts to customers who would have purchased anyway at full price.

Furthermore, I’d extend this to say that discount-heavy brands should also try to avoid using additional points-based systems, as this can increase your customer service overheads and further confuse customers, possibly lowering conversion at checkout.

The exception to this would be a brand trying to move away from discounts and towards using a loyalty program, effectively weaning their customers off discounts. This can work, but is very often a painful transition, so be prepared to endure some pain as you make the move.

2: Low repeat purchase category

If you sell mattresses or furniture, I don’t recommend investing in a loyalty program for obvious reasons.

Brands that have low repeat sales should focus on profitability and increasing average order value (AOV) from their existing customers which is a far more effective lever to pull.

3: New brand - focus should be solely on acquiring customers

A new brand should resist the temptation to build out a loyalty program as it will detract their attention from what truly matters: acquiring new customers.

When you’re trying to grab market share and you’re new to the game, your focus needs to be heavily weighted on building up your customer base.

Investing in a loyalty program from day 1, without the guarantee of product-market fit or active customers is just going to be a distraction.

Make a Loyalty Program more than Discounts

I probably sound like I’m completely against any type of incentive with loyalty programs, but that’s not true. I just believe that the depth of the discount shouldn’t be the primary reason for people to participate (although if we’re being honest, it’s a large reason).

People forget that there are other ways to build loyalty into your brand. Here are some ideas you can implement:

  • Exclusivity around limited run product drops
  • Exclusive community events
  • Gated community
  • Beta-testing on new products before they’re released to the wider public

When should you invest in a loyalty program?

I feel as though I’ve been overly pessimistic on loyalty programs but the truth is that they can work and be reasonably effective for increasing sales for your business and perhaps one of the more understated benefits is that they can increase Word of Mouth and virality if well designed.

Here are my top criteria for when to focus on building a loyalty program:

  1. You’re an established brand with a solid acquisition strategy and retention is a high priority in the business: this is by far the most important factor
  2. Your industry has a high repeat purchase rate: FMCG = good; Mattresses = probably bad
  3. You can allocate resources to its success: to make a loyalty program work, you need a strong vision, but crucially, execution will determine its success

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