How to implement the perfect loyalty programme

Article topics

1. What is a loyalty programme?
2. What’s the difference between a loyalty programme and a referral programme?
3. What type of loyalty programmes are there?
4. What are the benefits of implementing a loyalty programme?
5. How can I implement a loyalty programme for my business?
6. How much does it cost to implement a loyalty programme?
7. How to build a loyalty programme customers will love

One of the best ways to increase your revenue is to get existing customers to buy more, more frequently.

Introducing a loyalty programme can be a fantastic way to encourage customers to purchase more and engage with your brand.

New to the concept of loyalty programmes? In this article we’ll explain what loyalty programmes are, how to implement them on your website, and share our top tips for creating a loyalty programme that drives sales.

What is a loyalty programme?

A loyalty programme is a marketing strategy that encourages customers to make repeat purchases through incentives and rewards.

It’s also called a rewards programme or loyalty scheme.

The simplest loyalty programme is when a customer buys X number of products and gets one free, like Costa offers with its free Costa Club membership.

However, a loyalty programme can be as complex or all-encompassing as you need it to be.

What’s the difference between a loyalty programme and a referral programme?

Loyalty programmes and referral programmes both drive business growth and encourage sales, but they do this in slightly different ways.

Loyalty programmes offer rewards to encourage customers to spend more money, while referral programmes offer rewards to encourage customers to bring new people to your business.

So with a loyalty programme, you might give a customer a £10 voucher for spending £100 on your eCommerce store. With a referral programme, you might give an existing customer a £10 voucher for getting a new customer to place their first order.

Of course, there’s no reason that you can’t implement both types of programmes. You can offer loyalty rewards, as well as additional bonuses for bringing new customers to your business.

What type of loyalty programmes are there?

The fantastic thing about loyalty programmes is that they are flexible, meaning you can adapt them to your business needs.

Here are the three types of loyalty programmes to consider:

1. Flat-rate loyalty programme

A flat-rate loyalty programme is open to all and offers everyone the same level of incentives.

This is the easiest type of loyalty programme to implement as you don’t need to worry about pricing or different levels of benefits.

For example, IKEA Family offers the same incentives to everyone, including free hot drinks, product discounts, and cover in case products get damaged on the way home from the store.

2. Tiered loyalty programme

A tiered loyalty programme offers different levels of incentives depending on how many points customers earn or how much money they spend.

This type of loyalty programme is trickier to implement than a flat-rate one. However, it can encourage customers to buy more and make your highest-spending customers feel more valued.

According to Antavio, tiered programmes have an 80% higher return on investment (ROI) than flat-rate ones.

For example, Sephora’s ‘MySephora’ programme consists of three tiers: Bronze, Silver, and Gold. Customers climb the tiers as they earn more points, meaning a more deluxe range of gifts to choose from.

If you implement a tiered programme, it’s important to clearly advise what the tiers are, the benefits each tier provides, and how customers can move between the tiers.

3. Paid-for loyalty programmes

A paid-for loyalty programme is one that customers pay for in order to receive benefits.

This type of loyalty programme is the hardest to implement, as you not only have to promote it but also persuade customers of the benefits of enrolling. However, it can lead to substantial revenue when done right.

According to McKinsey, members of paid loyalty programmes are 60% more likely to spend more, compared to a 30% increase amongst members of free loyalty programmes.

For example, for an annual or monthly fee, customers get a range of benefits with Amazon Prime including free delivery, exclusive discounts, and access to Prime Video.

Some industries see better returns from paid-for loyalty programmes than others. Businesses in the grocery, clothes, and accessories sectors typically see a better ROI than those in the home decor, entertainment, travel, and hospitality sectors.

What are the benefits of implementing a loyalty programme?

Here are some reasons why launching a loyalty programme can benefit your business.

It engages existing customers

It’s far easier to encourage an existing customer to buy from your business than to acquire a new one. You’re 60% to 70% likely to sell to a customer who has bought from you previously, and only 5% to 20% likely to sell to a customer who has never bought from you before.

Loyalty programmes motivate customers to buy from your store again and again by offering them extra perks.

Not only this, but loyalty programmes encourage existing customers to spend more. According to Accenture, loyalty programme members generate between 12 and 18% more revenue for retailers.

It attracts new customers

While loyalty programmes appeal to existing customers, they can also make your business more enticing to new customers.

If you sell similar products to a competitor, but you have a loyalty programme and they don’t, that could be what encourages a customer to buy from you for the first time.

65% of businesses use loyalty programmes to appeal to new customers.

It raises brand awareness

Implementing a unique loyalty programme can make you stand out from the crowd and get ahead of your competitors.

Pret a Manger received a lot of national attention when it launched its coffee subscription service, where customers could get five drinks a day for £20 (then £30) a month. It was the first of its kind in the UK.

(Although the coffee chain has now replaced this programme with a less-popular scheme for half-price drinks.)

It provides additional data

Loyalty programmes provide you with a wealth of information you can use to make data-driven business decisions.

As well as demographic information like age, gender, and location, you can get valuable data about products purchased, purchase frequency, and how customers engage with your marketing campaigns.

You can use this information to identify your best-selling products, determine gaps in your product offering, and predict future demand.

You can also use the data you receive to personalise your loyalty programme, making it even more enticing to customers. We’ll talk more about personalisation later.

How can I implement a loyalty programme for my business?

The good news is that there are lots of tools to help you implement and manage a loyalty programme for your business.

Some eCommerce platforms offer loyalty programme functionality as standard, while others provide free or paid-for extensions that allow you to set up loyalty programmes.

Alternatively, a web developer can develop a bespoke solution if you have very specific requirements.

If you sell online and offline, a mobile app can help you ensure a smooth omnichannel experience and give customers multiple ways to manage their points.

A mobile app can also provide customers with additional functionality like the ability to manage bills, order online, and view digital receipts.

If you use Google Merchant Center, you can add information about your loyalty programme. This means you can make prospective customers aware of your programme in Google Search and Google Shopping and show them how much they can save.

How much does it cost to implement a loyalty programme?

It depends on the complexity of the programme, the size of your business, and what you want to achieve.

Here are some of the costs you will need to consider:

• Software and development
• Marketing and promotion
• Time invested into managing your loyalty programme

You will also need to think about the impact on your profit margin. If you offer discounts and cashback, this will eat into your revenue.

How to build a loyalty programme customers will love

It’s important to get your loyalty programme right. A mismanaged or overly optimistic programme can lead to lost profits, frustrated customers, and even negative publicity.

We asked our eCommerce experts for their top tips for launching a loyalty programme that gets results.

1. Understand your goals and target audience

Before you start building your loyalty programme, you need to understand who you’ll target it towards and what you want to achieve.

If you haven’t already identified your target audience, take the time to understand who they are and what they want from your loyalty programme.

For example, if your target market is Gen Z women, you might want to focus more on personalisation, offering eco-friendly rewards, and gamification.

If your target market is male retirees, you might want to focus more on a simple programme structure, easy rewards redemption, and priority customer service.

It’s also vital to understand your own goals, as this will shape your programme and what you offer. For example, do you want to:

• Increase customer retention?
• Acquire new customers?
• Boost customer lifetime value?
• Improve the customer experience?
• Foster a deeper connection with customers?
• Get customer data to make business decisions?

2. Make it as easy as possible to sign up

Encouraging people to sign up for your loyalty programme is half the battle. Make customers jump through hoops to create an account, and the odds are they will give up.

By offering a seamless user experience, you can make accessing your loyalty programme a pleasure instead of a chore.

Here are some ways you can increase the number of signups:

• Use third-party sign-in so people can sign up using an existing account, like Google, Apple, or Facebook
• Ask only for essential information when signing up. Unless you sell age-restricted products or want to send customers a treat on their birthday, don’t ask for their date of birth
• Offer a signup incentive like bonus points or a free piece of merchandise
• If you operate a brick-and-mortar store, provide an instore link to your app or website in the shape of a QR code

3. Think about what you’ll offer

It’s vital to choose benefits that appeal to your target audience and don’t significantly affect your profit margin.

These can include:

• Free products. Customers earn points they can exchange for free products
• Discounts. Customers receive exclusive discounts on products or discount codes to apply to future purchases
• Gift cards. Customers earn points that are converted into gift cards, either for your store or another store. This can be a great opportunity to partner with related brands
• Cashback. A percentage of a customer’s order is returned as a monetary reward
• Merchandise. Customers receive exclusive branded items that aren’t for general sale
• Benefits aligned with customer values. For example until 2019, shoe wear brand TOMs ‘one-for-one’ model meant it donated a pair of shoes to a person in need for every pair purchased. Some loyalty programmes let customers donate their points to charity instead.
• Non-financial benefits. The benefits you opt for might not necessarily be monetary, like free or expedited delivery. Marriott Bonvoy’s loyalty programme provides free Wi-Fi, late checkout, and room upgrades to customers who earn enough points.

The bottom line is that you don’t have to spend a lot of money on your loyalty programme to see big results.

A study by psychologist Norbert Schwartz showed that even ten cents can make someone happy for the rest of the day and create a sense of reciprocity!

4. Consider gamification

Gamification is the process of using game elements in non-gaming situations to encourage customers to participate and increase engagement.

Gamification can increase customer engagement by up to 47% and brand loyalty by 22%.

There are many different ways you can implement gamification in your loyalty programme. For example, you can offer bonus challenges or quizzes to win extra points or let customers spin a wheel after making a purchase to win prizes.

5. Offer additional perks

61% of customers believe that surprise gifts and offers are one of the best ways to keep them engaged.

For example, you could give customers a money-off coupon on their birthday, extra points when they spend a certain amount, or a bonus for encouraging others to sign up.

Artic Fox offers a wide range of ways to help customers get additional points, like following the brand on social media or leaving a review.

6. Think about expiration dates

When implementing a loyalty programme, you want to encourage customers to engage with you regularly.

Setting expiration dates for points and rewards can establish a sense of urgency. It can also help you clean up inactive accounts, meaning you can focus on active customers.

This expiration date can be a set point in time (e.g.12 months after you earn loyalty points) or after account inactivity (e.g. 180 days after your last qualifying purchase.)

If you do implement expiration dates, clear communication is essential. Explain what the expiry dates are in your terms and conditions, and get in touch with customers to let them know when their points are due to run out.

7. Use personalisation

Personalising individual loyalty programmes can increase revenue by up to 15%. The majority of customers are happy to share their data to enable a more customised experience.

With personalisation you can offer exclusive perks, as well as offers on items customers are most likely to be interested in.

For example, Lidl Plus uses existing customer data to recommend personalised vouchers based on what customers have bought before.

8. Stay in touch with your customers

Your loyalty programme is only a part of the puzzle. You need to build a solid marketing strategy around it to remind customers that it exists and to encourage them back to your store.

You can do this through remarketing campaigns using paid social and pay-per-click (PPC) advertising, mobile phone notifications, and email marketing.

Don’t forget to segment your emails for the best results. For example, Greggs loyalty program allows customers to decide if they only want to receive information about vegetarian and vegan options.

9. Review how your loyalty programme is doing

Finally, it’s essential to track the success of your loyalty programme to make sure it’s working correctly and leading to a healthy ROI for your business.

Here are some metrics we recommend you monitor:

• Membership. How many people are signing up to your loyalty programme?
• Customer churn. How many customers are you losing, either by them closing their accounts or becoming inactive?
• Average order value (AOV). How much are loyalty programme members spending per transaction compared to non-members?
• Customer lifetime value (CLV). How much are loyalty programme members worth over the course of their lifetime, compared to non-members

As well as analysing your metrics, ask your customers what they think of your loyalty programme through regular requests for feedback. For example, if someone closes their account, you can ask them why.

You can also use social listening across social media to track positive and negative comments about your programme.

Xigen: Your eCommerce specialists

A loyalty programme can be a great way to sell more and stand out from your competitors. The key is to do your research before you start.

Who will you target, what will you offer, and how will you market your programme to the right people?

Looking for ways to increase sales for your online store? At Xigen, we specialise in eCommerce web design and development, as well as digital marketing.

So, whether you want a brand new WooCommerce store developing or support planning your next email marketing campaign, we’re here to help.

Contact us today and take the first step towards transforming the way you do eCommerce.