A 5% increase in customer retention correlates with at least a 25% increase in profit. [source] This means that retaining and building loyalty among your customers is not only important in terms of growing your business, it’s also essential for profitability.
One of the best and most proven ways to help increase customer retention is to introduce a loyalty program to your eCommerce store. A loyalty program offers discounts, rewards, and other incentives to attract and retain customers. By design, they aim to encourage repeat business by offering an incentive for being loyal to a brand. Typically, the more a customer shops with a store and the more they spend, the more they’re rewarded.
It wasn’t until three years after launching our in-house eCommerce brand, DermWarehouse, that we started offering a loyalty program. As soon as we did, we began reaping the benefits. We increased our retention by more than 7%, which resulted in over 35% of our customers subscribing and ordering multiple times.
Your customers are the most important part of your business. A loyalty program lets them know you value them and it keeps them coming back to you. It’s a win-win and will be a game changer for your eCommerce business.
Table of Contents
- 1 What is an eCommerce Loyalty Program?
- 2 Benefits of eCommerce Loyalty Programs
- 3 Loyalty Program Examples
- 4 In Closing
What is an eCommerce Loyalty Program?
According to Shopify, “Ecommerce loyalty programs — also known as rewards programs — increase retention, purchase frequency, lifetime customer value, and referrals. The best offer a combination of free gifts, exclusive discounts, early product releases, and points for product redemptions.”
Loyalty programs can range from very simple to very complex, and everything in between. They can be points based, spend based, or tier based. They can be free to sign up or be paid programs.
If you’re just getting started with your loyalty program, it’s best to keep it simple and you can always add additional functionality as time goes on. The most important thing to keep in mind is the benefit and usability for your customer. Make sure to create a program that will be easy for customers to understand, use, and then recommend.
Benefits of eCommerce Loyalty Programs
The top performing loyalty programs boost revenue from customers who use them by 15-25%. That right there should tell you all you need to know! A loyalty program will have so many benefits for your eCommerce business:
Differentiates a Brand from Competitors
A great way to differentiate your business from your competitors is through your loyalty program. DermWarehouse is a great example of this. We sell over 100 brands of skin care products, and there are many other sites out there who have similar product offerings. Because we’re a reseller of the brands, there’s no wiggle room when it comes to pricing or discounting, so we can’t differentiate ourselves based on this important factor.
When we were building our loyalty program, we wanted one that had the best perks and the least amount of restrictions, as we felt that this would differentiate us.
We offer 5% back on purchases that can be used on any brand. So for every dollar you spend, you’re earning 5 points. While we felt that this was a really great benefit for our customers, where we really stand out is that we have no restrictions on when you can redeem these points. Our competitors offer different levels that you have to meet in order to redeem your points For example, you get to 1,000 points and earn $10, but you can’t use your points before you reach that 1,000 point threshold. Our customers can use their points at any time. If they have $2 worth of loyalty points and want to apply those to their order, they are free to do so. Our points also never expire.
Improve Customer Retention
Retain your customers by rewarding them for continually shopping with your business. The cost of acquiring customers is high and you want to make sure you get the most out of each customer on your site. A loyalty program will do just that. As customers continue to shop with you and build up points for their purchases, shopping somewhere else won’t be worth their while.
“In fact, 81% of shoppers remain loyal to businesses with a loyalty program. Furthermore, 69% of shoppers state that they choose retailers based on the customer loyalty or rewards which they can earn.” [source]
When we built our loyalty program for DermWarehouse, we kept customer retention in mind. As I mentioned above, we looked at what our competitors were doing for their loyalty programs and tried to build something that was simpler, easier to use, and gave better perks. So far in 2023, over 50% of our customers are repeat customers and this is in large part due to our loyalty program, which about a third of our customers are signed up for.
Enhance Customer Experience
Creating a great customer experience is always the aim to help keep customers happy and coming back to shop. Implementing a loyalty program will undoubtedly improve your customers’ experience by providing them with added value while shopping on your site. If you make it easy and intuitive to join your company’s loyalty program and give great rewards, you’ll have some very happy customers!
As you can see below in our TrustPilot reviews, our DermWarehouse loyalty program has really served as an added benefit for our customers. They know that by taking advantage of this, they’re going to save a lot of money with their rewards and get better prices vs. shopping elsewhere.
Increase Revenue & Profit
Retaining customers with the use of a great loyalty program is going to be a huge driver of additional revenue and profit in and of itself. While our DermWarehouse loyalty program is free to join, Some retailers offer paid loyalty programs where they charge a membership fee, which will also add to the bottom line for their business (see example of this later on).
The screenshot below is a measure of gross merchandise value (GMV) for new vs. returning customers on the DermWarehouse site. According to Investopedia, “GMV is the total value of merchandise sold over a given period of time through a customer-to-customer (C2C) exchange site.”
What this is showing is that only 24% of our gross merchandise value is coming from new customers, while 76% is coming from our return customers. What’s interesting here is that a little over 50% of our customers are returning customers yet 76% of our GMV is from these same customers. This tells me that as customers continue to shop with us over their lifetime, they’re spending more and more money with us. This is a direct correlation to initiatives like our loyalty program and setting up a recurring revenue model in subscriptions, which keep customers coming back to us and incentivizing them to spend more.
Create Brand Advocates
When your customers are happy with the experience they’re getting and they’re continually shopping on your site, they’re going to want to tell others about the great experience they’ve had and the great value they get out of your loyalty program. These brand advocates will bring in more referrals to your site and will be loyal to your business based on the benefits you’re offering.
I’ll refer back to the reviews that I shared earlier mentioning our loyalty program. We get so many phone calls and messages from our customers as well telling us that they’ve referred their friends and family to our business and specifically to our loyalty program.
Collect Data About Your Customers
When you create your loyalty program, you can collect customer information such as birthdays, favorite product types and more. This data is extremely valuable as it will give you insights into your customers that you can use for other marketing efforts.
For our DW loyalty program, we collect information about our customers’ favorite brands and product types. This data is then saved into our customer profiles and we’re able to use it for email marketing initiatives. When we send promotions, product highlights/tips, and brand announcements, we’re able to target those messages directly to customers who we know are interested in those categories or brands. This makes our email marketing much more effective.
Below is an email that went out to all customers who have purchased or are interested in our brand ClarityRx with a 20% off sale for the brand.
Loyalty Program Examples
Now that I’ve gone into all of the benefits of eCommerce loyalty programs and shared with you my insights from DermWarehouse, I also wanted to share some personal favorite loyalty programs from some top companies.
When you’re building your own loyalty program, make sure you think about the programs that you’re a part of personally and what you love about them.
My husband is a rewards member of Nordstrom’s Nordy Club. He gets 1 point for every dollar he spends, and 2 points if he uses his Nordstrom credit card. For every 1,000 points that he builds up, he gets $10 put back into his Nordstrom account. Whenever he can, he’ll make his purchases at Nordstrom so that he can continue earning points. He knows all of their “double point days” and even when he gets just $10 added into his account, he’s so excited. My husband prefers to shop at Nordstrom whenever he can because he knows he’s earning these rewards that he doesn’t get from other retailers.
One of my favorite loyalty programs is with Southwest Airlines. I’ve been a SWA credit card holder since 2005 and have been building up my airline points ever since. Not only that, when we started DermWarehouse, we got a SWA business credit card and still to this day use that card for all of our advertising spend. As I’m sure you can imagine, over the years, I’ve built up a lot of points on this airline and have even been able to earn a companion pass, which means that my husband gets to fly with me for free. Southwest makes it incredibly easy to earn and redeem points. Even though this airline doesn’t always have the most direct route, I’ll typically still take a layover if it means getting to fly Southwest and use my points.
When we’re talking about a loyalty program where you pay for membership, let’s take the PRIME example (pun intended) of Amazon Prime. Members pay a set annual fee and get access to free shipping on orders & groceries, access to Amazon Prime day, movies, TV shows, podcasts, and more. Amazon even offers a 30 day free trial. After 30 days of free, fast shipping on all of your orders, it’s hard to go back.
I polled my best friend (who is an avid online shopper) about her favorite loyalty program and within 3 seconds she wrote me back and said, “Ulta, for sure.” With this loyalty program, you earn points for every dollar, and the more you spend with Ulta each year, the more points you’ll earn. There are different point levels that give you dollars off your purchase.
The question isn’t whether your eCommerce business will benefit from a loyalty program, it’s really just how you’ll decide to structure yours (which is a topic for another blog). These days, more than 90% of companies have some form of loyalty program so it’s certainly time to hop on the bandwagon if you haven’t already. If you’re still not convinced, here are some additional loyalty statistics for you.
If your business needs help with anything eCommerce related, contact The Media Captain and we can help.