Definition: Loyalty programs reward frequent customers and encourage one-time buyers to return to your store. Rewards frequently include free merchandise based on points accrued, special coupons and early access to new product lines.
Loyalty programs first originated in the 1950s, when grocers gave customers stamps for making purchases, eventually spawning airline miles during the 1980s.
When executed effectively, loyalty program's can be a significant driver of revenue. When considering marketing expenses, it costs at least five times more to attract a new customer than to keep an existing one, and returning shoppers spend 67 percent more than new customers. Relationships with online customers are built over time, considering the lack of personal contact and physical storefront to assure them during the purchasing process. Customers may not be willing to buy multiple items the first time they shop from a particular online store because of shipping concerns. After a retailer earns their trust, they are more likely to return and make a larger purchase. In addition, 95 percent of customers who enroll in a loyalty program continue to use it.
Customers are even more likely to buy frequently if they are close to reaching the threshold for their next reward or to gain points for a free items. Consumers want a personalized experience and to be rewarded for their purchases. Loyalty programs are a way to say thank you to customers and show that you value them, while simultaneously giving them an incentive to keep returning.
Loyalty programs are not one-size-fits-all. The right benefits depend on business model, products, and industry — to name a few determining factors. Common rewards and structures for loyalty programs include:
Loyalty programs are an excellent source of recurring revenue that every online business should consider. However, extensive offerings and free items are often out of reach for smaller online stores with lower profit margins. Loyalty programs also have the potential to undermine the perceived value of a product when executed ineffectively; if customers see that some people can get the same products for much less, they may think it's not worth the sticker price.
Regardless of whether you use a formal program, there are many ways to show appreciation for customers and engage in loyalty marketing. Contact customers about promotions and holiday sales and make sure to thank them for choosing your business.
Learn more about building an effective loyalty program: How to Set Up a Loyalty Program and Increase Customer Lifetime Value More Than 150%