The 17 Greatest Benefits of a Loyalty Program
In ecommerce, customer retention is just as important as customer acquisition. That’s because returning customers bring a higher ROI than first-time ones and help expand businesses at a scale.
One of the most effective ways to boost customer retention is to launch a loyalty program. A customer loyalty program rewards customers for continuously engaging with a brand and motivates them to buy from the brand rather than its competitors.
In this article, we will have a look at the 17 most important benefits of loyalty programs as well as how to set up the best customer loyalty program in 2023.
Table of Contents
- What Is a Customer Loyalty Program?
- What Are the Benefits of a Loyalty Program?
- How to Set Up a Loyalty Program
What Is a Customer Loyalty Program?
A loyalty program is an ecommerce marketing strategy that capitalizes on the concept of loyalty to retain existing customers and turn them into repeat customers. As a customer retention strategy, loyalty programs provide rewards to clients for interacting with a brand on a regular basis. That’s why they are also referred to as rewards programs.
By turning customers into brand loyalists, loyalty programs ensure that they keep coming back to the website and making more purchases. Because they are incentivized by the brand, loyal customers choose this company over and over again instead of going to its competitors.
The most popular loyalty program examples include:
- Points-based loyalty programs
- Cashback loyalty programs
- Tiered customer loyalty programs
- VIP programs
- Referral programs
- Paid loyalty programs
As you can imagine, a loyalty program benefits an online business in many different ways. Let’s take a look at them!
What Are the Benefits of a Loyalty Program?
The 17 most important pros of a loyalty program are:
Benefit #1: Boosting Customer Retention
The first direct perk of launching a loyalty program is that it helps improve customer retention. Since customers are continuously rewarded for doing business with you through receiving points or cash back, they start returning to your website more and more often.
As they continue buying from your e-store and are (hopefully!) satisfied with the product, they start feeling loyalty to your brand. And being rewarded for shopping definitely helps a lot in building loyalty - it’s just human nature.
(Many) people love to shop, (most) people love to play games and have fun, and (all) people love to receive gifts - and loyalty schemes stand at the intersection of ecommerce and gamification while also incorporating the gift component.
To quantify the impact of loyalty on customer retention: According to InMoment, 61% of customers go out of their way to purchase from a brand that they feel loyal to.
Benefit #2: Reducing Customer Churn
Following increased customer retention, loyalty also leads to decreased churn. Customers who feel appreciated and rewarded by an online marketplace are significantly less likely to stop doing business with it.
Invesp reports that 66% of consumers say that the ability to benefit from rewards affects and shapes up their shopping behavior. Even more importantly, 84% of shoppers are willing to stay with a brand that offers the benefits of loyalty program.
This means that you can bring down your churn rate to 16% (if 84% of customers stay). While the average churn rate varies widely between industries, most non-subscription based ecommerce websites would be ecstatic to have a churn rate as low as 16%.
Benefit #3: Optimizing Revenue per Customer
Retaining customers is great, but it’s even greater if you are able to get them to shop more and spend more. Well, 60% of loyal customers purchase more often (InMoment data), and according to Bain & Company, return customers spend an average of 33% more per purchase than first-time customers. One more number that highlights the perks of a loyalty program: 57% of loyal customers spend more.
As consumers come back to your online store and spend more money each time, the ultimate effect is more income from every individual customer. And of course, more revenue altogether.
Benefit #4: Grabbing a Higher Share of Wallet
As customer loyalty pushes clients to return to your website, they go to competitor stores less frequently. This means that loyalty programs benefits include not only generating more revenue but also grabbing a bigger share of the industry market.
An ecommerce business gets a higher share of wallet which means that customers spend more money on its products rather than on competitor products. Share of wallet is an important ecommerce metric to establish your position as a leader in the online shopping space.
Benefit #5: Positioning Your Company Ahead of Competitors
Getting customers to shop more from your e-store and less from competitors inevitably helps establish your company as a leading brand in the industry. In this way, a great loyalty program can do magic in helping push your way ahead of the competition and retaining your position there.
To optimize this benefit, it’s key to establish a loyalty program that is better than your competitors’ rewards programs. Some competitive market analysis and research can go a long way.
Check out the customer loyalty programs of competitors to see how many points they provide per dollar spent, how much each point is worth, how much cash they give back, what tiers they have, and how to qualify for a VIP program. Then make sure to offer a little bit more in each of these rewards to make your program more catchy and more attractive. In other words, make sure to have the best reward program within the industry.
Pushing your rewards a bit higher than your competitors’ will more than pay for itself as it will lead to more loyal customers who come back more often and spend more each time.
Benefit #6: Pushing Down Marketing and Sales Expenses
The benefits of a loyalty program mean that you will be generating more revenue through customer retention. This means that your business will feel less pressure to be constantly chasing after new customers, so you can somewhat slow down your spending on ecommerce marketing and sales.
Abandoning marketing and sales is a grave mistake as customer acquisition helps business growth. But if the majority of your revenue comes from return customers, you can afford to be more strategic with your digital marketing strategies and go only for these options which bring the highest return. For instance, you can drop Google Ads and Facebook Ads and focus on content marketing and social media marketing. Or any other strategy that has proven to work for your ecommerce business - every industry and every company is a bit different when it comes to marketing ROI.
Meanwhile, loyalty marketing is very cheap and cost-effective. Starting and maintaining a loyalty program costs close to nothing, but we’ll come back to this in a bit.
Benefit #7: Increasing Customer ROI
The best loyalty programs help businesses get more revenue per customer while spending less on marketing and sales. The combined perk of this is a higher return on investment per customer.
This benefit provides ecommerce businesses with the opportunity to grow at a scale in a sustainable manner without having to constantly increase their marketing and sales expenditure.
Benefit #8: Growing Customer Lifetime Value
Another important benefit of a loyalty program is that it helps increase customer lifetime value. As the individual lifetime value of each loyal customer (CLV) goes up, so does the average customer lifetime value (LTV) at the company level.
Indeed, according to Motista statistics, the LTV of customers who feel an emotional connection to a brand is 306% higher than that of other customers. While starting a loyalty rewards program might not be enough to build an emotional long-term relationship with your customers, it is definitely a step in the right direction. Receiving benefits from shopping with you shows your customers that they are valued and appreciated.
Benefit #9: Growing a Brand Ambassadors Base
A major perk of creating loyal customers is that they will not only buy more from you but that they can also help get others to buy from your ecommerce store. Customers who feel loyal and emotionally attached to a company have the potential to turn into brand ambassadors, and they can be much better brand advocates and brand promoters than - let’s say - influencers who might not have even tested your product personally.
Running a referral program can give you a strong boost in converting members of loyalty programs into brand ambassadors. As they already feel connected to your brand, all they might need is a small monetary incentive to make the leap and start promoting your brand to their networks.
So, when you launch your loyalty programs package, make sure to include a referral program as well.
Benefit #10: Establishing Brand Reputation
As loyal customers become brand ambassadors and start promoting the advantages of your products over competitors, this will lead to a push in your brand awareness and brand reputation. Your brand name will start appearing on more websites, third-party online review platforms, coupon websites, and social media channels and accounts. Word-of-mouth marketing instigated by loyal customers can do miracles for your online brand reputation.
You can accelerate this process by offering not only good rewards to returning customers but also to customers who bring traffic and sales to your ecommerce website. This is one of the benefits of a customer referral program.
Benefit #11: Generating New Customers
Having brand ambassadors who directly work on promoting your e-store and establishing a strong brand awareness will bring more potential customers to your online marketplace. Moreover, these new customers will have a higher-than-average conversion rate because they will already have a certain degree of familiarity and trust with your brand from the reviews and recommendations of your loyal customers.
You should never underestimate the importance of word-of-mouth marketing as it is not only cheaper but also more effective than many other types of digital marketing for ecommerce businesses.
And, needless to say, as soon as you manage to convert the new leads into customers, you should start working on making them return customers (and later on brand ambassadors) through the best loyalty programs on the market.
Benefit #12: Taking Care of Slow Seasons
Another one of the major benefits of loyalty programs is that enhanced customer retention can help take you through the slow seasons. The majority of industries and businesses have a slow season. Customer shopping behaviors are simply not the same throughout the year.
Surviving the slow season poses a big challenge to ecommerce businesses, especially startups and MSMEs which have strained financial resources. Building customer loyalty is an effective strategy to handle this obstacle and get over it.
As loyalty program members return more often, they are more likely to continue shopping even out of the peak season. Or at the very least, their increased spending over the hot season will help you build cash reserves to get your business through the slow season.
Benefit #13: Facilitating Product Improvement and Development
Once a customer feels loyal and somewhat emotionally invested in a company, they are more likely to be willing to allocate time and effort to helping the company make its products even better. Loyal customers are perfect participants in surveys, interviews, and focus groups that a brand organizes to gather customer feedback on product pros and cons as well as strengths and weaknesses.
First of all, loyal customers feel the connection so that they would like to spend some time on this. Second, they know your brand and your products most intimately so they can provide the most useful and concrete feedback.
Returning customers have the potential to turn into the drive behind product development and improvement. This is a crucial part of the business strategy of any company that plans to continue growing.
Benefit #14: Improving Customer Service
Similarly, customer loyalty helps collect feedback not only on products but also on customer service. Members of your loyalty program are very likely to spend time on sharing what they like the most and what they like the least with regards to your company service to customers. They will tell you if communication is too much or too little; if your customer service and success team is too pushy or too absent; whether brand representatives are able to address their questions in a satisfactory manner, etc.
You can learn a lot from loyal customers on how to provide better service to your customers.
Benefit #15: Pushing Up Brand Relevance
The list of loyalty program benefits continues with the ability to boost the relevance of your brand, both among loyal customers and new leads. As you repeatedly reach out to loyal customers, they see how different products within your brand are relevant to their different needs. With loyalty marketing, you can show them products they didn’t even know existed.
Meanwhile, as loyal customers become closely familiar with your brand and products, they are able to promote them in an optimal way, highlighting all top features and best perks. This helps not only raise brand awareness but also enhance brand relevance among new potential customers. Customer generated content has proven to be much more effective in delivering brand messages than any form of content produced by the brand itself.
Benefit #16: Enhancing Ecommerce Personalization
Having many repeat customers makes it easy to collect data on their behavior and habits in order to analyze and extract trends that can be used to upgrade the experience of other customers as well. This is known as ecommerce personalization.
This means that loyalty rewards programs help start and optimize a personalization strategy to serve better not only your existing customers but new ones too. Ecommerce personalization, meanwhile, brings an average rise of 10-15% in conversion rates in the retail industry, according to McKinsey & Company.
Benefit #17: Maximizing Company Profits
Ultimately, the most important benefit of a loyalty program is that it leads to increasing profitability. Through all the dynamics that we’ve covered above, loyalty programs bring an increase of 5-10% in revenue, on average, according to Annex Cloud. As loyalty marketing is one of the most cost-effective ecommerce marketing strategies, the boost in ROI is even higher than the boost in revenue.
Based on Bain & Company analysis, a 5% increase in customer retention, which is one of the main perks of a great loyalty program, brings more than 25% increase in profit. This is definitely a benefit that you don’t want your ecommerce business to be missing out on.
How to Set Up a Loyalty Program
The only way to take advantage of the many benefits of a loyalty program is to launch one. Even though this might sound like mission impossible for a business with no previous experience in rewards programs, starting one is easy and straightforward.
All that’s required from you is to get access to an AI-driven customer loyalty program software tool, like Core Loyalty. Our data-driven loyalty app helps you set up the best loyalty program and continuously optimize its performance based on actual customer data, artificial intelligence, and machine learning algorithms. We’ve eliminated the guesswork from what works and what doesn’t in boosting customer loyalty.
And that’s not all. Core Loyalty works seamlessly with Core Marketing and Core Personalization under a single ecommerce omnichannel platform that allows businesses to grow at an unprecedented rate by taking advantage of all the hottest ecommerce trends.
Click here to schedule a free demo of Coretava.
The Ultimate Guide to Building a Customer Loyalty Program in 2023
A devoted customer base increases sales for your company. It establishes your brand as a dependable ...
AI and Personalization
Daniela has 6 years of experience in digital marketing for ecommerce businesses.
Aws is the Co-Founder of Coretava, a complete retail ecommerce growth platform. He has 6+ years of experience in managing and growing ecommerce businesses.