Building a solid base of loyal customers is a must for retail success.
Amazon, ASOS and all the big players are obsessed with doing it. And any other serious retailer should be too.
- The National Law Review found it costs five times more to acquire a new customer than keep a current one.
- While Forbes claims that current customers spend 67% more than new ones.
Meaning there’s no doubt where the biggest profit margins lie – your current customers.
But simply hoping they come back won’t cut it. It takes installing quality retail loyalty programs to get customers buying over and over again.
So in this post we go through exactly that. And dive deep into the best retail and ecommerce loyalty programs out there to help you build the most effective one for your business.
What are retail loyalty programs?
Retail loyalty programs are essentially ‘rewards programs’ created by individual companies for customers who make frequent purchases.
They come in a variety of shapes and sizes. But the key discerning factor is that customers get exclusive discounts or perks in exchange for buying regularly.
But here’s some interesting findings from The Loyalty Report 2017:
- 81% of consumers say that loyalty programs make them more likely to continue doing business with brands.
- And 66% modify their spending to maximise loyalty benefits.
- Yet only 22% of members perceive their experience with the brand as better than that of non-members.
So the demand for retail and ecommerce loyalty programs is definitely there. But companies across the board aren’t doing a fantastic job.
Let’s see how your business can buck that trend…
Types of retail loyalty programs
Retail loyalty programs can generally be split into four main types:
1) Basic points
A simple points system is by far the most commonly used loyalty program.
Customers earn points every time they spend. These points can then be redeemed as either discounts, freebies or for some kind of special offer.
The more they spend, the more they get back.
Take a look at the Boots Advantage Card:
The key here is the simplicity. People aren’t going to use your loyalty program if they need to be a genius with numbers to work it out.
Boots can even sum it all up in a few sentences:
Best for: Businesses with frequent, smaller purchases – like food, drink, toiletries or beauty products.
2) Tiered points system
Some companies have customised the basic points retail loyalty programs by creating a number of tiers.
This brings two main benefits:
- Companies can offer better rewards to more valuable customers.
- Customers aren’t forced to save up points for long periods in order to receive any meaningful rewards.
Smile.io also mention in a post of theirs on tiered programs that:
By giving better rewards to customers in your upper tiers, you are showing them you value their business more than one-time shoppers. When customers feel valued they are much more likely to become brand advocates.
Sephora do a great job of this with their Beauty Insider program:
They have tiers based on how much their customers spend with them each year. And then give some pretty awesome gifts to higher spenders:
Best for: Businesses trying to move customers from lower to higher price point items.
3) Partner retail loyalty programs
Running your loyalty program along with strategic partners is another option.
It’s a great way to gain new referral customers from the other partners. And to keep them spending within the group of businesses involved.
There can be a lot of legal intricacies that need ironing out before all parties agree. So you therefore usually only see these among very large retailers.
Nectar are a perfect example of this. A card club where you can redeem points at a variety of stores and ecommerce websites:
It could be worth setting up a mini version of Nectar with a few businesses in your niche.
Just make sure each business serves a similar market without being direct competitors. So a snowboard equipment retailer, for example, could partner with businesses selling winter clothes.
Best for: Niche businesses looking to generate referrals between other retailers serving a similar target market.
4) Upfront fee loyalty programs
Getting people to pay to join your loyalty program may seem nonsensical at first glance.
But charging an upfront or annual fee in exchange for avoiding common purchase barriers can be very attractive to certain customers.
When considering fee-based retail loyalty programs, it’s imperative to:
- Identify the common purchase barriers in your business.
- Decide how (if at all) you can eliminate these based on receiving a regular fee.
Shipping fees tend to dominate this area. So most ecommerce loyalty programs will be focused on eliminating this.
Of course, Amazon Prime is the perfect example here:
And it works too – a recent CIRP study revealed that Prime members spend an average of $1,300 per year with Amazon, compared to just $700 for non-Prime customers.
Setting up your own Prime could be a tad ambitious. But some form of paid-for loyalty program is definitely an option.
Best for: Businesses that thrive on highly frequent, repeat purchases with a small number (or even just one) main purchase barrier(s).
Best loyalty programs examples
Just like anything, there are both good and bad retail loyalty programs out there.
Here’s a look at a few of the best loyalty programs examples we could find to help spark ideas for creating or improving yours:
1) Topps Now
Topps is a sports memorabilia retailer who run an amazing loyalty program – Topps Now.
They have a basic points system where you get discounts based on how many points you’ve collected:
But then also roll this into a tiered program that’s perfectly in line with their sports theme. The more loyal you are, they more points you get per $ spent:
With cool bonus rewards too:
Topps even give bonus points to encourage referrals and social media engagement:
All in all – it’s simple to join, the terms are easy to understand and members are genuinely rewarded with something meaningful.
2) TOMS Passport Rewards
TOMS is an apparel retailer with a world traveller theme and a dedication to improving the lives of those less fortunate.
And their Passport Rewards program does a great job communicating this while still encouraging more regular purchasing from customers:
They have two levels. The first being a basic points collecting system:
With the second offering massive extra bonuses:
The great thing about this program is TOMS’s acknowledgment of the power of free shipping. And their desire to reward hyper-loyal customers with this for an entire year.
3) Lids Access Pass
Lids are a sports apparel retailer mainly focusing on sports hats and caps with their own retail loyalty program called Access Pass:
The program has a free version and an upgraded one based on a small annual fee:
Even at just $6 a year, the fee gets customers committed to the Lids brand. And likely to want to justify their membership through making more purchases.
On top of this, the Access Pass mobile app ensures Lids is always on customers’ phones (and therefore top of mind). Allowing them to manage their rewards, find nearest stores and explore new inventory.
Measuring ROI of retail loyalty programs
The end goal here is always to increase customer lifetime value and, ultimately, profits. So it’s imperative to keep track of and measure the success of any retail or ecommerce loyalty programs.
There’s no point having a hugely popular program that gives away more than it brings back from each customer.
Keeping an eye on these key metrics will help you decipher how well your program is doing.
1) Purchase frequency
The whole point of retail loyalty programs is to get customers buying more often.
And so purchase frequency is a perfect KPI for this. It measures how often the average customer makes a purchase over a given time period (usually a year).
Comparing this for both members and non-members of your loyalty program should give a clear indication to how well it’s working.
The equation itself is pretty simple:
2) Customer lifetime value (CLTV)
Knowing the average lifetime value of your customers is great for two reasons:
- You can compare member vs non-member CLTV and see how it’s improving over time as a result of your loyalty programs.
- It gives an indication as to how much value you can give back in your loyalty programs while still staying profitable.
The figure comes from past sales performance. So the more historical data you have, the more reliable your CLTV figure will be.
Harvard Business School have a pretty useful tool here to help determine CLTV.
Getting retail loyalty programs right is going to be individual and specific to your business.
But using the ideas and examples in this blog post should help you get on track for building the perfect one.
Just make sure it’s beneficial for everyone involved. Then communicate it in a way that reaches as many customers as possible yet is easy to understand.
Do you have a retail loyalty program set up now? Let us know how it’s working out for you in the comments below.
Written by Mike Glover
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