Are Rewards Programs Worth It In Ecommerce?

By Ten Squared, posted on the 29th of September, 2021 · 5 minute read

Rewards programs have been around for almost a centenary with the first modern-day reward program being used in 1929. However, variations of rewards programs are believed to have existed as early as the 1700s as a form of premium marketing. Stores would give customers copper tokens with each sale that could be used to purchase certain products with later purchases. Since then the idea has been developed into numerous variations by thousands of companies to help encourage customer loyalty.

So why have loyalty rewards programs been around for so long?

Let's start by establishing the core reason for rewards programs. The basic premise of any rewards program is to provide extra value to loyal customers so that they not only feel valued but have something to lose should they choose to stop using that given brand. Typically, the more frequently a customer uses a given retailer the more they are rewarded. Today large supermarket brands often use data collected through loyalty programs to assess customer habits and help improve customer experience. An alternative to a loyalty program is membership. A great example of these is Amazon prime, eBay Plus or Costco. Hence, by signing up, users often commit for a year or month to be a part of your program to unlock exclusive benefits.

Key takeaways:

  • Loyalty programs are offered to help both attract and retain customers
  • Basic rewards programs offer discounts or rewards to clients who are loyal
  • Digital loyalty programs can help you gather crucial information about your clients and their habits
  • Memberships can be used as an alternative to loyalty programs for large scale businesses with a variety of offerings

How they work

Loyalty programs can function in a variety of ways, here are a few of the most common implementations:

  • Advance notice or early access to new products
  • Access to exclusive sales
  • Enhanced services
  • Special offers
  • Member-exclusive offers
  • Point-based rewards
  • Provide rewards for referrals
  • Provide rewards for reviews

In order to join an online loyalty program users are often prompted to put in their details and register their personal information with the company and are given a unique identifier. This identifier is associated with them and hence, rewards can be applied to their account based on their purchases.

The Purpose

As mentioned above, there are two key purposes of a rewards program:

1. To reward customers for their repeated patronage

2. They provide the company with in-depth customer information

Whilst there is certainly a variety of data that can be used from anonymous purchases, a loyalty program offers a range of additional details, they can help determine the effectiveness of campaigns and also help established the lifetime value of loyal customers. The benefit of loyalty programs will inevitably grow with the size of your company, hence, high-volume businesses often thrive off return customers. It is also important to acknowledge that it is far more expensive to gain a customer than to retain a customer. For many brands, the costs saved on advertising to gain a new customer is far more expensive than retaining a customer through loyalty programs.

The cost

When creating a loyalty program it is important to understand their true cost. If your loyalty program costs less than or equal to advertising to gain a new customer then that is a great sign. However, if you are spending more on retaining customers than gaining new ones then it might be time to do some maths. So what is the true cost of a loyalty program? In general, you should reward customers with no more than 5-20% back on their purchase. A great way to gain new customers is by integrating referral programs into your loyalty programs. However, it is important that you create a referral program that cannot be abused. Hence if you offer high value and low-value products, you may not want to offer a $10 voucher on a $12 product, and only offer it on products with a value greater than $50. These are essential considerations to make before creating your loyalty program and it is important to monitor these programs overtime to ensure that they are working for you and not against you.

Case study: Starbucks

Since rewards programs have gone digital they have become increasingly complex, with their increased complexity they have also become increasingly rewarding. A great example of a successful rewards program can be seen with the Starbucks rewards program. The Starbucks app whereby customers can earn "stars" which they can use on future purchases. As an additional incentive to customers to encourage them to use the app they are able to order ahead and access exclusive music playlists. Additionally, if you add credit to your Starbucks account you can earn stars twice as fast. Hence, they encourage users to engage with their rewards program in a variety of ways to help improve customer loyalty.

Should you get a reward program?

Yes, absolutely. Adding a rewards program to your store is an easy and affordable way to retain your customers. If you are using a Shopify store a rewards program can be added to your store extremely easily through a Shopify App like Smile.io or Yopto Loyalty and Referrals. Both these platforms allow for features like rewards for writing reviews, signup rewards, point-earning, referral rewards and more.

Summary

A rewards program can help your business to grow in a variety of ways whether it be by increasing the number of reviews you receive, encouraging your customers to invite their friends to join the program or boosting customer retention. When done well there are a range of cost-effective benefits to adding rewards programs to your store.