20 Jun Rewarding Your Best Customers: The Ins and Outs of Customer Loyalty Programs

Customer loyalty programs have rapidly become a foundational strategy for maintaining a loyal customer base. Creating a rewards program not only encourages your customers to make frequent purchases but also reinforces the meaningful and mutually beneficial relationship you share. Rewards can take many forms: discounts on future purchases, free shipping, free products, access or early access to exclusive products, or even exclusive events.

Repeat business from your best customers is a key to profitability. A well-managed rewards program is a great way to show these customers your appreciation and persuade them to keep coming back. Loyalty and rewards programs have proven to be an effective means of turning single, impulse purchases into dynamic, long-term spending. A 2016 study found that members of customer loyalty programs spend 12-18% more than customers who do not participate in these programs. A 2017 study found that 72% of adults belong to rewards programs, subscribing to nine total programs on average. Members are more likely to recommend products and services to others and report higher rates of customer service. Millennials in particular report feeling more loyal to a brand or company when they can engage in a rewards program. Customers aren’t just seeking a cash discount or a way to make money back; they also desire enhanced customer service and special treatment.

In this article, we’ll look at the various kinds of rewards programs and the software options available to support these programs. We’ll also take a look at how to boost your company’s likeability and trust, and share successful loyalty programs in use at 2 different craft retailers.

Types of Loyalty Programs

Points Programs

Points are awarded for purchases made (i.e., $20 spent equals 20 points), or for other behaviors or events. You might award 100 points for signing up for the newsletter mailing list, 20 points for a Facebook or Instagram share, 200 points on the customer’s birthday. Points can be redeemed for discounts, free shipping, free products, or other rewards.

Tiered Programs

Increasingly valuable rewards are available as the customer crosses specific thresholds, usually within a calendar year. Beauty retailers Sephora and Ulta both offer scaled loyalty rewards. With Sephora and Ulta, the baseline membership is free with email sign up and offers points back on every purchase. Additional benefits are unlocked once a customer has spent $350 (Sephora) or $450 (Ulta) in a year, like early access to sales and discount coupons. The top tier, with the most extensive perks, requires spending $1000 or $1200 respectively in a year.

Madewell offers “Madewell Insider.” Another tiered program accessed with email sign up, Madewell Insider offers a $25 birthday gift coupon, free shipping and returns, free denim and leather personalization, free hemming, and other special discounts. Spending $500 and then $1000 in a calendar year unlocks additional benefits.

Paid Membership Programs

In these programs, the customer pays a fee (either one-time or annual) to access a package of valuable benefits. Amazon Prime is the obvious example: for $119 annually, Prime members get free 2-day shipping, free games, free unlimited photo storage, and access to a huge library of free streaming content, from video to music to books and magazines.

These membership programs work best when they directly address a customer’s pain points. For example, if you’re seeing a high rate of cart abandonment due to high shipping costs, a membership that gives free shipping could result in closing more sales.

Analysts estimate Amazon loses $1-2 billion per year on Prime, but the company makes up for it in increased transaction frequency. Prime members spend an average of $1,500 per year on Amazon.com, compared with $625 per year spent by Amazon customers who aren’t Prime members.

Values-Based Rewards

These programs focus on alignment with the customer’s social values. For example, TOMS Shoes started their business with the promise that for every pair of shoes sold, a pair would be donated to a person in need. They’ve since expanded their program to include causes such as ensuring access to clean water and maternal health initiatives. Gardens of the Sun, a Bali-based jewelry business, boasts their “ethical jewelry” with conflict-free gemstones and 5 trees planted for every purchase.

Loyalty Program Software

To keep program administration simple, look for a software solution designed to integrate with your POS or shopping cart system.

There are a variety of plug-ins designed to work with WooCommerce on WordPress. You can find a comparison of their features here.

Shopify’s app store also includes several loyalty program options. Smile.io and Loyalty Lion are good options if you have a brick and mortar store, and both offer free plans. Swell is highly rated for its integration with email marketing programs. Free apps like Scout alert you when a customer has abandoned their online shopping cart and offers options to personally reach out through SMS, email, WhatsApp, and more. Scout will also monitor for large sales so you can send thank yous and follow-ups. Shopify has an assortment of apps directly related to automated cart abandonment reminders to help retain potential sales. POSIM is another option and focuses in on niche markets of fabric, quilting, and needlearts. 

The Trust Funnel

Your potential customer must trust you before they will buy from you, and that trust proves even more essential when you’re building towards repeat purchases and a rewards program. The secret to generating trust with your customer is two-fold: first, you must develop your brand voice and second, you must use that voice to provide valuable content. The relationship between business and consumer should focus on the personal to support the transactional. A solely transactional relationship may give you your first sale, but it won’t encourage a second or third sale.

For example, the husband and wife team behind niche Korean beauty business Soko Glam have forged an incredibly loyal and diverse customer base by providing helpful skincare content tied to their products. In addition to a tiered points program that offers free shipping on purchases of $35+ and a deluxe sample with every order, Soko Glam also frequently educates customers on skincare ingredients via their website and Instagram profile. The owners wrote and sell a book on Korean skincare, offer a skin type test on their website, and innovated an easy to follow 10-step skincare routine. They also maintain The Klog, a K-beauty blog with information on all things Korean beauty. This kind of personal, relatable content reinforces their customers’ trust and loyalty and offers an enhanced level of customer service.

Making Your Program a Success: Two Case Studies

We talked to two very different retailers about how their customer loyalty programs work. The common theme in both cases proves the analysis outlined above: the loyalty program is a way to let customers know their business is appreciated, not primarily as a way to boost sales.

Cheers To Ewe! Yarn Shop – Huntersville, North Carolina

Cheers To Ewe! Is a brick and mortar shop in a suburb of Charlotte. Online sales are a small but growing segment of their business. They use the Smile.io Shopify plug-in to run their points-based rewards program, which allows customers to earn 1 point for every dollar spent either in-store or online. Points are also awarded for enrolling in the program, writing a product review, engaging on Facebook, Twitter, or Instagram, and celebrating a birthday. Points can be redeemed at checkout (500 points equals a $5 credit).

Owner Ladianne Henderson chose Smile.io because she wanted a cost-effective solution that was flexible and easy to customize. She particularly wanted to avoid making the customer present a card to participate in the program. With a store that’s still less than 3 years old, the ability to reward social media engagement is another feature Ladianne appreciates.

Ladianne views the rewards program as an opportunity to spark interaction and personal recognition at the cash register. Some customers get really excited about earning points, inquiring about their balance and talking about their strategy for spending or saving points. More importantly, the rewards program prompts the shop staff to express personal appreciation to the store’s best customers. It creates an immediate bond between staff and the customer and an entry point for a meaningful face-to-face interaction.

Communication is key to the success of the program, says Ladianne. Her advice: “Talk to your customers before you put the program in place. Ask your customer to tell you what is valuable to them. Customers are perfectly willing to tell you how to make it easy for them to buy – you just have to ask.”

The Loopy Ewe – Fort Collins, Colorado

Sheri Berger began The Loopy Ewe in 2006 as an online shop selling mostly sock yarn from a corner of her basement in St. Louis. The shop has grown into a 7000-square foot retail destination for yarn and fabric in the foothills of the Rocky Mountains, while maintaining a robust online business.

The Loopy Ewe website was custom built, and Sheri can customize all aspects of her rewards program (the benefit of having a web developer in the family!) The Loopy Rewards program is a combination of simple discount and tiered points programs.

Each month, customers are given a Loopy credit equal to 5% of their purchases in the previous month. This credit can be applied to any future purchase and expires after six months.

In addition to the Loopy credit, customers are also granted 1 reward point for every dollar spent. These points do not expire and can be redeemed in the Rewards Store for exclusive merchandise and limited edition items. Accumulated points within a calendar year are also used to qualify for three different VIP levels, with rewards ranging from free shipping to an invitation to the Teacher’s Dinner at their annual retreat.

Sheri says, “We talk about our rewards as being one of the ways that we show appreciation for their business. People are more apt to shop where they feel appreciated, and where they have a chance to receive things back on a regular basis, so this is good for our sales.”

The dedicated Loopy Rewards landing page works well to communicate the program to customers.

“I hear people talking about which rewards they want to earn in our Reward Store (and how many more points they need to earn to reach that level),” says Sheri. “I also hear from people who are delighted to have a big discount off of a pricey skein of yarn they have been eyeing. They definitely plan purchases around these things.”

Stitchcraft Marketing can help you plan and implement an effective Customer Loyalty program. Contact us today to learn about how we can make magic for your brand.