7 Reasons Every Ecommerce Site Should Have a Customer Rewards Program

Establishing a customer rewards program will significantly boost your customer retention and profits. Read more about the benefits of customer rewards programs.

Did you know that customers with a good relationship with a brand have a 306% higher lifetime value? This means they are spending 306% more throughout your relationship with them.

This explains why creating an emotional bond with your customers is important. Making them stay and making sure they always have a good experience is a vital part of any strategy. What do companies do to achieve both?

One of the best strategies brands use is implementing a customer rewards program. It helps them do both, but aside from that, it has other benefits. Learn more about these seven advantages below.

1. Improves Customer Retention

The main goal, and the biggest benefit, of such programs is to increase customer retention. It rewards your current customers when they buy again from you. This motive is strong enough to establish buying habits.

If loyalty programs reward them, then what advantage are you getting out of it? Customer retention gives you two main benefits: cheaper marketing and an increase in profitability.

It’s 5 times more expensive to acquire a new customer than to keep one. By targeting your existing customers, you build on their existing interest in you. 

They’re much more likely to convert again, especially if they have a great first experience with you. With a rewards program, you incentivize this decision. This further increases their chances of buying from you again.

In summary, you have a better ROI from rewards programs than advertising to new customers. This makes both steps crucial to your marketing strategy.

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Furthermore, a 5% increase in customer retention can lead to a 75% to 95% increase in profitability, as per the Forbes article. You’re not only saving on ad spend, but you’re getting more profit, too.

This is because a loyalty program rewards more spending. And so, your customers spend more until they reach their desired reward.

2. Establishes Buying Habits

As we said above, existing customers are willing to spend more and more often to qualify for the rewards. On average, they spend 5% to 20% more than non-members. Their frequency of buying is also 5% to 20% higher.

If your customer rewards program works great, they will change their spending behavior to earn more rewards.

For instance, if you have a points reward system, they will buy from you as much as possible to earn them points. If you have a tier system, they may spend more to get to another tier. 

To sum it up, they’ll be willing to spend more and more often only to reap more benefits from their membership. 

Once they’ve established the habit of buying from you, they become your loyal customers. They’re then more likely to recommend your e-commerce store to their friends and family. 

This has a great impact since word-of-mouth trumps other forms of marketing strategies.

3. Attracts New Customers

Having a solid loyalty program in place can also improve your marketing efforts. A rewards program can influence the decision of 69% of consumers about where to buy.

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They are more likely to choose a retailer that makes them feel valued. This is because that’s what a good rewards program do. It shows you appreciate them buying from you, and so you give them small gifts in return.

Of course, the fact that they’re getting something back from all their spending is a nice incentive. Why would they spend $500 on one store with no rewards if they can spend it on yours and get an extra something in return?

If your target market is people trying to save or low-income families, your rewards program looks more attractive. To their eyes, it helps them save more when online shopping.

Continuing our discussion from above, you can also get new customers via word of mouth. Your loyal customers will do this for you and their families and friends are more likely to listen. A Nielsen study says that 92% of consumers trust suggestions from sources they trust more than other forms of advertising. 

In that sense, your loyal customers aren’t only spending. They’re generating new profit avenues for you, too. 

The good thing about it is that if the new customers like your program, they’ll then turn to loyal customers. This will restart the cycle as they get you new customers, as well. 

4. Incentivizes Word-of-Mouth Marketing

Consumers who discover something good are taking upon the responsibility to make sure their friends and family know about that something, too. They have a sense of duty in making sure others make smart purchasing decisions.

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This drives the word-of-mouth marketing strategy. Aside from that, loyalty programs may provide another incentive for those who do this.

Most programs have a feature that encourages members to recommend your store. The usual mechanics include giving both the member and a new customer a reward when the new customer completes their first purchase.

The reward can be points or discounts they can both use toward their next transaction.

In some programs, the rewards can be the same and given at the same time (i.e. after the first sale). In other rewards, though, a member can give a “discount” to a new customer once they sign up. They can then use it for their first transaction with you.

In this system, it’s typical for the member to only get their reward after the new customer used their discount. The reward for the member can be points or something like one free month of membership.

5. Allows You to Focus on Quality

Today, we have millions of e-commerce websites, marketplaces like Amazon, and online shops on social media like Facebook and Instagram. This means you have competitors in all corners of the internet. This drives some companies to turn to drastic measures to stand out.

Some compromise the quality of their products to compete in terms of pricing. However, there will always be someone selling your product for cheaper. Places like eBay and Amazon are popular for having cheaper options than others.

Some also spend huge amounts of money on digital advertising to get new customers. As we both know, though, it has a lower ROI than retaining customers.

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A good way to stand out, then, is to put in place a loyalty program. Aside from the benefits we already mentioned, such a program offers something different.

If you can’t compete on price, compete on value. Since every penny spent has a corresponding reward, your products are worth the extra cost.

Your products can have even a higher value if you pair it with good customer experience. This increases the chances of you overtaking your competitors.

6. Improves Customer Relationship

The rewards program activates the reward system in the brain. This encourages the release of the neurotransmitter dopamine. It’s a chemical that plays a major role in motivating movement, but it also has a part in making you feel happy.

This is the scientific explanation of why loyalty programs make customers happy. This improves your customer relationship since they associate your brand with positive feelings.

In simpler terms, you appeal to their emotional side when you reward them for their habits. Every time they buy, refer someone, or such, you trigger their happy response.

The process of purchasing is emotional; a gift appeals to their emotions. Connecting those two, you encourage them to spend more through gifts.

At the same time, you build a connection with them. This is thanks to the response triggered whenever you reward them. Like we’ve mentioned above, a loyalty program makes consumers feel more valued. 

A good loyalty program, in essence, should show the brand’s loyalty to the customers. While marketers may think otherwise, customers should feel you owe it to them – not the other way around.

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7. Provides Valuable Market Research Data

In the long term, loyalty programs can give you insight into the spending habits of each customer. You’ll know what products they buy, what fuels their decisions, how often they buy, and so on.

You can use this information to market your other products that may not be performing well. You can also use this to personalize their experience and create targeted promotions. You can, for example, use the data to create hyper-personalized email campaigns.

You can also review the profile of your loyal customers. Doing this, you learn more about your market. You know what kind of people are more likely to become loyal customers.

This also allows you to reshape your marketing strategy for attracting new customers. You can refocus it to the kind of people who are more likely to become members.

Of course, you can also gather data that can improve your rewards programs. Information about most sought-after rewards and the most effective features are available anytime.

Develop an Effective Customer Rewards Program

The way to reap the benefits above is to develop the right customer rewards program. You’ll need to take into account your products and your customers to know which type is right for you.

Before that, though, you need to learn how to jumpstart your online store. Head on over to our other articles for more tips.

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