Loyalty Program Best Practices to Increase Customer Retention

82% of companies agree that retaining customers is more cost-effective than acquiring new customers. However, most ecommerce stores struggle to increase their customer engagement post-purchase.

This is exactly why you need an effective loyalty program that rewards repeat business, increases customer satisfaction, and strengthens the emotional connection between them and your brand. But, implementing a loyalty program has its own set of challenges. Without careful planning and execution, your efforts could fall flat, wasting resources and missed opportunities.

To make sure that this doesn't happen to you, we have curated a list of best practices for loyalty programs that can help you retain customers and turn them into brand advocates. 

What is a loyalty program?

A loyalty program is a strategy to keep your customers returning for more. Through this program, you as a brand can reward repeat customers with incentives like discounts, free products, gift cards, or other exclusive offers. These are also known as loyalty rewards and are a great way to make shopping from your store more appealing to your existing customers.

Here's how these programs work to retain customers:

• Every reward you offer serves as a tool to convince your customers to choose your brand over others. With time, this becomes second nature, driving more repeat purchases. 66% of consumers say earning loyalty points or rewards significantly impacts their spending behavior.
• Loyalty programs also play on the psychology of loss aversion—customers are more likely to stick with your brand to avoid missing out on rewards. Reports prove that American consumers are part of approximately 16 loyalty programs.
• You can also collect customer data and feedback from your loyalty program members, which can further help you improve your overall marketing strategy.

4 common mistakes to avoid when running a loyalty program

Before we get into the best practices that will help you create the best loyalty program for your business goals, let’s first look at some common mistakes that most brands make and you should avoid.

Mistake #1. Making the program too complicated

If your loyalty program has complicated reward structures, your customers may need help understanding it. This can lead to frustration and lower participation. If people can’t easily navigate the program, they will likely lose interest.

Mistake #2. Not promoting the program effectively

If customers don’t know about your loyalty program, they can’t participate in it. Without properly promoting your program, you’re limiting its effectiveness and failing to drive the desired customer behavior.

Mistake #3. Not including FOMO in your rewards program

Neglecting to create urgency or exclusive offers can result in missed opportunities to boost engagement and sales. Customers might not feel compelled to participate actively or make repeat purchases without these elements.

Mistake #4. Not tracking customer activities

You can simply tell your customers they will receive points (or a discount) when they purchase from your store or leave a review. But this is meaningless without the ability to properly track your customers' activity and actually generate the rewards.

Now that we’ve covered the common mistakes let’s talk about the best practices for launching and running a successful loyalty program.

7 Best practices for loyalty programs to boost customer retention

Customer loyalty isn’t something you can take for granted—it's earned by consistently helping customers achieve their goals. Even with a positive brand history, a competitor with a better offer can lure them away.

To make sure this doesn't happen to you, here are 7 simple tips to help you implement a successful ecommerce loyalty program.

1. Understand your customer’s needs and preferences

The success of your loyalty program starts with understanding your customers on a deeper level. Here’s how to begin:

1. Collect data on customer preferences, behaviors, and demographics through surveys, social media insights, and purchase history.
2. Analyze this data to identify patterns and trends that reveal what motivates your customers.
3. Use these insights to create customer profiles that guide the design of your loyalty program so that it resonates with their needs.

Pro tip: Update your data regularly to stay ahead of changing trends and make sure that your loyalty program remains relevant and practical.

2. Design a personalized loyalty experience

Personalization is about making your customers feel like the program is designed specifically for them. Here’s how you can achieve this:

1. Segment your customer base by purchase history, preferences, and demographics.
2. Craft targeted promotions and rewards that appeal specifically to each segment.
3. Use tools like personalized emails, push notifications, and SMS to communicate these offers directly to customers and make them feel valued.

Pro tip: Automate personalized communication to maintain consistent engagement without manual effort.

3. Offer tiered rewards to encourage continued engagement

A tiered rewards system motivates customers to stay engaged and spend more. Here’s how to implement it:

1. Define the different tiers in your loyalty program, each with increasing rewards.
2. Offer exclusive benefits for higher tiers, such as double points, early access to products, or VIP customer service.
3. Regularly review and adjust the rewards to keep them attractive and aligned with customer expectations.

Pro tip: Surprise customers with unexpected perks as they reach new tiers to create excitement and drive further engagement.

4. Integrate with your tech stack

Integrate your loyalty program with your existing tech stack to get the most out of your loyalty program. For example, you need to:

1. Identify the key tools in your stack, like Klaviyo for email and Postscript for SMS.
2. Connect your loyalty program to these tools to streamline processes like reward tracking, customer segmentation, and personalized communication.
3. Leverage the integrated data from these tools to refine your loyalty program, ensuring it meets customer needs and drives engagement.

Pro tip: Use analytics from these integrations to gain deeper insights into customer behavior, enabling you to optimize your loyalty program for better results.

5. Make it easy to earn and redeem rewards

The easier customers can participate in your loyalty program, the more likely they are to stay engaged. You can simplify the process with these steps:

1. Design a straightforward point system that clearly shows how customers can earn rewards.
2. Offer multiple, easily accessible options for redeeming rewards, such as discounts, free products, or exclusive experiences.
3. Make sure that your loyalty program interface is user-friendly, with clear instructions and minimal steps to redeem rewards.

Pro tip: Regularly review your rewards system to remove friction points that could discourage participation.

6. Regularly communicate with the participants

Keeping your customers informed about the benefits of your loyalty program is crucial for sustained engagement. Here are some tips to do it effectively:

1. Develop a communication plan that includes regular emails, SMS, and push notifications highlighting the loyalty program's benefits.
2. Use dynamic content in your messages to personalize them based on each customer’s loyalty tier and purchase history.
3. Regularly update customers on their progress toward the next reward, creating a sense of anticipation.

Pro tip: Incorporate countdowns or reminders for limited-time offers to create urgency and prompt immediate action.

7. Offer exclusive perks to loyal customers

Rewarding loyal customers with exclusive perks strengthens their connection to your brand and incentivizes others to engage more deeply with your loyalty program. Here’s how you can make this work:

1. Identify what your most loyal customers value: early access to new products, special discounts, or VIP customer service.
2. Develop a set of exclusive perks tailored to these preferences. For example, offer priority customer support or invite them to members-only events.
3. Regularly update these perks to keep them fresh and exciting, ensuring your loyal customers feel continuously appreciated.

Pro tip: Surprise your top-tier customers with unexpected rewards, such as free samples or personalized gifts, to make them feel valued and keep them engaged with your brand.

Types of loyalty programs for an ecommerce store

There are numerous loyalty rewards programs, and you can select the one you believe would work best for your company and your customers. Which type of loyalty program is best for your ecommerce store depends on many factors, such as your business model, goals, and how much you want to give away in discounts or rewards.

Some of the most common types of programs include:

1. Point-based programs

In these programs, customers earn points for every purchase they make, which can be redeemed for points. The points system is simple: offer 1 point per dollar spent, with 100 points equating to a discount or 200 points leading to a free product. This model incentivizes repeat purchases and encourages additional engagement, such as sharing on social media or writing reviews.

Emi Jay, a brand known for its stylish hair accessories, uses a point-based system called Sparkle Rewards. Customers earn one sparkle for every dollar spent, which can be redeemed for discounts on future orders. This straightforward approach helps keep customers engaged and rewards them for their loyalty.

2. Tiered programs

Tiered programs offer different levels of rewards based on customer spending or engagement. Each tier provides progressively better benefits, motivating customers to reach higher levels. This structure creates a sense of achievement and encourages long-term engagement.

Charlotte Tilbury’s loyalty program includes six tiers, each with unique rewards such as gifts, exclusive product access, and special master classes. Customers unlock higher tiers with increasingly valuable perks as they spend more, fostering a deeper connection with the brand.

3. Value-based programs

Value-based programs focus on aligning with customers' values by contributing to charitable causes or community projects. Instead of offering direct rewards, these programs provide a sense of purpose by supporting a cause with every purchase. This approach connects well with customers who want their spending to have a positive impact.

For instance, the LEGO Insiders program rewards customers for purchases and their involvement in the LEGO community. By registering LEGO sets or participating in design contests, customers contribute to a broader cause and feel a part of the brand's mission.

3 Best ecommerce loyalty programs to take inspiration from

To help you get a better understanding, here are some loyalty program examples that you can learn from and build your own:

Ultra Football

Ultra Football, the world’s largest multi-branded football store based in Sydney, provides a prime example of implementing these best practices effectively.

The brand tailored its loyalty program to cater to different customer segments. For instance, members could earn points by using their app, ensuring that the rewards were relevant and aligned with customer interests. 

Besides personalization, Ultra Football took advantage of Rivo’s flexible and developer-friendly platform to build a highly customized loyalty program. They implemented features like a custom loyalty portal and integration with Apple Wallet, allowing customers to earn and redeem rewards easily.

And the results were pretty impressive:

• Over $800K in loyalty revenue was generated within the first 6 months.
• 7% of total revenue is attributed to the loyalty program.
• 150% increase in average order value for Ultra Rewards members.

Fresh Chile

Fresh Chile Co, known for its Hatch Chile sauce and exceptional customer service, offers a prime example of how to implement a membership program effectively.

Fresh Chile Co. tailored its membership program to provide substantial value to its customers. Members enjoyed a 20% discount on every order, 5% back in-store credit on purchases, and received Fresh Chile Cash both upon sign-up and renewal. This approach ensured that the rewards were appealing and directly aligned with customer preferences.

In addition, Fresh Chile Co leveraged Rivo’s platform to seamlessly integrate the membership program into its checkout process. This included automating discount applications and membership renewals, which streamlined the customer experience.

The results speak for themselves:

• $40K+ in membership annual recurring revenue generated within just 90 days.
• 156% increase in average order value for members.
• 18X return on investment from the membership program.

Teaspressa

Teaspressa, an Arizona-based tea brewing company, redesigned its loyalty program (LoyalTEA) to offer various ways to earn rewards, including product reviews and social media engagement. By providing multiple avenues for customers to participate, Teaspressa ensured that its loyalty program remained engaging and relevant.

Plus, Teaspressa used Rivo’s platform to simplify loyalty management for their small team. Integration with Shopify and Klaviyo allowed for seamless communication. This integration enabled Teaspressa to effectively manage rewards and use loyalty data in their email campaigns, streamlining operations and enhancing overall efficiency.

The redesigned “LoyalTEA” program quickly gained traction. Within 24 hours of launch, the program was live, generating significant customer interest. The results were impressive:

• 7% of revenue was driven from the loyalty program.
• 3x more purchases by members compared to non-members.

FAQs

What makes a loyalty program successful?

A successful loyalty program effectively engages customers by offering meaningful rewards that align with their interests and values. It also guarantees easy use and clear communication, encouraging repeat participation and promoting long-term brand loyalty.

How can small businesses benefit from loyalty programs?

Small businesses can use loyalty programs to build stronger relationships with their customers, encourage repeat purchases, and increase customer retention. By offering personalized rewards, they can differentiate themselves from competitors and create a loyal customer base.

What are the latest trends in loyalty programs?

Recent trends in loyalty programs include a shift towards personalized experiences and value-based rewards that align with customers' social and environmental values. Additionally, integrating technology, such as mobile apps and AI-driven insights, boosts program engagement and effectiveness.

How do you measure the effectiveness of a loyalty program?

Tracking metrics such as customer retention rates, repeat purchase frequency, and overall program engagement can measure a loyalty program's effectiveness. Moreover, monitoring the increase in average order value and customer lifetime value provides insight into the program's impact on business growth.

Conclusion

Implementing a loyalty program that truly improves customer retention requires more than just basic features; it demands a tailored approach that aligns with your brand's unique identity and customer needs. Plus, these programs drive repeat sales and build lasting customer relationships by customizing rewards, integrating with existing systems, and automating processes.

And tools such as Rivo help you create a customizable loyalty platform that’s functional and beautifully aligned with your brand. Plus, it integrates effortlessly with your Shopify storefront, allowing you to implement a points program, VIP tiers, and more—all while being live within hours. Intrigued? Set up a time to talk with a loyalty and rewards expert at Rivo today!

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