Using advanced segmentation and lifecycle management models, loyalty programs can play a significant part in the entire data value chain by allowing the gathering of member personal data, analyzing the data on loyalty platforms...

How to measure retention & engagement metrics for your DTC brand with customer loyalty analytics

Today, more data is available than ever before, and yet not all businesses are set to take advantage of its fullest potential. According to a McKinsey's DataMatics 2013 poll, responsive businesses that heavily rely on customer analytics, are more than twice as likely to produce above-average profits. They outperform their colleagues across the whole customer lifecycle. They are nine times more likely to have better customer loyalty and outperform less analytical peers on new customer acquisition by an astounding 23 times.  

Using advanced segmentation and lifecycle management models, loyalty programs can play a significant part in the entire data value chain by allowing the gathering of member personal data, analyzing the data on loyalty platforms, and employing the insights gained to encourage deeper member engagement. This enables managers of loyalty programs to find out when, why, and how members interact with the program.

Compared to their predecessors, loyalty program owners today are incredibly fortunate. Over the past three decades, loyalty program management has shifted from simply running a loyalty program to companies wanting to harness the “invisible” power of such programs through the insights they provide into the behavior of their customers, the ability to create better relationships & informed decision-making for targeted marketing campaigns. Today, the focus has shifted again to the design & management of high-value customers through segmentation and quality customer experience across various channels & touch points. 

Businesses can access customer data insights in a variety of ways. With the technology available today, brands can easily access real-time reporting dashboards & segment insights using a loyalty program software. This is especially useful for smaller DTC brands, who don’t have to call in fancy analysts & data scientists to analyze their data. 

This suggests that reporting modules provided by modern loyalty program providers should be adaptable to diverse teams' demands and organizational needs, by utilizing technology that combines capabilities for automated marketing, machine learning/AI, and dashboard reporting. For example, being able to search by specified periods and country/region/online across different campaigns, segments or tiers, and member behaviors or get a quick glimpse into your most critical metrics right off the bat.   

Data is most important when measuring and monitoring the effectiveness of the loyalty program. It also serves as a baseline for the overall improvements to the loyalty program. After implementing a loyalty program, brands should be well equipped to collect data right away, analyze and use customer data where more accurate marketing & business decisions could be made. There’s an array of metrics available to loyalty program managers including both qualitative and quantitative data. 

"Data-oriented businesses are nine times more likely to have better customer loyalty and outperform less analytical peers on new customer acquisition by an astounding 23 times.” — Mckinsey, Datamatics poll 2013.

What value can members’ data deliver to DTC (direct-to-consumer) loyalty programs?

Customer-based indicators of business performance have been adopted because of marketing's shifting focus on fostering connections with customers. Among them, several loyalty metrics have grown in popularity over time in marketing and business practices. 

Loyalty programs play a key role in the overall data value chain, facilitating the collection of zero-party data (Consumer-owned data that they voluntarily and deliberately share with a brand they respect) & first-party data (Data that belongs to the brand and is collected through consumer interactions).
For a long time now, cookies have been the primary way websites tracked their users' interactions. However, back in 2020 Google announced that it will no longer support cookie tracking starting in 2022, while they are already blocked in Safari & Firefox (albeit they’re still testing the system that will replace cookies).  

The intrinsic value that customers’ data can offer to loyalty programs is the ability to gain valuable consumer insights that can drive revenue growth and make better-informed decisions across multiple business functions. Let’s take a look at some ways Loyalty program members’ data can bring value to online DTC businesses : 

A 2017 study by Salesforce, showed that personalized product recommendations drive just 7% of visits but 26% of revenue. Data collection & analysis has the potential to unlock hyper-personalized recommendations & digital marketing campaigns. This includes delivering personalized messaging & segment-based targeting depending on buyers’ unique needs and behavior. This is an important part of running a successful loyalty program, as not all rewards are created equal, where you’re more likely to drive conversions & engagement by offering relevant products & rewards to your customers. 

Linking your advertising platforms and your email marketing software to your loyalty program data could help you deliver a highly relevant dynamic re-targeting, based on individual behavior patterns across multiple channels, with lower remarketing costs. For example, using custom audiences, you can remind your members about a product they may have been considering or a high-margin product left on the cart, accompanied by an offer of a points multiplier if they buy from you in the next 48h. 

Through the use of loyalty program data, DTC businesses can adapt their customer support to achieve the best results by learning more about the customer, his interactions & level of engagement with the loyalty program, and the brand. For example, if they are a premium tier member showing a higher than usual churn risk score, this could entail the use of apps that encourage the customer support representative to suggest a satisfactory incentive to the member based on his previous interactions with the brand. 

Linking your advertising platforms and your email marketing software to your loyalty program data could help you deliver a highly relevant dynamic re-targeting, based on individual behavior patterns across multiple channels, with lower remarketing costs.

Data gives DTC brands the capacity to create in-depth insights about the Loyalty program members' identities, behaviors, interactions & responses to various marketing campaigns and offers, consumption trends over time, life stages, and segmentation, amongst other things. 

The requirement is that reporting modules should offer enough flexibility to display real-time and period-over-period measurements. These allow businesses to monitor the overall performance & the effectiveness of loyalty campaigns. As a result, these insights can later communicate relevant offers to the right members at the right time in order to encourage desirable behaviors, safeguard profit margins, and produce new member insights. KPIs such as engagement rate, return on ad spend (ROAS), churn rate and reasons, RFM (recency, frequency, monetary value) tracking, repeat purchase ratio, share of wallet, member lifetime value, cost per acquisition, status tier progression are most commonly used when analyzing a loyalty programs’ performance. 

Product development & inventory management : 

By utilizing loyalty programs’ insights, DTC brands can better understand how customers are using their products & services, what they like and disapprove of, as well as any new features (and ideally pay more for). This data can also play an important role in inventory management, especially for businesses that sell a wide range of products (like retailers). 

Data is also essential for the creation of new products because it enables sophisticated modeling that predicts the effects such innovations may have on operations and profits.  

When running a loyalty program, members’ Lifecycle management is an important part of its success. Loyalty program data can inform businesses on how their members change the way they interact with the brand (lifecycle journey), how their situation develops, and how it can relate to the business over time.   

By forecasting which products would appeal to the members at particular periods and introducing those items with messages and offers, these valuable insights may retain loyalty. 

Loyalty programs play a key role in the overall data value chain, facilitating the collection of zero-party data (Consumer-owned data that they voluntarily and deliberately share with a brand they trust) & first-party data (Data that belongs to the brand and is collected through consumer interactions). 

What are the key loyalty metrics for online DTC brands? 

Consultant Peter Drucker once said “you can’t manage what you can’t measure”, and we couldn’t agree more. There are a variety of metrics available around loyalty programs. The challenge is to find the “metrics that matter'' from the giant pool of measures. As an online DTC business, finding your Key performance indicators for your loyalty program will allow you to filter out the noise and assess the success of your loyalty program as well as predict future customer value strategies. We cannot measure everything, and we shouldn’t anyway. Finding the right balance as a business lies in focusing on those KPIs that truly impact your business, creating compound effects that translate positively on your growth & revenue.  

Here we will discuss the most commonly used key loyalty metrics that online DTC brands can use to measure the success of their loyalty programs. 

Not everything that counts can be counted, and not everything that can be counted counts.

Businesses that continually acquire new customers but struggle to keep them are less likely to experience profitable bottom lines results. When a retained customer leaves, the revenue stream from that customer is lost. Along with losing sales, the company also forfeits the advantages of keeping clients, such as cheaper service and marketing costs. A new customer that purchases less frequently and in smaller amounts needs more assistance and is less likely to refer to new customers. Replacing the loyal customer is going to come at a higher acquisition cost. Thus, a business with a poor retention rate must therefore incur additional costs in order to generate the same level of revenue. At its core, a loyalty programs’ mission is to boost the retention rate, a measure commonly used as a typical indicator of a brand's “health”, and a proxy for future revenue. 

When businesses focus solely on acquisition, they run the risk of gaining less quality customers that require more effort to retain. Thus, the expected returns from these customers may diminish as they become costly to retain. Ideally, businesses should aim to grow sustainably by retaining & acquiring the right customers. The most useful & widely used measure of this is customer lifetime value. It is the total revenue expected to be generated by a customer during their lifetime. 

For DTC businesses, one of the most common conceptualizations of a loyal customer is a customer that keeps coming back & purchasing in higher frequency. Understanding this metric gives a sense of how engaged they are with a brand & measures the effects of the loyalty program on customers’ behavior. For example, F&B and apparel brands are more inclined to consider this measure as an important indicator of loyalty.

Aside from purchase frequency, another central KPI to look for when measuring the effectiveness of loyalty programs is the average value of orders or spending. It measures the average amount of money that a customer spends when they purchase from your store. When this value increases, it is a good indicator that a brand is retaining higher value customers.  

A practical method for assessing consumer usage and loyalty patterns is recency, frequency, and monetary value analysis. Recency refers to the most recent service contact or transaction. Frequency measures how frequently these customer/company events happen, whereas monetary value examines how much a client commits to spending, investing, or committing to a certain brands’ products or services. This method is also highly relevant for tier-based loyalty programs. 

Online retailers have adopted RFM analysis with unexpected results, following the example of direct marketers who are prominent users of this measure. For example, new clients cost apparel e-tailers 20 to 40 percent more than their brick-and-mortar counterparts, whereas retained online customers spend more than twice as much in the first 24 to 30 months of their relationships as they do in the first six months. 

To further illustrate, let’s imagine a customer who spends $200 on products she needs from an online beauty store while on vacation, while not having that brand in their country of origin. As the beauty store considers this transaction “high value”, they place this customer in their “favorite” customers list, enroll them into their loyalty program and start sending them costly emails, SMS & other marketing assets with no follow-up transactions. If they applied the RFM approach, they would quickly find that this customer doesn’t adhere to any of the 3 RFM dimensions.    

Loyalty measures still have ground to gain when one considers that only 50% of companies calculate retention rates and less than one in three companies employs customer lifetime value, RFM or share of wallet.

Cristina Ziliani and Marco Ieva, Loyalty management 2020.

NPS is an indicator used to measure intent to repurchase customer satisfaction & a company's ability to grow. It first gained traction due to its simplicity and explanatory power. It is also more suitable to measure future behavior, as it shows the probability of a customer to recommend products or services of a company to friends and family. Although it is not an answer to all metrics, businesses could use NPS as a proxy for customer experience measures. 

Your loyalty program's active engagement rate can also be used to gauge its effectiveness. This makes it easier for businesses like online DTC brands to see how many consumers are accruing and using points in the loyalty program, which can provide ideas for increasing that proportion. At the same time, it helps determine a loyalty program's success scenarios. To calculate it, divide the number of customers who are actively engaged in your loyalty program by your total number of customers. 

As mentioned earlier, technology available today should provide a flexible reporting analytics dashboard that would make your KPIs easily accessible. Some Loyalty programs software like Loyaly can provide you with this metric automatically right in your Dashboard. 

Customers showing more satisfaction don’t prove the monetary value of a loyalty program. As a business, you never want to go in blind before launching your loyalty program. Businesses should at the very least have some visibility as to the target or desired results based on existing and historical customer data. This allows brands to make better informed decisions if the projected improvement in customer retention justifies launching the program, and how much investment they need to run and commercialize it. 
Loyalty programs don’t come in without a cost (discounts, rewards, customer service..) but the cost should be quickly surpassed by the incremental revenue from retained & loyal customers. One way to compare yields is by measuring the return on investment of your loyalty program.   

There are many ways you can calculate your ROI, depending on the loyalty program's design framework. If you’re not sure where to start, one simple way to get started is by figuring out : 

Customer lifetime value (gain of investment) 

Dollar amount of incentives and rewards used (cost of investment) 

Operational costs (marketing, implementation..) 

Cost of acquiring a new customer (cost of investment) 

There are more advanced and better ways to measure your loyalty programs ROI with more precision, such as the Lifecycle management model developed by author Philipp Shelper, which accounts for incremental revenue generated from new customer acquisition and existing customer retention. 

Mn = new customers acquired as a result of the program 

Ri = Average increase in revenue by existing customer participating 

Mm = Number of existing customers participating in the program 

Mr = Number of existing customers forecast to churn who stay be- 

D = Dollar amount of incentives and rewards used 

However, you can always start small, then experiment with different methods until you find what works best for your business. 

The percentage of rewards redeemed by those who have enrolled in your particular loyalty program, expressed as a percentage of all rewards redeemed by all users during the relevant period (e.g., 1 month). For example, if you have 1 million rewards points available and 100,000 people enrolled in your loyalty program during the relevant period, then 10% of all rewards redeemed would be 100,000 points (10% of 1 million). The best way to increase your loyalty program’s redemption rate is by offering more rewards that are relevant, valuable and desirable to your customers. This doesn’t mean you should offer a higher number of points for purchases–it means you should offer rewards that people want and will use. 

If you’re looking for more detailed methods to calculate the KPIs mentioned above, this article is for you: https://www.loyaly.com/blog/retention/what-is-customer-retention-analytics-and-how-to-measure-metrics

As a business, you never want to go in blind before launching your loyalty program. Businesses should at the very least have some visibility as to the target or desired results based on existing and historical customer data.

 Loyalty programs are a great way to keep your customers engaged, and a few KPIs can help you determine the success of your loyalty program. By looking at a few key metrics, you can determine how well your loyalty program is working. Loyalty programs are a great way to keep customers engaged, and a few KPIs can help you determine the success of your loyalty program. Using the right loyalty program analytics can help you determine if your loyalty program is successful. Use these key metrics to gauge the success of your loyalty program. 

By understanding your customers’ needs and wants, you can create loyalty programs that reward repeat business...

How DTC brands retain customers with a loyalty program

In a rapidly changing world, ecommerce brands shift their strategies in an effort to always stay on top. And as competition grows by the day, brands face an ongoing challenge of keeping customers coming back on top of acquiring new users. 

The DTC (direct to consumer) model allows brands to have a better relationship with their customers by allowing them to purchase products directly from the brand. It ensures better overall quality by shifting the weight of customer satisfaction and experience through owning and controlling the value-chain. Consequently, the DTC model implies that brands have an opportunity to foster closer bonds with their customers by offering better quality products, faster shipping delays and wider delivery options, more convenient payment methods, a well thought out return policy and excellent customer service. This model has gotten more and more popular that major brands such as Nike and L’Oréal are shifting significantly towards it. Disruptors like the Dollar shave club explode into the market putting small brands into more competition with companies that can afford to spend big in marketing and PR budgets and customer experience. A research by BrightPearl found that 

Although the DTC ecommerce models are full of opportunities, large brands who have the resources to build a fast and frictionless buying experience run the risk of overshadowing smaller ecommerce brands who seem to never catch a break and find themselves constantly looking to get customers attention. With potential buyers being online and on social media, the moment they come up with a great strategy to make customers happy, the rest of the industry follows. As a result, ensuring customer loyalty and satisfaction is a key focus for many, as most are aware that a happy customer will share and talk about that brand with their friends and family. These brands are looking for “super consumers” that buy more, spend more, and return less items, all the perfect metrics. 

In addition to providing a top-notch quality service that doesn’t disappoint, DTC ecommerce brands can consider launching a loyalty program that rewards customers for their loyalty and drives positive interactions with the brand. 

So how can a DTC ecommerce brand build customer loyalty through a loyalty program ? What are the benefits ? 

DTC (direct to consumer) is the process of selling products directly to consumers, as its name suggests. This means owning and handling the end-to-end customer interaction with a brand, from pre-purchase to after-sales handling, eliminating intermediaries and shipping their products directly to consumers (and this is not a new sales channel). With higher customer expectations that continue to grow, companies are bringing their products directly to the consumer, and consumers are expecting brands to interact authentically with them.

The rapid growth of the D2C e-commerce market can be attributed to the competitiveness of its adopters. As stated above, one of the major benefits of this approach is that it helps brands foster closer relationships with their customers. There are many reasons why online shoppers prefer buying directly from these brands, including better pricing, free, fast, and convenient delivery, and easy returns. The DTC natives (digitally native vertical brands such as Dollar Shave Club and Casper) have provided more of a clear understanding of what works and what doesn't.

In today's atmosphere, DTC brands have a clear incentive to engage their customers more, with a particular focus on acquisition, selling and customer engagement. Around the late 2000s to early 2010s, disrupting brands in ultra-focused categories like Everlane, Dollar Shave Club and Bonobos saw an opportunity online and took advantage of the unrivaled access the internet gave them to customers. These brands have, among others, built businesses from scratch and become household names for it. Through digital technology, they have transformed how consumers consume their products and interact with them. Consequently, they are gaining an in-depth understanding of their consumers and are improving their products and offerings. 

2020 was a disruptive year, but DTC eCommerce is a market poised to thrive during the pandemic. According to Statista, more than half of these businesses have seen their direct-to-consumer (D2C) revenue grow in the UK alone. Amongst better pricing and better customer service, shoppers wanted to show support to local businesses during a challenging economic climate. 

The D2C model gives brands the opportunity to collect first-party data on their customers

Cindy Liu, eMarketer director of forecasting at Insider Intelligence.

Engaging with customers through loyalty programs as as a key tactic for growth

Create an infrastructure that allows for rapid scaling and customer acquisition.

Develop a sales model that supports direct-to-consumer operations.

Find a way to deliver value at scale while remaining profitable.

Build a product that can be sold online and at scale.

Create a brand experience that connects with customers in a meaningful way.

These are the basic tenets of DTC, but they’re not easy to execute on. For example, it’s easy to get a list of potential buyers to sign up for your newsletter, but it’s hard to keep them engaged. A DTC strategy can address each phase of the customer journey to touch customers directly at each step of the life cycle. Almost all brands are familiar with marketing, but adopting DTC into a core strategy means remodeling the consumer pipeline to maximize its impact.

As of now, most brands are well aware of marketing tactics and how they can be used to effectively acquire more customers. It typically involves a compelling origin story, Instagram-friendly packaging and a smooth ecommerce site where customers order with convenient delivery and flexible payment methods. One important approach for DTC brands to up their marketing game and stand out from the competition is personalized marketing, such as segmenting customers according to the channels they use. This lets brands focus on delivering the right experience to potential customers based on which segment they belong to. 

This personalized experience can expand to increase customer engagement and loyalty. A unique, tailored approach to the customer is unique and will go a long way in providing a memorable experience. A study conducted by Kelton Global found that 61% of consumers believe that individual brands provide a more personalized experience and 66% say it’s easier to understand the values of individual brands. In fact, nearly 60% of online shoppers say they will go out of their way to purchase directly from a brand instead of a third-party retailer when possible.

Direct-to-consumer shops have been the fastest growing segment for the past years and there are a number of reasons that this is the case. One important insight from these businesses is that customer engagement has been instrumental in retaining customers and making them loyal to the brand. When choosing this sales model, DTC brands naturally take ownership of their customer data and collect individual data by selling directly to their customers. In return, it allows them to analyse insights which they can use to encourage repeat purchases and make informed product and marketing decisions. 

DTC brands naturally take ownership of their customer data and collect individual data by selling directly to their customers. In return, it allows them to analyse insights which they can use to encourage repeat purchases and make informed product and marketing decisions.

The new middleman of Direct To Consumer eCommerce brands 

It’s no breaking news to many business owners that acquisition cost isn’t the same as 10 years ago since the cost of acquiring customers through social media has skyrocketed and keeps on rising when the bigger players have joined the online bidding wars. It is true that DTC eCommerce brands benefit from saving the “middleman cost” by selling directly to their customers, but they were replaced with social and online ads that take the same if not more of the margin that was going to retail. 

Brands are finding new ways to bypass this hurdle by experimenting with new tactics without sacrificing their reach potential and avoiding growing at a loss. It’s not enough to sustain a business based on hopes that the customer lifetime value one day counterbalances what it costs to acquire and manage their experience through every touch point. One important aspect for a sustainable scalability for an online business is its ability to keep their loyal customers returning and spread positive Word-of-mouth with their friends and family. The 80/20 rule suggests that 80% of a company’s revenue and traffic comes from 20% of their customers, and the latter are the “super-customers”.    

A super customer talks about your brand, trusts and adheres to your company’s values and returns time and again to your ecommerce website to check what’s new. Companies that correctly look and identify “super-customers” through collected customer data can understand the better position to cater to them and add to their numbers. One of the best ways to say “thank you” and reinforce positive behavior with your brand is through a Loyalty program.    

Companies that correctly look and identify “super-customers” through collected customer data can understand the better position to cater to them and add to their numbers

Loyalty program to acquire, retain and engage customers 

Years ago, many online brands could get away with spending as little as 5$ and make 30$ in sales fairly quickly, the deal changed when numbers of online DTC brands started to boom. Now acquisition costs are much higher and brands are even harder to differentiate, and for many, it was no longer cost effective to only do paid advertising, the customer-acquisition cost to customer lifetime value ratio (CAC:LTV) is unsustainable.

As mentioned above, one important aspect for a sustainable growth for an online business is its ability to keep their hard-earned customers returning and spread positive Word-of-mouth with their friends and family, and customer loyalty programs are one of the most effective ways to increase brand engagement and customer retention. For DTC brands, loyalty programs can be a key differentiator from the competition. 

Customers want to know that they are appreciated and will continue to get a good deal after they have made a purchase. A loyalty program can provide them with both of these things. 

Customers are willing to buy from a brand that they trust and feel is an extension of their lifestyle, which is one the reasons the DTC model became popular. Loyalty programs, in turn, can help businesses earn this trust by rewarding customers for their repeat business. However, many loyalty programs are based on simple discounts – so it’s important to remember that the most effective programs offer rewards that customers actually want.

Not all loyalty programs are created equal. Rewards that can be redeemed for things like exclusive events or experiences will have higher perceived value than discounts on products or services. And rewards that are earned based on activity rather than time spent (i.e., points) are also more likely to be redeemed by customers. In addition, you can include incentives for referrals, product reviews, and social media sharing for increased visibility, while splitting the acquisition cost with existing customers. 

A 2021 study by Merkle revealed that 81% of consumers want a relationship with a brand, who desire the most from a brand relationship is for a company to recognize and appreciate their loyalty and enthusiasm for buying products or services. While 70% of consumers say they prefer discounts and offers, Free samples and free services remain extremely popular. Again, it doesn’t mean weakening unit economics as no loyalty program should cost you more than running it. Instead, the true power of a loyalty program is in the data that it generates. DTC eCommerce can leverage their cross-channel data to build a profitable loyalty program to make your customers feel more engaged with your brand and encourage them to spend more money. A loyalty program can help you better understand how often your customers visit, what they buy, and what promotions are most effective at driving their business. This allows you to better tailor the promotions you offer them, as well as your product offerings. A well-designed loyalty program should drive incremental sales and profits. 

Let’s take a look at three ways you can use loyalty programs to drive new revenue and grow your business. 

 Identify customer segments that have a higher propensity to buy more. 

Loyalty programs allow you to segment your customers based on their spending behavior. By collecting and analyzing data about customer behavior, you can determine which segments are more likely to spend more. This can help you better allocate your marketing budget and focus on the customers who are most likely to buy from you. 

Understand the purchase patterns of your customer base.

When customers enroll in a loyalty program, they are asked for personal information such as name, email address and phone number. This information can be used to better understand your customer base and the buying patterns of your customers.

For example, you can analyze the number of people who buy more than once in a month or quarter. This helps you identify customers who are likely to make multiple purchases in a given time period. You can then use this information to create personalized marketing campaigns that encourage repeat business from these customers.

Understand the demographics of your customer base.

As you collect data about your customers, you can use it to create profiles of your customers, and connect it through different channels. This information can be used to help you understand who your customer base is and how to better target them with marketing campaigns.

For example, if most of your repeat customers are female between the ages of 25 and 35, you can use this information to develop a more effective campaign that appeals to women in this age range. You can also customize other aspects of your business model based on this demographic information (like deciding to offer a loyalty program for your repeat customers only).  

Create loyalty programs that encourage repeat business.

By understanding your customers’ needs and wants, you can create loyalty programs that reward repeat business. In other words, when you put the effort into the experience, people naturally want to buy and share it.

An online ghost-kitchen might give customers their favorite meal for free after they have purchased x amount of lunches. An online market might offer frequent-buyer discounts to customers who spend a certain amount of money in the store each month etc. 


For many DTC online brands, rising acquisition costs are becoming less and less sustainable. As a result, DTC brands are struggling to acquire and to retain their customers. The recent changes in the online industry, -especially with the increase of DTC eCommerce platforms- have changed the way consumers interact and buy their favourite products. Today, if you’re looking for a specific product that can help you solve a problem, it’s more likely that you will search online than ask your neighbour or friends.  

With this behaviour shift in mind, loyalty programs can play a key role in engaging customers and retaining them in the long term.   

Many brands invest heavily in their overall customer experience to help their customers achieve this feeling. Why? Because customer satisfaction is the predecessor to customer engagement...

How to drive customer engagement for eCommerce with a loyalty program

Satisfaction. That feeling of ease, pleasure, and joy that we, as humans, pursue in all of our experiences in life. A desire so well fulfilled, that we want it to last and we want to feel it over and over again. We look to repeat it, to magnify it, and to share it with our entourage. 

Many brands invest heavily in their overall customer experience to help their customers achieve this feeling. Why? Because customer satisfaction is the predecessor to customer engagement. The impact of customer satisfaction and engagement on value creation and customer loyalty is more actively recognized by many experts.

Today, more and more companies strive to foster positive relationships with their customers to unlock their satisfaction and loyalty. But, satisfaction alone isn't enough to secure loyalty. Customer relationship management has shifted its focus on engagement, trust, and dedication. In these new times, the key to effective customer management lies in satisfaction and emotional connections. One study showed that fully engaged customers bring 37 percent more annual revenue to their primary bank than actively disengaged customers.

In the customer-centric and highly-competitive eCommerce space, customer engagement is a critical success factor, and interaction of a brand and a customer is becoming a key element in the process of value creation for both parties. Customers that are actively engaged with the business are more likely to stay longer, spend more, and recommend you to others. Engagement is also one of the most important components that can help eCommerce businesses capitalize on customer loyalty.

Companies of all sizes have been launching several programs to drive better engagement, and one great way to increase customer engagement is through customer loyalty programs. Loyalty programs are all about making your customers feel appreciated by rewarding positive behavior. On the business end of it, loyalty means staying engaged with your brand, building stronger customer relationships, and investing in customer retention to ensure that you're maximizing revenue and Customer Lifetime Value (CLV). 

With that being said, let's explore how a good and well-designed loyalty program can boost customer engagement.

Customer engagement is the psychological process of customer involvement generated through interactions with a brand. It describes how customers are to a particular business and their willingness to spend more money, remain loyal, and promote products or a brand. Customer engagement also includes customer behaviors that go beyond the purchase with non-transactional behaviors such as referrals, WOM, and social media discussions. In other words, marketing campaigns create awareness for a brand and its products/services, which triggers purchases from potential clients. Customers can have either a good or bad experience during the purchase process, resulting in some degree of satisfaction and feelings about the brand. A positive customer experience will more likely make them want to return and purchase again, and if the attitude is positive, they should exhibit non-transactional behaviors.

Customer engagement is the antecedent to customer retention and customer loyalty. The term engagement can be used to define customer behaviors, but also the customer's thoughts and emotions. Engagement implies a more relatable level of connection and, as a result, plays an important part in determining consumer outcomes such as loyalty-related effects. Indeed, customer engagement is a better indicator of loyalty-related effects -beyond purchase-, because it is more adept at capturing the depth of consumer interactions formed with what they consume, rather than just quality or satisfaction alone. 

In an eCommerce business, customer engagement is a combination of multiple elements such as activity on the customer's part, customer attitude towards the brand, and customer experience.

Customer loyalty comes as a result of customer engagement.

Customer engagement is a construct combining cognitive, emotional, and behavioral components. Although, the attitudinal antecedents are better signals to predict engagement and understand the reasons why the behavior occurs. Customers' engagement components are distributed through pre-purchase (branding), purchase (conversion), and post-purchase experiences.  As a result, emotionally engaged customers are more likely to have a more favorable opinion of a product or brand, which boosts the psychological process and raises the likelihood of a positive response. Moreover, engaged customers have a stronger preference for premium goods and a reduced price sensitivity, demonstrating to be more profitable than non-engaged customers.

Engagement rates and levels may indeed differ between industries and even between consumers, such as low switching cost and fast-moving consumer goods businesses that experience more difficulty establishing meaningful interactions with their customers. These interactions could manifest as purchases, referrals, online communities, customers’ feedback on social media, and ideas about how the brand could improve. However, a well-designed customer loyalty program could help you segment and reward different levels of engagement at different stages, depending on your industry. 

How can increased customer engagement impact customer loyalty?

As mentioned before, one consequence of high engagement levels is customer loyalty. There's a direct correlation between higher levels of engagement and attitudinal loyalty. Attitudinal loyalty is a better indicator to predict future behavior, and in return, attitudinal loyalty directly impacts behavioral loyalty (conversion).

Attitudinal loyalty is an indication of a consumer's psychological predisposition towards a brand. As a result, this positive attitude encourages customers to repeat their purchases and influences future behaviors, known as behavioral loyalty. A variety of researchers demonstrated a link between customer satisfaction, engagement, and loyalty intentions. In a nutshell, one must look at engagement to create loyalty. The latter stems from some feeling of satisfaction and positive emotions generated through customer experiences and interactions with the brand. This process produces loyalty-related outcomes such as repeat purchase, WOM, and willingness to participate and co-create. 

Furthermore, some emotional connections (based on the connections created with customers) occur as a result of relevant interactions between the company and customers. As a result, the brand-customer connection will be more sustainable if these interactions are not reduced to a bare minimum and designed with the customer in mind.

Indeed, customer engagement can boost customer loyalty. But, what about eCommerce?

The value of cultivating engagement and loyalty in eCommerce

As a growing eCommerce brand, there's mounting pressure to put more emphasis on acquisition than retention, and you're not alone. Markinblog found that 44% of companies have a greater focus on acquisition vs. only 16% that focus on retention. The acquisition is indeed an important component of short-term growth. But customer loyalty and customer retention are the foundation on which long-term success is built.  

Loyal & Returning Customers Spend 67% More Than New Customers

The value of customer engagement in eCommerce is undeniable. An engaged customer is much more profitable for a business than other customers. Engagement is what drives customer loyalty and retention. As customer engagement increases, his loyalty also rises. As discussed previously, an engaged customer not only buys from you but will also share, promote and become an active value co-creator for the brand. As such, highly engaged customers should be regarded as "assets" and value co-creators, which is competitive and valuable for eCommerce brands.

As the competition keeps on rising rapidly as more and more businesses and legacy brands embrace the online world, reshaping shopping experiences for millions of consumers around the world, small and growing eCommerce brands find themselves competing with legacy companies that can afford to spend millions in marketing and R&D. Often limited in budget, online stores must continually strive for ways to not only survive, but thrive and fend off competitors. As a result, an eCommerce company that has truly comprehended the quality and value it provides to customers has an enormous advantage at building solid customer engagement.

In truth, The probability of selling something to a prospect is only about 5-20%, while the probability of selling something to an existing customer is 60-70%. In other words, engaging customers consists of robust and long-term psychological connections, allowing them to share experiences and influencing their future purchase behavior and their buying decision process. 

There are a variety of effective strategies for encouraging customer engagement, including investing in good experiences and improved quality of goods or services, (user-friendly website design, shipping/reliability, customer support, security/privacy, etc..). Customers who perceive that they have gained value will develop positive emotions which in return increases their desire to buy additional items.

Thus, it's critical to use memorable, helpful, and engaging experiences to increase the rate of interactions and engagement. For that matter, considering an online loyalty program tailored to your customers' involvement levels is an opportunity to reinforce attitudinal loyalty and reward engagement.

A loyalty program can increase customers' enthusiasm while interacting with your eCommerce, providing an engaging experience that will help you earn a repeat customer.

Maximize customer engagement with a loyalty program

In a quest to engage customers in more long-lasting relationships, brands employ a variety of retention tactics. Given the high cost of acquiring customers and trends toward analytics-driven marketing, approximately 60% of companies rank customer engagement as their top priority. Engagement is also linked to greater marketing performance, a good indicator for customer loyalty, and is almost certainly a plus for profits.  

Customer engagement can be improved with a customer loyalty program. This is done by giving your customers tangible or intangible rewards for certain desirable and profitable behavior such as purchases or referrals, designed to engage customers in long-lasting relationships. Modern loyalty programs incorporate more social aspects such as recognition, special treatment, personalized communications and newsletter and offers, personal invites to special events, personalized price coupons, etc. encouraging customers to adapt their purchase behavior to gain more value by interacting with your brand.

To understand the many aspects of customer engagement realized through loyalty programs, we've got to consider the multi-dimensional nature of customer engagement, which is made up of a variety of activities that range in level depending on the effort they demand from the customer. As a result, not all dimensions are equally likely to occur. In other words, some loyalty programs' engagement behaviors are easier and more likely to happen than others.

Customer engagement in recent loyalty programs is characterized by behaviors that go beyond the purchase. It's the combination of active customer actions toward the brand, such as point collection/redemption, but also other behaviors such as willingness to interact and read emails & notifications, share rate, and NPS. In other words, the engagement level for point redemption is "easier" to obtain compared to recommending and sharing with friends. Consequently, an online loyalty program that could help you achieve this is designed to facilitate and reward these behaviors. 

With that being said, let's dive into how you can maximize engagement with a loyalty program :

Gamified loyalty programs' to boost engagement

As humans, we are driven by an inborn desire to excel at something, and more significantly, to be recognized for our effort and dedication. In a previous article, we discussed some of the behavioral science principles that make rewards and recognition powerful tools, such as the "goal-gradient hypothesis" where when presented with an opportunity to earn a reward, customers frequently modify their purchasing behavior to gain access to these benefits.

To take it to another level, let's look at games. Games are centered around 6 main components: incentive, challenge, achievement/reward, feedback, and mastery. Moreover, games may trigger the release of dopamine, a chemical that reinforces that behavior. Games are an incredibly immersive, compelling experience that enthralls you in a fun way. That's the reason why Gamification strategies have become popular where the use of game mechanisms in marketing is a driver for more engagement and loyalty initiatives.

A gamified loyalty program creates an extra layer to customer engagement, that is driven by the desire to earn and burn rewards and badges that are only available the more you buy, recommend, and interact with a brand. It is a process of taking the "best-off" games and using them in your loyalty program where customers receive rewards for their participation in your game.

Gamification is the process of using game thinking and game mechanics to engage audiences and solve problems. Put another way, it’s about taking the best ideas from games, loyalty programs, and behavioral economics and using them in new, exciting ways

A quick example of how gamification is used to drive customer engagement can be found on Starbucks' loyalty program. The customer earns stars for every purchase, and there are different levels of rewards you can achieve. For example, from April 12th to May 11th, Starbucks will be giving 50% more stars to customers who reach Gold level, and on Mother's Day (May 13), they can earn double stars by purchasing with their registered card.

To take customer engagement to the next level, reward customers for their time and effort by rewarding actions beyond the transaction.

Reward customer engagement beyond the purchase :

Just like people, engagement levels are not created equal. Thus, some actions require more effort from the customer than others, such as sharing your program on his or her social media account, interacting with loyalty programs' news and emails, or even actively looking for information about your loyalty program. Think of these actions as hierarchical, some are more complex than others, but those who are willing to complete the more effort demanding behaviors, are more likely to continue with the less "complex" actions such as point redemption. 

For example, rewarding first-time visitors for simply sharing your loyalty programs' link on Facebook is probably not the best hierarchical approach to building long-term engagement. In fact, many consumers have found a way around this by deleting and resharing the content to collect points. The chances are, they're going to share it but delete it a few seconds later because they're not doing it for the right reasons. That isn't to say that it's of no use, but allow them a taste of your loyalty program's benefits before asking them to do more.

Rewarding customer behavior beyond purchase can go a long way for your brand. Recognizing your customers by different levels of engagement will make customers feel valued and appreciated for the extra effort. Furthermore, loyalty programs should encourage customers to engage in more demanding actions. For example, by creating incentives and rewards to encourage consumers to adapt their purchasing habits, or by producing relevant content regarding your loyalty program that would entice customers to look for and share it.

It will also give you a definitive customer profile and allow your marketing team to develop customer-specific campaigns that resonate with their needs by viewing engagement with LPs as multi-dimensional.

Customers who demonstrate loyalty to a brand and share their experiences online should be acknowledged. Reward them by incentivizing users and customers based on the value they provide for your eCommerce business such as mentions of your product or service in social media posts, reviews, comments, etc. This will motivate other potential clients to purchase and help your eCommerce business to grow.

Transform cold customer data into warm customer-brand relationship

According to a study by HBR, 41 % of executives say an understanding of customer needs and wants via customer data and feedback has been important to their organization’s customer experience strategy during the pandemic. Customer data is a powerful tool to allow personalization that drives engagement. However, for most, the experience ends as soon as a customer logs out of the website or closes his/her mobile app. Unless you have customer data that allows you to connect with the customer on their preferred channel at the right time, you're not engaging with them. For customer-driven eCommerce brands, customer data should be the foundation for personalization and serve as a valuable asset to turn customer data into customer relationships.

Customer relationship management (CRM), customer loyalty, and email marketing are usually the first tools that come to mind when customer engagement is mentioned. However, customer data can be transformed into valuable customer relationships by using other marketing channels like Social media and online forums.

Customers are willing to provide you with information about themselves when asked to do so in a customer-centric way and when the benefit to them is clear. By rewarding sign-ups for example, you'll have the ability to market to them later in a meaningful way, rather than letting a potential customer go without leaving a trace.

Reach out to your clients and provide them with relevant content 

According to Segment, 49 % of shoppers made impulse buys after receiving a personalized recommendation. Many loyalty programs fail because they adopt a One-size fits all approach or they're not being marketed the right way to the right customers. Connecting with your customers through a well-defined customer profile will allow you to customize your engagement strategy by using the information on customer behavior and preferences.  Loyalty programs should encourage customers to adapt their purchasing habits by providing customer-specific offers or relevant content. Using the power of data, creating audiences, segments and cohorts will also help you identify customer personas and tailor offers to them so that your offerings do not fall on deaf ears.

In addition, using automation based on time or behavior is crucial for scalability. You can automate your engagement strategy by sending relevant messages at the right time to qualified customers and potential buyers that are most likely to be interested in what you have to offer, all while ensuring a quality experience for both parties.

Also, don't forget to promote your loyalty program at every touchpoint. Make sure to educate employees and incorporate the loyalty program into all touch-points from webinars and support chats to payment. Make it clear to customers why they should join your loyalty program and how this will benefit them.

Customers are more likely to sign up if you explain what benefits their membership comes with, whether that's exclusive offers or access to new products first. Make sure you clearly show the value of joining your loyalty program.

Leverage membership tiers in your loyalty program 

Membership tiers are a great way to offer differentiated levels of engagement that provide different benefits and rewards for customers. The more a customer engages with your brand, the greater access they'll have to exclusive offers as well as tailored content. Segmenting your loyalty programs based on membership tiers so each tier has its own dedicated experience and incentives for members can help you increase engagement with your brand.

For example, a customer who is part of the Silver tier may have access to special events and offers on new products while Platinum members will be given more personalized experiences like invitation-only previews or advance notice on sales. Consider creating exclusive groups for customers so they can easily join together if their interests are similar.

If you want to learn more about the benefits of tiered-loyalty programs, check out our previous article here

Give your customers meaningful rewards to entice them to come back.

Percentage off discounts, cashback, exclusive offers, early access to new products, events where they can meet the people behind your brand are all great ways to engage with customers. But don't forget that loyalty programs should be tailored for each customer depending on their buying habits and preferences.

For example, if you know a customer has bought several items from your shop every month, offering them free shipping once they've reached a certain spending threshold makes sense. If this same customer also visits your online store often, offering them first dibs on new arrivals before anyone else, can incentivize their return to the shop and increase engagement with your brand.

Offering meaningful rewards like these will ensure that you're not just rewarding customers for shopping at your store but also for engaging with your brand.

Adding membership tiers and levels to your online loyalty program can be a great opportunity to close the gap between brand loyalty and eCommerce conversion rate. In this article, we will discover how to increase engagement...

Adding membership tiers and levels to your loyalty program can be a great opportunity to close the gap between brand loyalty and eCommerce conversion rate.

How to boost engagement in your loyalty program with membership tiers

Customer loyalty programs have begun to appear in a wide range of sectors in an attempt to develop customer relationships based on rewarding return customers. The advantages for a business to retain consumers are well known, and they include the lower costs of customer acquisition, long-standing customers who are more likely to be less price-sensitive which creates opportunities for receiving higher margins, and customers who buy a lot of products and services are more inclined to respond to marketing messages and other targeted offers.

At its most basic form, loyalty programs reward customers for each dollar spent and/or frequency of purchase. Until recently, most frequent flyer programs rewarded customers based on the distance traveled and not on the revenue generated by the customer. As a result, a customer x could get a cheap ticket at a fraction of the price from an affiliated website, at the same value as a customer y who would have paid the full ticket price. This inconsistency had a significant influence on the financial performances of airlines like Delta and American Airlines that almost turned their loyalty program into a failure. But to design, build & sustain profitable customer loyalty, airlines were pushed to revisit their frequent flyer programs' structure to align their loyalty programs based on profitability rather than distance. This trend was also seen in other industries where marketers are focusing their loyalty programs on customer spending (e.g. credit card companies, grocery stores, and departmental stores, etc).

How Consumers View Loyalty Program Tiers (Graphic: Business Wire)

To take it to another level, a tiered loyalty program can be used to reward customers based on membership level or spending threshold and give more to customers who go the extra mile for your brand, AKA your high-value customers.

Membership tiers could also provide you with an opportunity for a gamification approach for your loyalty program. You could offer membership tiers to your customers, and provide them with a status that is rewarding in itself. It gives the customer great value as membership can provide them with access to exclusive offers, events, and membership benefits. Not only that but it boosts customer loyalty by rewarding customers for staying loyal over time, while also increasing customer lifetime value.

In this article, we will explore the benefits of membership tiers and what they could mean for you as an eCommerce store. We'll also talk about how they influence consumer behavior and how that affects customer engagement and revenue based on some behavioral science findings. 

What is a multi-tiered loyalty program? 

In a world where brands' focus shifted from simple transactions to building long-term relationships with their customers, loyalty programs came to play an important role to reward and reinforce longer-lasting customer engagement. Tiered membership loyalty programs for eCommerce stores are no different from the loyalty program membership models of offline businesses.

A membership tier is a hierarchy of customers with different membership privileges. It can also be defined as membership levels or membership ranks. Tiered loyalty programs offer the opportunity to reward key customers while providing a streamlined user experience for more casual customers. It is a membership program where members gain access to exclusive loyalty rewards and items if they reach a higher membership level.

In addition, a multi-tiered loyalty program recognizes that customers have different needs, purchase behaviors and provides different levels of engagement with the brand.

In a multi-tiered loyalty program, customers at higher levels get more benefits and rewards. For example, an airline may offer the basic membership tier of "Silver", which would include all the benefits of membership including discounts on flights. The "Gold" membership tier would include these benefits plus more perks like priority boarding and free checked baggage. On the other hand, a "Platinum" membership tier may include all benefits, with complementary upgrades to first-class on select international flights.

Truly loyal customers are customers who feel so strongly that you can best meet his or her relevant needs, that your brands' competition is virtually excluded from the consideration set; these customers buy almost exclusively from you 

StoweShoemaker & Robert C Lewis — Science Direct

Why do membership tiers boost customer engagement?

As mentioned before, many brands adopt membership tiers for loyalty programs to enhance customer engagement and increase revenue from top buyers. We could see membership tiered loyalty program in the airlines' industry, where frequent flyers are offered different membership privileges, but also in B2B brands such as Bayers, who introduced membership tiers from which customers in different levels receive bonus points ranging from 10 to 50% at the end of the year, with Gold and Platinum access to VIP areas at events and agricultural trade fairs. 

Tiered loyalty programs create a sense of fairness and equality, since membership levels are usually achievable through the purchase of certain items or completion of specific actions.

Multi-tier loyalty programs are designed to offer rewards that are worth more in higher tiers. The "goal-gradient hypothesis" -originally proposed by the behaviorist Clark Hull in 1932- states that when presented with an opportunity to earn a reward, customers frequently modify their purchasing behavior to gain access to these benefits, and the closer they are to receiving that prize, the stronger motivational urge becomes. For example, one research found that customers of a café (e.g., "buy ten coffees and get one free") purchase coffee more frequently the closer they get to the reward. Loyalty programs naturally follow the "operant conditioning" proposed by B.F. Skinner, or reinforcement theory, in which he states that the rewarded behavior is more likely to be repeated in the future with positive reinforcements.

Rewards are intended to elicit feelings of joy, enthusiasm, and thankfulness. Multi-tiered membership loyalty programs offer a feeling of accomplishment to customers, where top-tiered customers perceive the rewards they receive as more "valuable" and "fair" than those received by lower membership tiers since they "worked harder" to attain them. On the other hand, those in second or first level membership tiers do not view negatively the benefits received by top membership tiers, even when made aware of the benefits. Customers in lower tiers will feel more prompted to attain membership levels or ranks that they find more appealing and valuable, such as premium tiers. 

Multi-tier Loyalty Programs to Stimulate Customer Engagement — Springer Link

Tiered loyalty programs create a sense of fairness and equality since membership levels are usually achievable through the purchase of certain items or the completion of specific actions. It can even create a sense of exclusivity in membership, where members feel privileged to have access to certain membership benefits. Additionally -based on the reciprocity principle- When a brand shows positive customer treatment, especially towards high earners, it elicits an ethical debt that may lead to future positive actions on the part of customers, and return it through gratitude-driven changes in purchase behavior. We see this often, where customers are more likely to reward good service with referrals, loyalty, and repeat profitable business.

Behavioral loyalty (e.g., purchasing behavior) is crucial to businesses to create profit, while attitudinal loyalty (e.g., your customers' attitude towards your brand) helps to build an invisible exit barrier for their customers, especially with businesses where switching costs are low, such as Food and Beverage stores and retailers. 

Multi-tiered loyalty programs are an effective strategy for increasing customer engagement over time, as it offers a clear value proposition to customers in terms of the benefits they receive. It also offers brands the opportunity to segment their target audience and focus on specific membership tiers that offer a better fit with their customers' shopping habits and spending threshold.

Brands should carefully balance between the benefits obtained from membership tiers and their costs when setting a membership fee.

Membership tiers and levels for growing eCommerce brands

As stated above, one of the benefits membership tiers can offer is increased customer engagement. For eCommerce stores, It provides rewards that are more appropriate for their customers, so they can better target them with membership options. For example, membership programs like "Hassle-free returns" or free shipping for VIP members only (i.e., top membership tiers) can be a great way to incentivize customers who are more likely to return purchase items. You can also create membership levels that are more suited for specific customer segments (e.g., students, senior citizens, or pregnant women).

In addition, your membership tiers should offer the perfect balance between value proposition and price. As such, membership fees or high-value rewards should be set following the value received by customers, and membership benefits should be accessible and appealing enough not to discourage customers from joining.

When setting membership tiers for your loyalty program, you need to carefully balance membership benefits with membership fees. To do that, you can carefully study your customer's shopping habits and purchase behavior in conjunction with the value they place on membership benefits.

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