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. 

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.

You should also consider your eCommerce store size when designing membership tiers, as the cost of setting up a membership program may not be worth it for smaller stores. Membership tiers should also take into account the lifetime value of your customers and your programs' cost. The membership tiers you choose should be highly appealing to your target audience, but not prohibitively expensive. This will help ensure customer retention and membership growth over time.

Keep in mind that to encourage customers to join your program and climb up the ladder, you need to set small and achievable targets for your loyal customers, without altering or complicating the program.

Key benefits of multi-tiered loyalty programs for eCommerce stores :

Allows you to identify your best clients through segmentation 

Provides a unique experience to your top tiers

Provides more incentives to customers to buy.

Cater to your customer's unique needs and wants

Build a stronger connection with their clients 

Allow members to have a sense of accomplishment as they progress through membership levels.

In addition, membership tiers can also provide your eCommerce store with increased visibility and brand awareness, since it allows you to reach a wider audience.

For eCommerce stores, membership tiers are an effective way of increasing customer engagement and loyalty while providing customers with membership benefits that are more appropriate for their shopping habits.

As membership tiers offer a clear value proposition to customers, an eCommerce store can better target them

This increased visibility and advertising of your store can help you grow your membership base, and increase the value of your loyalty program exponentially.

How to design outstanding membership tiers and levels? 

Membership tiers and levels are not just about having something to offer your customers; it's also about providing the right customer experience to the right segment. Exclusive membership privileges show that you care about the customer: membership is a way of saying "you matter", which will make customers want to come back again and again and drive more revenue. If done right, membership can help you gain new customers by building trust with potential clients who might otherwise have been too nervous to buy from you in the past.

Here are some key recommendations to  keep in mind for membership tiers and levels design :

An overused statement in marketing is that a retained customer costs less than acquiring a new customer, which stems from the principle that through repeated interactions, brands get to know their customers better. As a result,  membership tiers and membership levels can be specifically designed to match the needs of your most loyal customers. This benefits both business sides by increasing revenues, but also customers as they will receive better treatment.

So before you start designing membership tiers, it is most important to understand your customer base. This is the foundation of membership tiers and levels design because it will allow you to choose membership levels that are right for your customers.

You can use user analytics (e.g. tracking customer data such as lifetime value, retention rate, and revenue generated, etc) to see which membership tier might work best with certain types of customers. Another way is through feedback and customer surveys. This is a great way to get in touch with your customer base and see what they think about membership levels, whether or not the membership levels you currently have -if any- meet their expectations, and what membership levels they would like to see. With the help of your Database and transaction data, these types of surveys allow you to capture your customer’s attitude and purchase behavior towards your brand so that it could help you determine your rewards' objectives.

Furthermore, to be successful and selective in developing attitudinal loyalty -which impacts purchase behavior- businesses must have a thorough understanding of their customers. Customer profile information, which includes psychographic and demographic data, is essential in predicting future customer profitability. Another approach is to figure out the future customer profitability is by applying the metric of customer lifetime value (CLV). For example, If a loyal client has a CLV of $ 100 and is at risk to churn, you may consider giving him a maximum incentive of $ 100 worth to retain him.

Clearly define your tier structure objectives 

The membership tiers and levels you choose should help you achieve your business goals. They need to be linked to specific marketing and business objectives, so they need to be measurable. The membership tiers should be clearly defined to match the objectives of your loyalty program and business type and goals as well as your customers' spending behaviors so that you know which membership tier will work best.

The membership tiers should also be designed to bring in more revenue, while at the same time not causing any harm or reducing revenues for lower membership tiers. When membership levels are not designed to be profitable for businesses, it is easy to become confused about the number of membership levels that should have, which membership level should come first, and what membership levels should be created.

For example, in a structure where you could choose to have 2 membership tiers reward strategy :

1 — The first tier, which we'll call silver, would be designed for the objective of offering a standard and explicit baseline to reward customers for their past and current purchase, regardless of their shopping patterns (e.g., high-margin, low margin products, etc..). This ensures accessibility to a wide range of customers, as well as new ones, serving as a way for instant gratification, and scaling your loyalty program by rewarding spending. Another objective is to capture customer data and purchase behavior in your store so that you can move to your second tier. For example, in an eCommerce store where most customers are first-time purchasers, a membership level that is designed to be rewarding on the first purchase might exist as the first tier.

2 — The second, which we'll call bronze, would have an objective of influencing current and future purchase behavior, given the past data of the customer. As such, this tier will reward fewer selected customers than tier 1. Here, you can have more control over who gets and what types of rewards and incentives are given to your customers (Medium CLV). Moreover, you'll have more control over how much these rewards should be worth.

3 — The third we'll call gold, would take the Bronze tier to another level, with a higher degree of control -centered around profitability- and higher-value and differentiated rewards, to cultivate a positive attitudinal loyalty and offer rewards that feel "fair" to your most profitable and loyal customers (High CLV). Armed with customer knowledge, the rewards would be tailored to these customers' needs, and provide exceptional value. This tier could help customers feel special and cared for, and reinforce the reciprocity norm mentioned earlier.

Membership tiers and levels must be designed with a clear objective in mind, both for the short term and long-term. To do so, you must first be able to define membership tier goals in line with your company's profitability.

Another approach is to figure out the future customer profitability is by applying the metric of customer lifetime value (CLV).

How many membership tiers should you have?

It depends on the type of membership program you are trying to design. For example, if your goal is to increase loyalty and retention rates among new customers, you might want to create an entry-level membership tier that encourages customers to make their first purchase as soon as possible. In this case, you may consider giving them instant gratification (Free sample with their first buy, a small complimentary product, xx amount of additional points in happy hour sales, etc..) to encourage future purchases, thus developing customer retention & loyalty.

On the other hand, when your membership program is defined by its ability to increase CLV through tiered membership levels, you may consider having three or more membership tiers -for example- by creating membership levels that are differentiated in terms of the value they offer to your customers (e.g., membership tier for repeat and high-margin purchasers, a membership tier for occasional purchasers and so on.)

Keep it simple (to create a clear value proposition)

Aiming to motivate customer behavior and increase their membership levels is a good idea if you want to make your loyalty program more engaging. However, it can be overwhelming for customers if they are receiving too many memberships offers at once. Your membership program must be simple, easy to understand, transparent -and at the same time- meet both short and long-term membership program objectives. Otherwise, you might end up with a tiered loyalty program that does not work for your eCommerce store or brand.

Be generous with your membership tiers and levels design

It might seem counterintuitive to offer membership levels with plenty of privileges and benefits, but if your goal is to build loyalty among customers who will spend money with you again and again, then membership levels are an opportunity to give them something in return.

Be fairly generous when designing membership tiers because it is a way to communicate that you are willing to give your best customers more in return for their loyalty through value rewards that make sense to them. Whether it's a free product, early access to sales, or discounts on future purchases; the goal is to give customers an incentive to keep coming back

To make membership levels truly enticing, they should set you apart from your competitors. So it's important to do your research on membership levels offered by competing brands. How are they different? What membership benefits are unique to them that you can offer as well? Customers want membership tiers that make them feel unique with benefits that aren't overlooked, and membership levels should be created with this in mind.

With that being said, the costs of running your loyalty program should not outweigh the program's benefits. If you don't connect your loyalty program to customer profitability, you'll lose money over time (e.g., CLV, Attitudinal and behavioral loyalty & profitability).

Customers are different, membership tiers should be too

This is the most common mistake that eCommerce stores make when designing membership tiers and levels. They aim to establish a standard membership level that can be utilized by all client types, but this is counterproductive to the notion of tiered loyalty.

The membership tiers should be designed in a way that matches the level of brand engagement between your customers and your business, which means you should look at loyalty programs as a tool to identify your most loyal & profitable customers (low, medium, and high CLV). For example, if you sell premium goods online, it might not make sense to send simple discounts to your customers who are already buying premium products and are not price sensitive. Instead, these customers might want to be a part of a quarterly private VIP sale with limited edition items or be the first ones to know about new products or brand launches.

Using membership tiers to identify your customers is the best way to ensure that loyalty programs are working for you, and membership levels are designed in a way that benefits your customers the most.  For example, customers shopping from an online grocery store may receive basic incentives in the form of discounts on particular goods and cashback for their everyday purchases. However, if the brand characterizes the client as a very loyal consumer with a high customer lifetime value, it may give out a premium reward such as early access to holiday sales, and exclusive membership rewards such as free express shipping or early access to limited items. 

Be creative, membership tiers can help differentiate your store from competitors

As membership levels are meant to reward your most loyal customers, they can be designed to include membership benefits that eCommerce stores find fun and interesting. If you are a brand that likes to engage with your customers and share the spirit of creativity, membership tiers could be a good way to show off this nature. For example, if you own an online store that sells art supplies, membership levels could be designed around famous artists and their work.

At the same time, membership tiers can help you go above and beyond what your competitors are offering. If you have membership tiers, they might be one of the most enticing loyalty programs in the industry. Your membership levels should be unique and tailored for your business

What membership benefits are available to the most loyal customers in your industry? How are membership levels different from your competitors? Do you have membership benefits that other brands don't offer? These are all questions eCommerce stores should ask when designing membership tiers and levels.

A membership program should be designed with the customers in mind, so it's important to understand what your customers want from membership benefits. This way, you'll ensure that your loyalty program will help drive more revenue for your business and improve customer satisfaction by rewarding them for their loyalty.

Ideally, you should aim for differentiated membership tiers from your competitors, offering benefits that customers find delightful and interesting.

Be flexible, membership tiers are an evolving process 

By principle, membership tiers offer a great deal of flexibility to any loyalty program. They can help brands achieve and influence customer purchase behavior and attitude towards a business, and give your online store the ability to proactively respond and invest in your best customers based on their "future" potential -as opposed to just past transactions-. 

As a result, membership levels or tiers need to be flexible if brands want membership tiers to grow with their eCommerce store. So, whenever you introduce a new loyalty program membership tier, membership level, or program -or increase membership benefits for existing tiers-, you have to carefully monitor how membership levels affect your eCommerce store revenue and membership conversion.

You can't be afraid to review and change membership tiers as you continue to grow and evolve your membership program. However, don't make changes too often as it can be confusing and frustrating for your membership base.

— Membership levels should be reviewed regularly to ensure they are beneficial for both eCommerce stores and customers

— Membership benefits have to be relevant to your eCommerce store and customer needs

— Membership tiers should be designed in a way that matches the level of brand engagement between you & customers.

Your research & data will determine the rewards you can offer in membership tiers

To design membership benefits that add value for eCommerce stores and customers, it's important to do some research and data analysis. If your membership tiers and levels are not optimized, this could affect the growth of your loyalty program and revenue from your customer profitability -as membership levels should be reviewed regularly to ensure they are beneficial for both eCommerce stores and customers- Any loyalty program that focuses mainly on consumer goals’ would have scalability issues due to serious erosion of the bottom-line over time due to the increased reward redemption, and vice-versa.

As mentioned before, your collected customer data and KPI analysis enable you to have a deeper understanding of your customers and will help you determine these rewards based on balanced customer/brands' goals. As a result, you may be able to meet your clients' latent aspirational desires that would otherwise go unfulfilled through standard cash-back or price discounts. As a result, your brand's attitudinal loyalty may be amplified to new levels. The customer will see shopping in your store as a way to fulfill needs that would otherwise go unexplored.

As such, membership benefits that you offer in membership levels/tiers for eCommerce stores should strive to influence the behavioral and attitudinal loyalty of your customers, such as :

Rewards can that impact behavioral loyalty : 

Rewards that impact behavioral loyalty can be as simple as membership gifts with purchase, discounts or free delivery/shipping, etc. Rewards should be relevant to your eCommerce store and customer needs. For example, if you know a segment of your customers like getting discounts on everything they buy, then a baseline membership tier that offers discounts will work best for these customers.

Rewards that can impact attitudinal loyalty :

Rewards that impact attitudinal loyalty can be membership-based exclusivity; travel deals, exclusive brand dinners & experiences, VIP-only sale days, VIP customer service, etc. These membership levels/tiers create a magnetic pull for customers to want to stay loyal to your eCommerce store. This creates a strong bond between you and your customer, which will ultimately lead your brand to create its tribe of highly engaged consumers who identify with the membership level/tier that they have been placed in.

Customer loyalty is a vital construct to build and nurture customer relationships with a brand and thus increase business and customer retention. The rewards associated with your loyalty program should evoke positive emotions of joy and excitement from your customers as a way to say "hey, we see you! thank you for doing business with us, and come back again!".

However, many brands are still thinking about loyalty programs as a one-off campaign or just another promotion to increase sales and engagement. The challenge is to create profitability and sustain customer loyalty over time.  To do this, membership tiers/levels could be designed in a way that matches the level of brand engagement between you and customers, and differentiate your store from competitors. Experiential and intangible rewards are becoming more popular, linked to special treatment or special experience as opposed to just simple discounts for everyone, regardless of purchase patterns and CLV. These rewards influence the higher-level goals and attitudes of the consumers. This is the reason why, when customers receive a surprise gift from you, they are more inclined to remain loyal. But, these rewards don't come cheap, as they should be weighed against customer profitability (with higher CLV). This ensures that the value created does not exceed the cost of what is offered.

Can non-tiered loyalty programs be profitable? — OlinBusinessSchool

Can non-tiered loyalty programs be profitable? | Business Research Series

Membership tiers could be a great opportunity to close the gap between brand loyalty and eCommerce conversion rate. In other words, maintain a balance between customer goals and your stores' goals. You can create membership tiers based on your data/KPI analysis to give a clear picture of the type of rewards to include as well as the objective of each tier to your business.  

Designing a loyalty program for your online store can be very complicated without the correct mindset & strategy...

Designing a loyalty program for your online store can be very complicated without the correct mindset & strategy.

12 Tips to Design an Awesome eCommerce Loyalty Program

Loyalty design was pioneered by airline companies to give passengers discounts for buying tickets early in the form of miles. More recently, with the emerging of new technologies and social media platforms (Facebook, Instagram), loyalty programs have evolved from a traditional reward system to a vast collection of creative and personalized ways for customers to interact with the brand.

Loyalty programs are designed to define and reward customer behavior, keeping them engaged with the brand, and ultimately, buying more. Nowadays, e-commerce loyalty programs are all the rage online with big players like Amazon and Sephora using them heavily in their marketing strategies. Today, as e-commerce continues to grow even more rapidly due to the 2020 pandemic, online loyalty programs are becoming a priority for most online retailers to keep their customers engaged and shopping. 

The importance of loyalty design to a loyalty program cannot be stressed enough. According to a study by Accenture, loyalty Program members boost revenue growth every year between 12 and 18 percent and 57 percent of customers spend more on brands or providers to which they are loyal. Furthermore, a study by Mastercard found that 74% of consumers are more likely to buy from brands that demonstrated concern and provided excellent care for customers during the pandemic. Indicating that while the misfortunes of 2020 had a significant influence on shopper purchasing behaviors, consumers who liked a brand stayed loyal despite the difficulties of the pandemic. 

This means that customer retention is just as important for your online store's success as attracting new customers. Moreover, the acquisition has proven itself to be costly and time-consuming. So if you want your business to thrive & grow sustainably online, we recommend that you start looking for ways to make your loyalty design better. This applies before or after you’ve launched your online loyalty program as there’s always room for improvement. 

We're sure you've already come across some loyalty design examples during your online shopping routines or when browsing through other e-commerce stores looking for inspiration. Loyalty programs are all around us, even in places where we don't expect them to be. Supermarkets have been using them successfully since the mid-'60s with their stamp cards. Even though loyalty design started as a paper-based system, nowadays most of these programs have an online version which offers much more opportunities for personalization and interaction with the customers. 

A successful online loyalty program is not only beneficial for you but also for your customers. It starts with defining your clientele, then moves into the key components to consider when implementing your loyalty program.

If you've been struggling to come up with ideas for what features should go into your program, this post will provide five tips to help get the design process started.  

Customer loyalty programmes... why bother! : Lance Walker at TEDxTeAro

Why should you keep an eye on your loyalty design structure?

You want to make sure that your loyalty program is built in a way that helps you reach your sales goals. This means creating an experience where customers are more likely to return and purchase from your DTC store again. 

Three important reasons make strategizing your rewards program structure very valuable in the long term. These reasons come up again and again, no matter what type of loyalty program you currently have or plan to develop.

The structure is the basis of your strategy

The first reason to pay attention to the loyalty design structure is that they may be utilized as a basis for developing your marketing plan in general. It also ensures consistency throughout all areas of your marketing plan, which is so important because it helps to build brand awareness and makes everything much easier in a way that makes sense to your customers' journey map. 

It is a fact that rewards can be very effective, especially when you are looking to incentivize customers, but it only works when it's planned and implemented as part of a larger loyalty-management strategy. This includes making sure that all the elements of your loyalty program work together to achieve marketing goals. The structure is the foundation for integrating your other marketing programs, so there has to be a lot of consistency in the look and feel. 

The structure of a loyalty program should also be flexible enough to allow for rapid changes in the future, especially if you want to keep ahead of the competition. The general idea is that you want to make sure that the design of your reward program fits in with everything else about your company and how it fits with your brand. Make sure to use customer loyalty analytics solutions to help you understand better your loyalty program over time

To further illustrate this, take a look at how Starbucks designed its loyalty program. It all begins with a clear mission statement on the homepage of their website: "Here's to making moments special." This is a great example of how Starbucks has integrated its loyalty program into the overall design. This statement is printed on every receipt they give out. They also use this statement throughout their social media accounts to further install it in their customers' minds & stay consistent with the brand. 

Customer Loyalty Loop by GeneralAssembly 

The second reason is that it affects how consumers behave with your brand when they participate in a program. Members of a rewards program are more likely to spend more time on the website or purchase more items on an online store if they feel fairly rewarded for their behavior. This means that any changes in the loyalty program structure will also affect the behavior of customers participating in them. 

Loyalty design is also crucial when it comes to maintaining customers who are just beginning to participate in your programs. According to Segment, 54 percent of consumers expect to receive a personalized discount within 24 hours. If you don't offer enough value in the beginning, customers will progress quickly through the customer journey and fail to grow any deeper attachments with your brand. 

It's also important to remember that customers are different, so you need to focus on their specific needs and goals. This is why the structure of your loyalty program must allow for some sort of personalization. This could be achieved by allowing customers to select their preferences and customize experiences according to their needs. Customer segmentation can also be a useful tool to make sure that every customer gets the recognition and attention they deserve. 

By making sure that you structure your loyalty program with your customers in mind, it will be easier to keep them engaged and satisfied. In the end, it's all about creating a win-win situation where you can get an edge over your competitors. So you must have a clear plan for how the program is going to work before jumping into the design

The third reason is that it affects how much the program will cost you. The costs associated with developing a loyalty program are directly related to the number of people that will be participating in it. More customers mean more effort is required for the development process. This is why it's important to pay attention to the design structure from the beginning because you don't want your costs to get out of control.

Rewards program structures correspond directly to how your company will see a return on its investment, meaning if you lack a clear strategy, you'll likely end up with a slim profit margin or even an operating loss. Ultimately, your ROI should outweigh your costs.

It's also important to remember that costs are related not only to the cost of development but also to the cost of maintaining and supporting your program. This doesn't mean you should focus solely on cost-cutting, but it's important to remember that costs should be kept under control so you don't go over budget. 

The good news is that there are easy-to-implement solutions that can help you minimize the costs of your loyalty program. For example, a tiered system where customers spend more to get additional benefits, or a customer referral program where existing customers help promote the product and bring in new members. Another way is by sticking with a simple design for the loyalty program and focusing on what matters, which in this case is your customer's needs. This means that you should make sure to provide extra value for every purchase they make when participating in the program. The more value you provide, the fewer points they need to redeem rewards. This means that your costs will remain low even if there are a lot of customers participating in your program. 

One of the most important requirements for your company is to ensure that your loyalty program operating cost does not exceed the budget of managing it.

How to design an effective loyalty program? 

A good online loyalty program structure should have at least one commercial goal. In other words, each action of the customer needs to bring value for both parties involved in some way or another, whether monetary/quantitative or qualitative. An example would be if you give out loyalty points to your customers in return for their purchase, but you also give them the chance to be included in a draw with an opportunity to win something.

This is because this type of reward will not only make the consumer feel like they are getting more value out of purchasing from you (which can encourage future purchases), it will also increase brand awareness and create a sense of belonging. At the same time, it can also lead to higher loyalty because customers will feel like they are part of something bigger than just buying from you.

Loyal customers, don't just come back, they don't simply recommend you, they insist that their friends do business with you.

What does an effective online loyalty program structure look like?

There is no specific formula for designing a good customer relationship management strategy that works best in all contexts. However, there are some important structures that you should always keep in mind when designing your loyalty program to give your customer the best experience possible :

Think about your loyalty programs' cost structure

It is often a good idea to have the costs of the rewards vary depending on their value. This way, people will feel like they are getting the best deals on your site.

However, it can also be a good idea to create rewards that are more expensive for better value. This way, you can create a sense of prestige and exclusivity around your program instead of just something everyone can have access to.

Loyalty programs should not erode your margins, as such, you should always try to find a balance between the value of your rewards and their costs as well as how many people you want to be able to access them.

A good way to manage loyalty program costs is to be aware of the following:

- Low, medium, and high-value customers, as well as those who fall in between these different levels of profitability.

It is important to define your objectives and retention KPIs before creating a loyalty program. This will help you figure out what type of rewards or actions you want to incentivize.

It's also crucial to establish these, as well as experiment with ways of quantifying them so that you can distinguish whether your program is effective or not. For instance, if you want to encourage more frequent buyers on your site, you should measure how many customers purchased within a certain period after they signed up for your program. This way, you can monitor whether or not the program is effective at increasing this metric.

In addition, you have to measure the ROI of your loyalty program to determine whether or not it is worth it for your business. If you can't measure the effectiveness of a program, then there's no point in having one, to begin with

Great, clever, and creative names are essential for loyalty programs because they can have a huge impact on their success. In other words, the name should be catchy and easy to remember to make it spread across the web and social media.

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

How to boost engagement in your loyalty program with membership tiers

12 tips to design a loyalty program for eCommerce that your customers will love

50 statistics about customer loyalty programs for eCommerce in 2022

Why your Loyalty Program is failing and how to fix it?

Insights